BUSINESS & COMMERCE CODE
CHAPTER 5. LETTERS OF CREDIT
§ 5.101. SHORT TITLE. This chapter may be cited as
Uniform Commercial Code--Letters of Credit.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.102. DEFINITIONS. (a) in this chapter:
(1) "Adviser" means a person who, at the request of the
issuer, a confirmer, or another adviser, notifies or requests
another adviser to notify the beneficiary that a letter of credit
has been issued, confirmed, or amended.
(2) "Applicant" means a person at whose request or for
whose account a letter of credit is issued. The term includes a
person who requests an issuer to issue a letter of credit on behalf
of another if the person making the request undertakes an
obligation to reimburse the issuer.
(3) "Beneficiary" means a person who under the terms
of a letter of credit is entitled to have its complying presentation
honored. The term includes a person to whom drawing rights have
been transferred under a transferable letter of credit.
(4) "Confirmer" means a nominated person who
undertakes, at the request or with the consent of the issuer, to
honor a presentation under a letter of credit issued by another.
(5) "Dishonor" of a letter of credit means failure
timely to honor or to take an interim action, such as acceptance of
a draft, that may be required by the letter of credit.
(6) "Document" means a draft or other demand, document
of title, investment security, certificate, invoice, or other
record, statement, or representation of fact, law, right, or
opinion (i) that is presented in a written or other medium permitted
by the letter of credit or, unless prohibited by the letter of
credit, by the standard practice referred to in Section 5.108(e);
and (ii) that is capable of being examined for compliance with the
terms and conditions of the letter of credit. A document may not be
oral.
(7) "Good faith" means honesty in fact in the conduct
or transaction concerned.
(8) "Honor" of a letter of credit means performance of
the issuer's undertaking in the letter of credit to pay or deliver
an item of value. Unless the letter of credit otherwise provides,
"honor" occurs:
(A) upon payment;
(B) if the letter of credit provides for
acceptance, upon acceptance of a draft and, at maturity, its
payment; or
(C) if the letter of credit provides for
incurring a deferred obligation, upon incurring the obligation and,
at maturity, its performance.
(9) "Issuer" means a bank or other person that issues a
letter of credit, but does not include an individual who makes an
engagement for personal, family, or household purposes.
(10) "Letter of credit" means a definite undertaking
that satisfies the requirements of Section 5.104 by an issuer to a
beneficiary at the request or for the account of an applicant or, in
the case of a financial institution, to itself or for its own
account, to honor a documentary presentation by payment or delivery
of an item of value.
(11) "Nominated person" means a person whom the
issuer:
(A) designates or authorizes to pay, accept,
negotiate, or otherwise give value under a letter of credit; and
(B) undertakes by agreement or custom and
practice to reimburse.
(12) "Presentation" means delivery of a document to an
issuer or nominated person for honor or giving of value under a
letter of credit.
(13) "Presenter" means a person making a presentation
as or on behalf of a beneficiary or nominated person.
(14) "Record" means information that is inscribed on a
tangible medium or that is stored in an electronic or other medium
and is retrievable in perceivable form.
(15) "Successor of a beneficiary" means a person who
succeeds to substantially all of the rights of a beneficiary by
operation of law, including a corporation with or into which the
beneficiary has been merged or consolidated, an administrator, an
executor, a personal representative, a trustee in bankruptcy, a
debtor in possession, a liquidator, and a receiver.
(b) Definitions in other chapters of this code applying to
this chapter and the sections in which they appear are:
"Accept" or "Acceptance". Section 3.409.
"Value". Sections 3.303 and 4.211.
(c) Chapter 1 contains certain additional general
definitions and principles of construction and interpretation
applicable throughout this chapter.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.103. SCOPE. (a) This chapter applies to letters of
credit and to certain rights and obligations arising out of
transactions involving letters of credit.
(b) The statement of a rule in this chapter does not by
itself require, imply, or negate application of the same or a
different rule to a situation not provided for, or to a person not
specified, in this chapter.
(c) With the exception of this subsection, Subsections (a)
and (d), Sections 5.102(a)(9) and (10), Section 5.106(d), Section
5.110(c), and Section 5.114(d) and except to the extent prohibited
in Sections 1.302 and 5.117(d), the effect of this chapter may be
varied by agreement or by a provision stated or incorporated by
reference in an undertaking. A term in an agreement or undertaking
generally excusing liability or generally limiting remedies for
failure to perform obligations is not sufficient to vary
obligations prescribed by this chapter.
(d) Rights and obligations of an issuer to a beneficiary or
a nominated person under a letter of credit are independent of the
existence, performance, or nonperformance of a contract or
arrangement out of which the letter of credit arises or which
underlies it, including contracts or arrangements between the
issuer and the applicant and between the applicant and the
beneficiary.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999;
Acts 2003, 78th Leg., ch. 542, § 17, eff. Sept. 1, 2003.
§ 5.104. FORMAL REQUIREMENTS. A letter of credit,
confirmation, advice, transfer, amendment, or cancellation may be
issued in any form that is a record and is authenticated:
(1) by a signature; or
(2) in accordance with the agreement of the parties or
the standard practice referred to in Section 5.108(e).
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.105. CONSIDERATION. Consideration is not required
to issue, amend, transfer, or cancel a letter of credit, advice, or
confirmation.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.106. ISSUANCE, AMENDMENT, CANCELLATION, AND
DURATION. (a) A letter of credit is issued and becomes
enforceable according to its terms against the issuer when the
issuer sends or otherwise transmits it to the person requested to
advise or to the beneficiary. A letter of credit is revocable only
if it so provides.
(b) After a letter of credit is issued, rights and
obligations of a beneficiary, applicant, confirmer, and issuer are
not affected by an amendment or cancellation to which that person
has not consented except to the extent the letter of credit provides
that it is revocable or that the issuer may amend or cancel the
letter of credit without that consent.
(c) If there is no stated expiration date or other provision
that determines its duration, a letter of credit expires one year
after its stated date of issuance or, if no date is stated, after
the date on which it is issued.
(d) A letter of credit that states that it is perpetual
expires five years after its stated date of issuance or, if no date
is stated, after the date on which it is issued.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.107. CONFIRMER, NOMINATED PERSON, AND
ADVISER. (a) A confirmer is directly obligated on a letter of
credit and has the rights and obligations of an issuer to the extent
of its confirmation. The confirmer also has rights against and
obligations to the issuer as if the issuer were an applicant and the
confirmer had issued the letter of credit at the request and for the
account of the issuer.
(b) A nominated person who is not a confirmer is not
obligated to honor or otherwise give value for a presentation.
(c) A person requested to advise may decline to act as an
adviser. An adviser that is not a confirmer is not obligated to
honor or give value for a presentation. An adviser undertakes to
the issuer and to the beneficiary accurately to advise the terms of
the letter of credit, confirmation, amendment, or advice received
by that person and undertakes to the beneficiary to check the
apparent authenticity of the request to advise. Even if the advice
is inaccurate, the letter of credit, confirmation, or amendment is
enforceable as issued.
(d) A person who notifies a transferee beneficiary of the
terms of a letter of credit, confirmation, amendment, or advice has
the rights and obligations of an adviser under Subsection (c). The
terms in the notice to the transferee beneficiary may differ from
the terms in any notice to the transferor beneficiary to the extent
permitted by the letter of credit, confirmation, amendment, or
advice received by the person who so notifies.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.108. ISSUER'S RIGHTS AND OBLIGATIONS. (a) Except
as otherwise provided in Section 5.109, an issuer shall honor a
presentation that, as determined by the standard practice referred
to in Subsection (e), appears on its face strictly to comply with
the terms and conditions of the letter of credit. Except as
otherwise provided in Section 5.113 and unless otherwise agreed
with the applicant, an issuer shall dishonor a presentation that
does not appear so to comply.
(b) An issuer has a reasonable time after presentation, but
not beyond the end of the seventh business day of the issuer after
the date of its receipt of documents:
(1) to honor;
(2) if the letter of credit provides for honor to be
completed more than seven business days after presentation, to
accept a draft or incur a deferred obligation; or
(3) to give notice to the presenter of discrepancies
in the presentation.
(c) Except as otherwise provided in Subsection (d), an
issuer is precluded from asserting as a basis for dishonor any
discrepancy if timely notice is not given or any discrepancy not
stated in the notice if timely notice is given.
(d) Failure to give the notice specified in Subsection (b)
or to mention fraud, forgery, or expiration in the notice does not
preclude the issuer from asserting as a basis for dishonor fraud or
forgery as described in Section 5.109(a) or expiration of the
letter of credit before presentation.
(e) An issuer shall observe standard practice of financial
institutions that regularly issue letters of credit. Determination
of the issuer's observance of the standard practice is a matter of
interpretation for the court. The court shall offer the parties a
reasonable opportunity to present evidence of the standard
practice.
(f) An issuer is not responsible for:
(1) the performance or nonperformance of the
underlying contract, arrangement, or transaction;
(2) an act or omission of others; or
(3) observance or knowledge of the usage of a
particular trade other than the standard practice referred to in
Subsection (e).
(g) If an undertaking constituting a letter of credit under
Section 5.102(a)(10) contains nondocumentary conditions, an issuer
shall disregard the nondocumentary conditions and treat them as if
they were not stated.
(h) An issuer that has dishonored a presentation shall
return the documents or hold them at the disposal of, and send
advice to that effect to, the presenter.
(i) An issuer that has honored a presentation as permitted
or required by this chapter:
(1) is entitled to be reimbursed by the applicant in
immediately available funds not later than the date of its payment
of funds;
(2) takes the documents free of claims of the
beneficiary or presenter;
(3) is precluded from asserting a right of recourse on
a draft under Sections 3.414 and 3.415;
(4) except as otherwise provided in Sections 5.110 and
5.117, is precluded from restitution of money paid or other value
given by mistake to the extent the mistake concerns discrepancies
in the documents or tender that are apparent on the face of the
presentation; and
(5) is discharged to the extent of its performance
under the letter of credit unless the issuer honored a presentation
in which a required signature of a beneficiary was forged.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.109. FRAUD AND FORGERY. (a) If a presentation is
made that appears on its face strictly to comply with the terms and
conditions of the letter of credit, but a required document is
forged or materially fraudulent, or honor of the presentation would
facilitate a material fraud by the beneficiary on the issuer or
applicant:
(1) the issuer shall honor the presentation if honor
is demanded by:
(A) a nominated person who has given value in
good faith and without notice of forgery or material fraud;
(B) a confirmer who has honored its confirmation
in good faith;
(C) a holder in due course of a draft drawn under
the letter of credit that was taken after acceptance by the issuer
or nominated person; or
(D) an assignee of the issuer's or nominated
person's deferred obligation that was taken for value and without
notice of forgery or material fraud after the obligation was
incurred by the issuer or nominated person; and
(2) the issuer, acting in good faith, may honor or
dishonor the presentation in any other case.
(b) If an applicant claims that a required document is
forged or materially fraudulent or that honor of the presentation
would facilitate a material fraud by the beneficiary on the issuer
or applicant, a court of competent jurisdiction may temporarily or
permanently enjoin the issuer from honoring a presentation or grant
similar relief against the issuer or other persons only if the court
finds that:
(1) the relief is not prohibited under the law
applicable to an accepted draft or deferred obligation incurred by
the issuer;
(2) a beneficiary, issuer, or nominated person who may
be adversely affected is adequately protected against loss that it
may suffer because the relief is granted;
(3) all of the conditions to entitle a person to the
relief under the law of this state have been met; and
(4) on the basis of the information submitted to the
court, the applicant is more likely than not to succeed under its
claim of forgery or material fraud and the person demanding honor
does not qualify for protection under Subsection (a)(1).
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.110. WARRANTIES. (a) If its presentation is
honored, the beneficiary warrants:
(1) to the issuer, any other person to whom
presentation is made, and the applicant that there is no fraud or
forgery of the kind described in Section 5.109(a); and
(2) to the applicant that the drawing does not violate
any agreement between the applicant and beneficiary or any other
agreement intended by them to be augmented by the letter of credit.
(b) The warranties in Subsection (a) are in addition to
warranties arising under Chapters 3, 4, 7, and 8 because of the
presentation or transfer of documents covered by any of those
chapters.
(c) Notwithstanding any agreement or term to the contrary,
the warranties in Subsection (a) do not arise until the issuer
honors the letter of credit.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.111. REMEDIES. (a) If an issuer wrongfully
dishonors or repudiates its obligation to pay money under a letter
of credit before presentation, the beneficiary, successor, or
nominated person presenting on its own behalf may recover from the
issuer the amount that is the subject of the dishonor or
repudiation. If the issuer's obligation under the letter of credit
is not for the payment of money, the claimant may obtain specific
performance or, at the claimant's election, recover an amount equal
to the value of performance from the issuer. In either case, the
claimant may also recover incidental but not consequential damages.
The claimant is not obligated to take action to avoid damages that
might be due from the issuer under this subsection. If, although
not obligated to do so, the claimant avoids damages, the claimant's
recovery from the issuer must be reduced by the amount of damages
avoided. The issuer has the burden of proving the amount of damages
avoided. In the case of repudiation the claimant need not present
any document.
(b) If an issuer wrongfully dishonors a draft or demand
presented under a letter of credit or honors a draft or demand in
breach of its obligation to the applicant, the applicant may
recover damages resulting from the breach, including incidental but
not consequential damages, less any amount saved as a result of the
breach.
(c) If an adviser or nominated person other than a confirmer
breaches an obligation under this chapter or an issuer breaches an
obligation not covered in Subsection (a) or (b), a person to whom
the obligation is owed may recover damages resulting from the
breach, including incidental but not consequential damages, less
any amount saved as a result of the breach. To the extent of the
confirmation, a confirmer has the liability of an issuer specified
in this subsection and Subsections (a) and (b).
(d) An issuer, nominated person, or adviser who is found
liable under Subsection (a), (b), or (c) shall pay interest on the
amount owed thereunder from the date of wrongful dishonor or other
appropriate date.
(e) Reasonable attorney's fees and other expenses of
litigation may be awarded to the prevailing party in an action in
which a remedy is sought under this chapter.
(f) Damages that would otherwise be payable by a party for
breach of an obligation under this chapter may be liquidated by
agreement or undertaking, but only in an amount or by a formula that
is reasonable in light of the harm anticipated.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.112. TRANSFER OF LETTER OF CREDIT. (a) Except as
otherwise provided in Section 5.113, unless a letter of credit
provides that it is transferable, the right of a beneficiary to draw
or otherwise demand performance under a letter of credit may not be
transferred.
(b) Even if a letter of credit provides that it is
transferable, the issuer may refuse to recognize or carry out a
transfer if:
(1) the transfer would violate applicable law; or
(2) the transferor or transferee has failed to comply
with any requirement stated in the letter of credit or any other
requirement relating to transfer imposed by the issuer which is
within the standard practice referred to in Section 5.108(e) or is
otherwise reasonable under the circumstances.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.113. TRANSFER BY OPERATION OF LAW. (a) A successor
of a beneficiary may consent to amendments, sign and present
documents, and receive payment or other items of value in the name
of the beneficiary without disclosing its status as a successor.
(b) A successor of a beneficiary may consent to amendments,
sign and present documents, and receive payment or other items of
value in its own name as the disclosed successor of the beneficiary.
Except as otherwise provided in Subsection (e), an issuer shall
recognize a disclosed successor of a beneficiary as beneficiary in
full substitution for its predecessor upon compliance with the
requirements for recognition by the issuer of a transfer of drawing
rights by operation of law under the standard practice referred to
in Section 5.108(e) or, in the absence of such a practice,
compliance with other reasonable procedures sufficient to protect
the issuer.
(c) An issuer is not obliged to determine whether a
purported successor is a successor of a beneficiary or whether the
signature of a purported successor is genuine or authorized.
(d) Honor of a purported successor's apparently complying
presentation under Subsection (a) or (b) has the consequences
specified in Section 5.108(i) even if the purported successor is
not the successor of a beneficiary. Documents signed in the name of
the beneficiary or of a disclosed successor by a person who is
neither the beneficiary nor the successor of the beneficiary are
forged documents for the purposes of Section 5.109.
(e) An issuer whose rights of reimbursement are not covered
by Subsection (d) or substantially similar law and any confirmer or
nominated person may decline to recognize a presentation under
Subsection (b).
(f) A beneficiary whose name is changed after the issuance
of a letter of credit has the same rights and obligations as a
successor of a beneficiary under this section.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.114. ASSIGNMENT OF PROCEEDS. (a) In this section,
"proceeds of a letter of credit" means the cash, check, accepted
draft, or other item of value paid or delivered upon honor or giving
of value by the issuer or any nominated person under the letter of
credit. The term does not include a beneficiary's drawing rights or
documents presented by the beneficiary.
(b) A beneficiary may assign its right to part or all of the
proceeds of a letter of credit. The beneficiary may do so before
presentation as a present assignment of its right to receive
proceeds contingent upon its compliance with the terms and
conditions of the letter of credit.
(c) An issuer or nominated person need not recognize an
assignment of proceeds of a letter of credit until it consents to
the assignment.
(d) An issuer or nominated person has no obligation to give
or withhold its consent to an assignment of proceeds of a letter of
credit, but consent may not be unreasonably withheld if the
assignee possesses and exhibits the letter of credit and
presentation of the letter of credit is a condition to honor.
(e) Rights of a transferee beneficiary or nominated person
are independent of the beneficiary's assignment of the proceeds of
a letter of credit and are superior to the assignee's right to the
proceeds.
(f) Neither the rights recognized by this section between an
assignee and an issuer, transferee beneficiary, or nominated person
nor the issuer's or nominated person's payment of proceeds to an
assignee or a third person affect the rights between the assignee
and any person other than the issuer, transferee beneficiary, or
nominated person. The mode of creating and perfecting a security
interest in or granting an assignment of a beneficiary's rights to
proceeds is governed by Chapter 9 or other law. Against persons
other than the issuer, transferee beneficiary, or nominated person,
the rights and obligations arising upon the creation of a security
interest or other assignment of a beneficiary's right to proceeds
and its perfection are governed by Chapter 9 or other law.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.115. STATUTE OF LIMITATIONS. An action to enforce a
right or obligation arising under this chapter must be commenced
within one year after the expiration date of the relevant letter of
credit or one year after the cause of action accrues, whichever
occurs later. A cause of action accrues when the breach occurs,
regardless of the aggrieved party's lack of knowledge of the
breach.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.116. CHOICE OF LAW AND FORUM. (a) The liability of
an issuer, nominated person, or adviser for action or omission is
governed by the law of the jurisdiction chosen by an agreement in
the form of a record signed or otherwise authenticated by the
affected parties in the manner provided in Section 5.104 or by a
provision in the person's letter of credit, confirmation, or other
undertaking. The jurisdiction whose law is chosen need not bear any
relation to the transaction.
(b) Unless Subsection (a) applies, the liability of an
issuer, nominated person, or adviser for action or omission is
governed by the law of the jurisdiction in which the person is
located. The person is considered to be located at the address
indicated in the person's undertaking. If more than one address is
indicated, the person is considered to be located at the address
from which the person's undertaking was issued. For the purpose of
jurisdiction, choice of law, and recognition of interbranch letters
of credit, but not enforcement of a judgment, all branches of a bank
are considered separate juridical entities, and a bank is
considered to be located at the place where its relevant branch is
considered to be located under this subsection.
(c) Except as otherwise provided in this subsection, the
liability of an issuer, nominated person, or adviser is governed by
any rules of custom or practice, such as the Uniform Customs and
Practice for Documentary Credits, to which the letter of credit,
confirmation, or other undertaking is expressly made subject. If
(i) this chapter would govern the liability of an issuer, nominated
person, or adviser under Subsection (a) or (b), (ii) the relevant
undertaking incorporates rules of custom or practice, and (iii)
there is conflict between this chapter and those rules as applied to
that undertaking, those rules govern except to the extent of any
conflict with the nonvariable provisions specified in Section
5.103(c).
(d) If there is conflict between this chapter and Chapter 3,
4, 4A, or 9, this chapter governs.
(e) The forum for settling disputes arising out of an
undertaking within this chapter may be chosen in the manner and with
the binding effect that governing law may be chosen in accordance
with Subsection (a).
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.117. SUBROGATION OF ISSUER, APPLICANT, AND NOMINATED
PERSON. (a) An issuer that honors a beneficiary's presentation
is subrogated to the rights of the beneficiary to the same extent as
if the issuer were a secondary obligor of the underlying obligation
owed to the beneficiary and of the applicant to the same extent as
if the issuer were the secondary obligor of the underlying
obligation owed to the applicant.
(b) An applicant that reimburses an issuer is subrogated to
the rights of the issuer against any beneficiary, presenter, or
nominated person to the same extent as if the applicant were the
secondary obligor of the obligations owed to the issuer and has the
rights of subrogation of the issuer to the rights of the beneficiary
stated in Subsection (a).
(c) A nominated person who pays or gives value against a
draft or demand presented under a letter of credit is subrogated to
the rights of:
(1) the issuer against the applicant to the same
extent as if the nominated person were a secondary obligor of the
obligation owed to the issuer by the applicant;
(2) the beneficiary to the same extent as if the
nominated person were a secondary obligor of the underlying
obligation owed to the beneficiary; and
(3) the applicant to the same extent as if the
nominated person were a secondary obligor of the underlying
obligation owed to the applicant.
(d) Notwithstanding any agreement or term to the contrary,
the rights of subrogation stated in Subsections (a) and (b) do not
arise until the issuer honors the letter of credit or otherwise
pays, and the rights in Subsection (c) do not arise until the
nominated person pays or otherwise gives value. Until then, the
issuer, the nominated person, and the applicant do not derive under
this section present or prospective rights forming the basis of a
claim, defense, or excuse.
Amended by Acts 1999, 76th Leg., ch. 4, § 1, eff. Sept. 1, 1999.
§ 5.118. SECURITY INTEREST OF ISSUER OR NOMINATED
PERSON. (a) An issuer or nominated person has a security interest
in a document presented under a letter of credit to the extent that
the issuer or nominated person honors or gives value for the
presentation.
(b) So long as and to the extent that an issuer or nominated
person has not been reimbursed or has not otherwise recovered the
value given with respect to a security interest in a document under
Subsection (a), the security interest continues and is subject to
Chapter 9, but:
(1) a security agreement is not necessary to make the
security interest enforceable under Section 9.203(b)(3);
(2) if the document is presented in a medium other than
a written or other tangible medium, the security interest is
perfected; and
(3) if the document is presented in a written or other
tangible medium and is not a certificated security, chattel paper,
a document of title, an instrument, or a letter of credit, the
security interest is perfected and has priority over a conflicting
security interest in the document so long as the debtor does not
have possession of the document.
Added by Acts 1999, 76th Leg., ch. 414, § 2.24, eff. July 1,
2001.
