Editor's Note

Copyright (c) 2019 SOUTH CAROLINA SENATE. South Carolina Reporters' Comments contained herein may not be reproduced in whole or in part in any form or for inclusion in any material which is offered for sale without the express written permission of the Clerk of the South Carolina Senate.

Official Comments of the Uniform Commercial Code (c) 2019 The American Law Institute and the National Conference of Commissioners on Uniform Laws - Reproduced with permission.

Introduction

ARTICLE 5 deals principally with the Commercial Letter of Credit issued by a financer of a sales transaction to the seller agreeing to accept drafts or pay the purchase price upon receipt of the documents which represent the goods. Thus the seller has the assurance of payment from the issuing financial institution in place of the promise of the individual buyer. The buyer makes an arrangement with the issuer of the letter for repayment, in return for the documents, and the seller can usually obtain payment upon shipment of the goods by having a draft backed by a letter of credit discounted with his bank.

Most international sales transactions are financed by the letter of credit device issued by the larger national banks with foreign departments. When a South Carolina bank receives a request from its customer for the issuance of a letter of credit, the usual practice is to forward the application to such a bank which actually issues a letter to the seller. Thus most of the letter of credit practice and the precedence setting case decisions have occurred in the states where such banks are located, principally New York. These case decisions plus the "Uniform Customs and Practices for Commercial Documentary Credits", issued by the International Chamber of Commerce and adopted by American banks in 1952 as a statement of practice, represent the principal source of the law governing letters of credit prior to the drafting of Article 5 of the Code.

The letter of credit seems to be used with increasing frequency in financing domestic transactions. With the codification of the law of letters of credit by Article 5 of the Code, it is expected that the increased degree of certainty and uniformity of law will accelerate this trend.

There are no South Carolina cases dealing with the commercial letter of credit. The letter of guaranty and the "traveler's letter of credit", whereby a bank promises to reimburse those who make advances to the holder, is the closest analogy found in the South Carolina decisions. The only statutory treatment of this subject is found in the NIL, SC Code Sections 8-993 and 8-994 dealing with the "virtual acceptance" which is a rough substitute for the letter of credit but which is now an almost obsolete practice whereby a bank may accept a draft by a separate instrument. (See Code section 3-410(1) which would repeal this provision by requiring an acceptance to be written on the face of a draft.) The analysis of Article 5, therefore, is necessarily limited to general statements of explanations of the rules expressed therein with occasional reference to decisions in other jurisdictions and to the "Uniform Customs and Practices for Commercial Documentary Credits".