The Letter of Credit Subcommittee had a productive session on August 2, 2009 at the ABA Annual Meeting in Chicago.
Hal Burman of the U.S. State Department reported on the status of the proposed ratification by the U.S. Senate of the UN Convention on Independent Guarantees and Stand-by LCs. The proposed Act goes a long way in preserving UCC Article 5 as the relevant law for U. S. letters of credit which would fall within the scope of the UN Convention. The Convention covers "international undertakings" (as defined in the Convention) and such other letters of credit or guarantees which by their terms are to be governed by the Convention. But under Sections 5 and 6 of the proposed Act, the issuer can also choose the law of a particular state to govern a letter of credit, in which case the version of UCC Article 5 that is enacted in that state (with a few minimal exceptions) would be the governing law.
The Uniform Law Conference has asked the Committee which drafted the Act to revisit Section 5 to address in more detail choice of law issues. The alternate formulations do not appear to have any practical impact on which provisions of UCC Article 5 would be applied in various circumstances. The alternatives are aimed more at preserving the application of state law as opposed to a federalized version of UCC Article 5.
Hal Burman has invited comments about the proposed Act. Hal's contact info can be found here. The process is moving reasonably rapidly at this point, so comments should be submitted as soon as possible.
Carter Klein of Jenner & Block reported on the status of the Subcommittee?s project to develop forms of letters of credit which can be used in lieu of supersedeas bonds. Carter and Jim Barnes have both had recent occasion in multiple instances to negotiate letters of credit which were so used. At the meeting, they both shared some of their experiences in that regard.
The Subcommittee discussed the recent opinion in Old Republic Surety Company v. Quad City Bank & Trust Company, 2009 WL 1393569 (C.D. Ill. 2009). This case deals with an evergreen clause in which the issuer?s attempt to terminate a letter of credit at the next expiration date failed for lack of clarity in its notice. The case also holds that a faxed notice, where the letter of credit required a notice by certified mail, was sufficient in terms of delivery mechanism. The case provides several lessons as to how an evergreen clause (and notices thereunder) should be formulated.
There were handouts pertaining to all of the above topics. Copies of the handouts can be obtained from George Hisert at george.hisert@bingham.com or Tony Callobre at anthony.callobre@bingham.com. As of the end of the August 2 meeting George Hisert?s term as chair ended and Tony Callobre became the new chair of the Subcommittee. Tony's full contact information can be found by clicking here.
