Letters of Credit - The Necessity of the Strict Application of the Independence Principle to Letters of Credit - Brown v. United States Nat'L Bank
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Authors
Nielsen, Bradley J.
Issue Date
1987
Volume
20
Issue
Type
Journal Article
Language
Keywords
Alternative Title
Abstract
INTRODUCTION|The letter of credit is an extremely versatile commercial instrument that is capable of use in a myriad of situations. The important uses of the letter of credit have been tested at an increasing rate. The Nebraska Supreme Court had the opportunity to address the letter of credit and its functions in Brown v. United States National Bank.|The letter of credit is a commercial specialty instrument that assures payment to the beneficiary by substituting the acceptable credit ranking of the bank for the unknown credit ranking of the debtor. The letter of credit performs many important functions in today's economic world, such as assuring prompt payment, enabling the beneficiary to shift the risk of a potential dispute, and substituting the bank's established credit for the unknown credit ranking of the debtor. Thus, it is important to the vitality of the letter of credit that it remain independent of any other related transactions that might jeopardize the letter's enforceability. Even though the independence of the letter of credit is essential to its existence, many courts are inclined to incorporate a broad fraud exception which virtually destroys the functions of the letter of credit. The Brown court discussed the Nebraska position on the independence principle s as well as subsection 5-114(2) of the Uniform Commercial Code ("1UCC"1)...
Description
Citation
20 Creighton L. Rev. 597 (1986-1987)
Publisher
Creighton University School of Law