Uniform Commercial Code Article 5
Letters of Credit, Article 5 Warranties, Fraud, and the Beneficiary's Certificate
John F. Dolan, 41(2): 347–59 (Feb. 1986)
Section 5–111(1) of the U.C.C. imposes a warranty on letter of credit beneficiaries. This Article explains the warranty, contends that it relates to latent defects in documents, and argues that it should play a significant role in reducing the number of successful fraud claims in standby letter of credit transactions.
An Examination of U.C.C. Article 5 (Letters of Credit)
Task Force on the Study of U.C.C. Article 5, 45(S): 1521–1643 (;t4June 1990)
Letters of Credit and the Powerine Preference Trap
Michael St. Patrick Baxter, 53(1): 65–99 (Nov. 1997)
A creditor secured by a standby letter of credit issued on account of a debtor cannot assume that it will be fully protected in the event of the debtor's bankruptcy. In some circumstances, payments by the debtor to such a creditor may be avoidable preferences despite the fact that the creditor would have received full payment under the letter of credit if the debtor had defaulted. This Article examines the Powerine preference trap created in certain letter-of- credit transactions. See committee of Creditors Holding Unsecured Claims v. Koch Oil Co . ( In re Powerine Oil Co .), 59 F.3d 969 (9th Cir. 1995), cert. denied , 516 U.S. 1140 (1996). The author contends that, although Powerine is consistent with preference law, it fails to respect the parties' allocation of the risk of the debtor's bankruptcy and threatens to undermine a basic function of letters of credit. The author proposes a strategy for creditors caught in the Powerine trap and suggests several ways for creditors to structure letter- of-credit transactions to avoid the preference trap.
Letters of Credit, Voidable Preferences, and the "Independence" Principle
David Gray Carlson and William H. Widen, 54(4): 1661–1736 (Aug. 1999)
When a creditor receives a letter of credit on antecedent debt just before a debtor's bankruptcy, courts have ruled that the letter of credit itself is not a transfer of "debtor" property. This is supposedly dictated by the well-known "independence" principle that governs letters of credit as a matter of state law. Instead, the creditor is held liable as the beneficiary of the issuing bank's security interest. The authors show that such reasoning is self-defeating. On Deprizio grounds, if the creditor is liable for the security interest, so is the bank (as "initial transferee"). The authors argue that only the repeal of the independence principle by the federal law of voidable preferences makes sense of standby letters of credit. The authors present a reconceptualization of the entire tripartite relation between issuing bank, account party, and beneficiary in order to assess the voidable preference risk creditors and banks face in light of the account party's bankruptcy.
Securities on Blockchain and the Uniform Commercial Code
Reade Ryan and Mayme Donohue; 73(1): 85-108 (Winter 2017/2018)
This article initially provides a high-level description of blockchain technology intended to be accessible to those without a technical background, and illustratively describes an existing blockchain system that already evidences securities issued and being traded. The article then sets forth and analyzes how Article 8 of the Uniform Commercial Code covers blockchain securities as “uncertificated securities.” Finally, the article provides guidance to corporate lawyers faced with giving a legal opinion relating to the issuance and sale of securities on a blockchain.