Secured Transactions: Purpose, Requirements, & Payment

Question 1

Letter of Credit:

Definitions

Answer 1

Applicant: person on whose account LC is issued.
Beneficiary: person entitled to having LC honored
Issuer: bank or person that issues LC
Correspondent Bank: bank handling payment
Nominated Person: person/bank designated to pay, negotiate, or give value
Presentation: delivery of document to issuer/nominated to honor or give value under LC
Record: tangible, electronic, or other medium that is retrievable in perceivable form

Question 2

Letter of Credit:

Creation:

Answer 2

• Sales contract, including provision for LC
• Buyer applies to bank for credit
• Buyer’s bank forwards LC to creditor’s bank
• Correspondent bank sends LC to creditor
• Seller prepares goods for shipment & doc’s for correspondent bank
• Sends documents to buyer’s bank

Question 3

Letter of Credit:

General

Answer 3

• Any record that is documented with a signature
• Consideration not required
• Can be revocable (domestic only unless agreed)
• Expire after one year
• If “perpetual” expire after 5 years
• One year statute of limitations

Question 4

Letter of Credit:

Answer 4

• Issuer must honor upon presentment
• 7 days to honor or give notice of defect
• LC is independent of the underlying contract
• Domestic LC’s are revocable, but, unless otherwise agreed, International LC’s are not.*
• Generally, LC’s are not transferable*