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Letters of credit play a vital role in financing international transactions, and are becoming increasingly popular domestically as substitutes for more traditional secured financing. As such, they deserve substantially more scholarly attention than they receive outside of specialized treatises and banking trade publications. Moreover, as unilateral promises by issuers of the letters of credit to pay money to their beneficiaries, the fact that Article 5 of the Uniform Commercial Code and pre-UCC common law recognize the right of a beneficiary to sue for anticipatory repudiation is at odds with the prevailing rule in this country that a promisee cannot sue her promisor before payment is due for anticipatorily repudiating a unilateral promise to pay money.

After reviewing key aspects of letter of credit law and of the doctrine of anticipatory repudiation, this article explores in depth the elements a letter of credit's beneficiary must satisfy in order to establish a claim against its issuer and the options available to a beneficiary under both the 1962 and 1995 versions of Article 5. It also challenges the positions taken, as well as key issues ignored, by some courts and some prominent commentators. It concludes by discussing the apparent disconnect between the stated intent on the drafters of the 1995 version of Article 5 to "expand" the remedies available to beneficiaries against issuers and the relegation of several remedies explicitly provided by the 1962 version of Article 5 to the realm of the implicit (and perhaps the nonexistent).

Publication Citation

56 SMU L. Rev. 2235 (2003).