2023 Illinois Compiled Statutes › Chapter 810 - COMMERCIAL CODE › 810 ILCS 5/ - Uniform Commercial Code. › Article 5 - Letters Of Credit

(810 ILCS 5/Art. 5 heading)
ARTICLE 5
LETTERS OF CREDIT
(810 ILCS 5/5-101) (from Ch. 26, par. 5-101)
Sec. 5-101. 
		Short title. 
		This Article may be cited as Uniform Commercial
Code--Letters of Credit.
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-102) (from Ch. 26, par. 5-102)
Sec. 5-102. 
		Definitions.
(a) In this Article:
(1) "Adviser" means a person who, at the request of     the issuer, a confirmer, or another adviser, notifies or requests another adviser to notify the beneficiary that a letter of credit has been issued, confirmed, or amended.
(2) "Applicant" means a person at whose request or     for whose account a letter of credit is issued.  The term includes a person who requests an issuer to issue a letter of credit on behalf of another if the person making the request undertakes an obligation to reimburse the issuer.
(3) "Beneficiary" means a person who under the terms     of a letter of credit is entitled to have its complying presentation honored.  The term includes a person to whom drawing rights have been transferred under a transferable letter of credit.
(4) "Confirmer" means a nominated person who     undertakes, at the request or with the consent of the issuer, to honor a presentation under a letter of credit issued by another.
(5) "Dishonor" of a letter of credit means failure     timely to honor or to take an interim action, such as acceptance of a draft, that may be required by the letter of credit.
(6) "Document" means a draft or other demand,     document of title, investment security, certificate, invoice, or other record, statement, or representation of fact, law, right, or opinion (i) which is presented in a written or other medium permitted by the letter of credit or, unless prohibited by the letter of credit, by the standard practice referred to in Section 5-108(e) and (ii) which is capable of being examined for compliance with the terms and conditions of the letter of credit.  A document may not be oral.
(7) "Good faith" means honesty in fact in the conduct     or transaction concerned.
(8) "Honor" of a letter of credit means performance     of the issuer's undertaking in the letter of credit to pay or deliver an item of value.  Unless the letter of credit otherwise provides, "honor" occurs
(i) upon payment,
(ii) if the letter of credit provides for         acceptance, upon acceptance of a draft and, at maturity, its payment, or
(iii) if the letter of credit provides for         incurring a deferred obligation, upon incurring the obligation and, at maturity, its performance.
(9) "Issuer" means a bank or other person that issues     a letter of credit, but does not include an individual who makes an engagement for personal, family, or household purposes.
(10) "Letter of credit" means a definite undertaking     that satisfies the requirements of Section 5-104 by an issuer to a beneficiary at the request or for the account of an applicant or, in the case of a financial institution, to itself or for its own account, to honor a documentary presentation by payment or delivery of an item of value.
(11) "Nominated person" means a person whom the     issuer (i) designates or authorizes to pay, accept, negotiate, or otherwise give value under a letter of credit and (ii) undertakes by agreement or custom and practice to reimburse.
(12) "Presentation" means delivery of a document to     an issuer or nominated person for honor or giving of value under a letter of credit.
(13) "Presenter" means a person making a presentation     as or on behalf of a beneficiary or nominated person.
(14) "Record" means information that is inscribed on     a tangible medium, or that is stored in an electronic or other medium and is retrievable in perceivable form.
(15) "Successor of a beneficiary" means a person who     succeeds to substantially all of the rights of a beneficiary by operation of law, including a corporation with or into which the beneficiary has been merged or consolidated, an administrator, executor, personal representative, trustee in bankruptcy, debtor in possession, liquidator, and receiver.
(b) Definitions in other Articles applying to this Article and the
Sections in which they appear are:
"Accept" or "Acceptance" Section 3-409
"Value" Sections 3-303, 4-211
(c) Article 1 contains certain additional general definitions and
principles of construction and interpretation applicable throughout this
Article.
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-103) (from Ch. 26, par. 5-103)
Sec. 5-103. Scope.
(a) This Article applies to letters of credit and to certain rights and
obligations arising out of transactions involving letters of credit.
(b) The statement of a rule in this Article does not by itself require,
imply, or negate application of the same or a different rule to a situation not
provided for, or to a person not specified, in this Article.
(c) With the exception of this subsection, subsections (a) and (d),
Sections 5-102(a)(9) and (10), 5-106(d), and 5-114(d), and except to the
extent prohibited in Sections 1-302
 and 5-117(d), the effect of this Article
may be varied by agreement or by a provision stated or incorporated by
reference in an undertaking.  A term in an agreement or undertaking
generally excusing liability or generally limiting remedies for failure to
perform obligations is not sufficient to vary obligations prescribed by this
Article.
(d) Rights and obligations of an issuer to a beneficiary or a
nominated person under a letter of credit are independent of the existence,
performance, or nonperformance of a contract or arrangement out of which
the letter of credit arises or which underlies it, including contracts or
arrangements between the issuer and the applicant and between the
applicant and the beneficiary.
(Source: P.A. 95-895, eff. 1-1-09.)
(810 ILCS 5/5-104) (from Ch. 26, par. 5-104)
Sec. 5-104. 
		Formal requirements. 
		
A letter of credit,
confirmation, advice, transfer, amendment, or cancellation may be issued in
any form that is a record and is authenticated (i) by a signature or (ii) in
accordance with the agreement of the parties or the standard practice
referred to in Section 5-108(e).
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-105) (from Ch. 26, par. 5-105)
Sec. 5-105. 
		Consideration. 
		Consideration is not required to issue, amend,
transfer, or cancel a letter of credit, advice, or confirmation.
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-106) (from Ch. 26, par. 5-106)
Sec. 5-106. 
		Issuance, amendment, cancellation, and duration.
(a) A letter of credit is issued and becomes enforceable according
to its terms against the issuer when the issuer sends or otherwise transmits it
to the person requested to advise or to the beneficiary.  A letter of credit is
revocable only if it so provides.
(b) After a letter of credit is issued, rights and obligations of a
beneficiary, applicant, confirmer, and issuer are not affected by an
amendment or cancellation to which that person has not consented except to
the extent the letter of credit provides that it is revocable or that the
issuer may amend or cancel the letter of credit without that consent.
(c) If there is no stated expiration date or other provision that
determines its duration, a letter of credit expires one year after its stated
date of issuance or, if none is stated, after the date on which it is issued.
(d) A letter of credit that states that it is perpetual expires 5
years after its stated date of issuance, or if none is stated, after the date
on which it is issued.
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-107) (from Ch. 26, par. 5-107)
Sec. 5-107. 
		
		Confirmer, nominated person, and
adviser.
(a) A confirmer is directly obligated on a letter of credit and has
the rights and obligations of an issuer to the extent of its confirmation.  The
confirmer also has rights against and obligations to the issuer as if the
issuer were an applicant and the confirmer had issued the letter of credit at
the request and for the account of the issuer.
(b) A nominated person who is not a confirmer is not obligated to
honor or otherwise give value for a presentation.
(c) A person requested to advise may decline to act as an adviser.
An adviser that is not a confirmer is not obligated to honor or give value for
a presentation.  An adviser undertakes to the issuer and to the beneficiary
accurately to advise the terms of the letter of credit, confirmation,
amendment, or advice received by that person and undertakes to the
beneficiary to check the apparent authenticity of the request to advise.  Even
if the advice is inaccurate, the letter of credit, confirmation, or amendment
is enforceable as issued.
(d) A person who notifies a transferee beneficiary of the terms of a
letter of credit, confirmation, amendment, or advice has the rights and
obligations of an adviser under subsection (c).  The terms in the notice to
the transferee beneficiary may differ from the terms in any notice to the
transferor beneficiary to the extent permitted by the letter of credit,
confirmation, amendment, or advice received by the person who so notifies.
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-108) (from Ch. 26, par. 5-108)
Sec. 5-108. 
		Issuer's rights and obligations.
(a) Except as otherwise provided in Section 5-109, an issuer shall
honor a presentation that, as determined by the standard practice referred to
in subsection (e), appears on its face strictly to comply with the terms and
conditions of the letter of credit.  Except as otherwise provided in Section
5-113 and unless otherwise agreed with the applicant, an issuer shall
dishonor a presentation that does not appear so to comply.
(b) An issuer has a reasonable time after presentation, but not
beyond the end of the seventh business day of the issuer after the day of its
receipt of documents:
(1) to honor,
(2) if the letter of credit provides for honor to be     completed more than seven business days after presentation, to accept a draft or incur a deferred obligation, or
(3) to give notice to the presenter of discrepancies     in the presentation.
(c) Except as otherwise provided in subsection (d), an issuer is
precluded from asserting as a basis for dishonor any discrepancy if timely
notice is not given, or any discrepancy not stated in the notice if timely
notice is given.
(d) Failure to give the notice specified in subsection (b) or to
mention fraud, forgery, or expiration in the notice does not preclude the
issuer from asserting as a basis for dishonor fraud or forgery as described in
Section 5-109(a) or expiration of the letter of credit before presentation.
(e) An issuer shall observe standard practice of financial institutions
that regularly issue letters of credit.  Determination of the issuer's
observance of the standard practice is a matter of interpretation for the
court.  The court shall offer the parties a reasonable opportunity to present
evidence of the standard practice.
(f) An issuer is not responsible for:
(1) the performance or nonperformance of the     underlying contract, arrangement, or transaction,
(2) an act or omission of others, or
(3)  observance or knowledge of the usage of a     particular trade other than the standard practice referred to in subsection (e).
(g) If an undertaking constituting a letter of credit under Section
5-102(a)(10) contains nondocumentary conditions, an issuer shall disregard
the nondocumentary conditions and treat them as if they were not stated.
(h) An issuer that has dishonored a presentation shall return the
documents or hold them at the disposal of, and send advice to that effect to,
the presenter.
(i) An issuer that has honored a presentation as permitted or
required by this Article:
(1) is entitled to be reimbursed by the applicant in     immediately available funds not later than the date of its payment of funds;
(2) takes the documents free of claims of the     beneficiary or presenter;
(3) is precluded from asserting a right of recourse     on a draft under Sections 3-414 and 3-415;
(4) except as otherwise provided in Sections 5-110     and 5-117, is precluded from restitution of money paid or other value given by mistake to the extent the mistake concerns discrepancies in the documents or tender which are apparent on the face of the presentation; and
(5) is discharged to the extent of its performance     under the letter of credit unless the issuer honored a presentation in which a required signature of a beneficiary was forged.
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-109) (from Ch. 26, par. 5-109)
Sec. 5-109. 
		Fraud and forgery.
(a) If a presentation is made that appears on its face strictly to
comply with the terms and conditions of the letter of credit, but a required
document is forged or materially fraudulent, or honor of the presentation
would facilitate a material fraud by the beneficiary on the issuer or
applicant:
(1) the issuer shall honor the presentation, if honor     is demanded by (i) a nominated person who has given value in good faith and without notice of forgery or material fraud, (ii) a confirmer who has honored its confirmation in good faith, (iii) a holder in due course of a draft drawn under the letter of credit which was taken after acceptance by the issuer or nominated person, or (iv) an assignee of the issuer's or nominated person's deferred obligation that was taken for value and without notice of forgery or material fraud after the obligation was incurred by the issuer or nominated person; and
(2) the issuer, acting in good faith, may honor or     dishonor the presentation in any other case.
(b) If an applicant claims that a required document is forged or
materially fraudulent or that honor of the presentation would facilitate a
material fraud by the beneficiary on the issuer or applicant, a court of
competent jurisdiction may temporarily or permanently enjoin the issuer
from honoring a presentation or grant similar relief against the issuer or
other persons only if the court finds that:
(1) the relief is not prohibited under the law     applicable to an accepted draft or deferred obligation incurred by the issuer;
(2) a beneficiary, issuer, or nominated person who     may be adversely affected is adequately protected against loss that it may suffer because the relief is granted;
(3) all of the conditions to entitle a person to the     relief under the law of this State have been met; and
(4) on the basis of the information submitted to the     court, the applicant is more likely than not to succeed under its claim of forgery or material fraud and the person demanding honor does not qualify for protection under subsection (a)(1).
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-110) (from Ch. 26, par. 5-110)
Sec. 5-110. 
		Warranties.
(a) If its presentation is honored, the beneficiary warrants:
(1) to the issuer, any other person to whom     presentation is made, and the applicant that there is no fraud or forgery of the kind described in Section 5-109(a); and
(2) to the applicant that the drawing does not     violate any agreement between the applicant and beneficiary or any other agreement intended by them to be augmented by the letter of credit.
(b) The warranties in subsection (a) are in addition to warranties
arising under Articles 3, 4, 7, and 8 because of the presentation or transfer
of
documents covered by any of those Articles.
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-111) (from Ch. 26, par. 5-111)
Sec. 5-111. 
		Remedies.
(a) If an issuer wrongfully dishonors or repudiates its obligation to
pay money under a letter of credit before presentation, the beneficiary,
successor, or nominated person presenting on its own behalf may recover
from the issuer the amount that is the subject of the dishonor or repudiation.
If the issuer's obligation under the letter of credit is not for the payment of
money, the claimant may obtain specific performance or, at the claimant's
election, recover an amount equal to the value of performance from the
issuer.  In either case, the claimant may also recover incidental but not
consequential damages.  The claimant is not obligated to take action to
avoid damages that might be due from the issuer under this subsection.  If,
although not obligated to do so, the claimant avoids damages, the claimant's
recovery from the issuer must be reduced by the amount of damages
avoided.  The issuer has the burden of proving the amount of damages
avoided.  In the case of repudiation the claimant need not present any
document.
(b) If an issuer wrongfully dishonors a draft or demand presented
under a letter of credit or honors a draft or demand in breach of its
obligation to the applicant, the applicant may recover damages resulting
from the breach, including incidental but not consequential damages, less any
amount saved as a result of the breach.
(c) If an adviser or nominated person other than a confirmer
breaches an obligation under this Article or an issuer breaches an obligation
not covered in subsection (a) or (b), a person to whom the obligation is
owed may recover damages resulting from the breach, including incidental
but not consequential damages, less any amount saved as a result of the
breach.  To the extent of the confirmation, a confirmer has the liability of an
issuer specified in this subsection and subsections (a) and (b).
(d) An issuer, nominated person, or adviser who is found liable
under subsection (a), (b), or (c) shall pay interest on the amount owed
thereunder from the date of wrongful dishonor or other appropriate date.
(e) Reasonable attorney's fees and other expenses of litigation must
be awarded to the prevailing party in an action in which a remedy is sought
under this Article.
(f) Damages that would otherwise be payable by a party for breach
of an obligation under this Article may be liquidated by agreement or
undertaking, but only in an amount or by a formula that is reasonable in
light of the harm anticipated.
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-112) (from Ch. 26, par. 5-112)
Sec. 5-112. 
		Transfer of letter of credit.
(a) Except as otherwise provided in Section 5-113, unless a letter of
credit provides that it is transferable, the right of a beneficiary to draw or
otherwise demand performance under a letter of credit may not be
transferred.
(b) Even if a letter of credit provides that it is transferable, the
issuer may refuse to recognize or carry out a transfer if:
(1) the transfer would violate applicable law; or
(2) the transferor or transferee has failed to comply     with any requirement stated in the letter of credit or any other requirement relating to transfer imposed by the issuer which is within the standard practice referred to in Section 5-108(e) or is otherwise reasonable under the circumstances.
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-113) (from Ch. 26, par. 5-113)
Sec. 5-113. 
		Transfer by operation of law.
(a) A successor of a beneficiary may consent to amendments, sign
and present documents, and receive payment or other items of value in the
name of the beneficiary without disclosing its status as a successor.
(b) A successor of a beneficiary may consent to amendments, sign
and present documents, and receive payment or other items of value in its
own name as the disclosed successor of the beneficiary.  Except as otherwise
provided in subsection (e), an issuer shall recognize a disclosed successor of
a beneficiary as beneficiary in full substitution for its predecessor upon
compliance with the requirements for recognition by the issuer of a transfer
of drawing rights by operation of law under the standard practice referred to
in Section 5-108(e) or, in the absence of such a practice, compliance with
other reasonable procedures sufficient to protect the issuer.
(c) An issuer is not obliged to determine whether a purported
successor is a successor of a beneficiary or whether the signature of a
purported successor is genuine or authorized.
(d) Honor of a purported successor's apparently complying
presentation under subsection (a) or (b) has the consequences specified in
Section 5-108(i) even if the purported successor is not the successor of a
beneficiary.  Documents signed in the name of the beneficiary or of a
disclosed successor by a person who is neither the beneficiary nor the
successor of the beneficiary are forged documents for the purposes of
Section 5-109.
(e) An issuer whose rights of reimbursement are not covered by
subsection (d) or substantially similar law and any confirmer or nominated
person may decline to recognize a presentation under subsection (b).
(f) A beneficiary whose name is changed after the issuance of a
letter of credit has the same rights and obligations as a successor of a
beneficiary under this Section.
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-114) (from Ch. 26, par. 5-114)
Sec. 5-114. 
		
		
Assignment of proceeds.
(a) In this Section, "proceeds of a letter of credit" means the cash,
check, accepted draft, or other item of value paid or delivered upon honor
or giving of value by the issuer or any nominated person under the letter of
credit.  The term does not include a beneficiary's drawing rights or
documents presented by the beneficiary.
(b) A beneficiary may assign its right to part or all of the proceeds
of a letter of credit.  The beneficiary may do so before presentation as a
present assignment of its right to receive proceeds contingent upon its
compliance with the terms and conditions of the letter of credit.
(c) An issuer or nominated person need not recognize an
assignment of proceeds of a letter of credit until it consents to the
assignment.
(d) An issuer or nominated person has no obligation to give or
withhold its consent to an assignment of proceeds of a letter of credit, but
consent may not be unreasonably withheld if the assignee possesses and
exhibits the letter of credit and presentation of the letter of credit is a
condition to honor.
(e) Rights of a transferee beneficiary or nominated person are
independent of the beneficiary's assignment of the proceeds of a letter of
credit and are superior to the assignee's right to the proceeds.
(f) Neither the rights recognized by this Section between an assignee
and an issuer, transferee beneficiary, or nominated person nor the issuer's or
nominated person's payment of proceeds to an assignee or a third person
affect the rights between the assignee and any person other than the issuer,
transferee beneficiary, or nominated person.  The mode of creating and
perfecting a security interest in or granting an assignment of a beneficiary's
rights to proceeds is governed by Article 9 or other law.  Against persons
other than the issuer, transferee beneficiary, or nominated person, the rights
and obligations arising upon the creation of a security interest or other
assignment of a beneficiary's right to proceeds and its perfection are
governed by Article 9 or other law.
(Source: P.A. 89-364, eff. 1-1-96; 89-534, eff. 1-1-97.)
(810 ILCS 5/5-115) (from Ch. 26, par. 5-115)
Sec. 5-115. 
		Statute of limitations. 
		An action to enforce
a right or obligation arising under this Article must be commenced within one
year after the expiration date of the relevant letter of credit or one year
after the cause of action accrues, whichever
occurs later.  A cause of action accrues when
the breach occurs, regardless of the aggrieved party's lack of knowledge of the
breach.
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-116) (from Ch. 26, par. 5-116)
Sec. 5-116. 
		Choice of law and forum.
(a) The liability of an issuer, nominated person, or adviser for
action or omission is governed by the law of the jurisdiction chosen by an
agreement in the form of a record signed or otherwise authenticated by the
affected parties in the manner provided in Section 5-104 or by a provision in
the person's letter of credit, confirmation, or other undertaking.  The
jurisdiction whose law is chosen need not bear any relation to the
transaction.
(b) Unless subsection (a) applies, the liability of an issuer,
nominated person, or adviser for action or omission is governed by the law
of the jurisdiction in which the person is located.  The person is considered
to be located at the address indicated in the person's undertaking.  If more
than one address is indicated, the person is considered to be located at the
address from which the person's undertaking was issued.  For the purpose of
jurisdiction, choice of law, and recognition of interbranch letters of credit,
but not enforcement of a judgment, all branches of a bank are considered
separate juridical entities and a bank is considered to be located at the place
where its relevant branch is considered to be located under this subsection.
(c) Except as otherwise provided in this subsection, the liability of
an issuer, nominated person, or adviser is governed by any rules of custom
or practice, such as the Uniform Customs and Practice for Documentary
Credits, to which the letter of credit, confirmation, or other undertaking is
expressly made subject.  If (i) this Article would govern the liability of an
issuer, nominated person, or adviser under subsection (a) or (b), (ii) the
relevant undertaking incorporates rules of custom or practice, and (iii) there
is conflict between this Article and those rules as applied to that
undertaking, those rules govern except to the extent of any conflict with the
nonvariable provisions specified in Section 5-103(c).
(d) If there is conflict between this Article and Article 3, 4, 4A, or
9, this Article governs.
(e) The forum for settling disputes arising out of an undertaking
within this Article may be chosen in the manner and with the binding effect
that governing law may be chosen in accordance with subsection (a).
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-117) (from Ch. 26, par. 5-117)
Sec. 5-117. 
		Subrogation of issuer, applicant, and nominated person.
(a) An issuer that honors a beneficiary's presentation is subrogated
to the rights of the beneficiary to the same extent as if the issuer were a
secondary obligor of the underlying obligation owed to the beneficiary and of
the applicant to the same extent as if the issuer were the secondary obligor
of the underlying obligation owed to the applicant.
(b) An applicant that reimburses an issuer is subrogated to the
rights of the issuer against any beneficiary, presenter, or nominated person
to the same extent as if the applicant were the secondary obligor of the
obligations owed to the issuer and has the rights of subrogation of the issuer
to the rights of the beneficiary stated in subsection (a).
(c) A nominated person who pays or gives value against a draft or
demand presented under a letter of credit is subrogated to the rights of:
(1) the issuer against the applicant to the same     extent as if the nominated person were a secondary obligor of the obligation owed to the issuer by the applicant;
(2)  the beneficiary to the same extent as if the     nominated person were a secondary obligor of the underlying obligation owed to the beneficiary; and
(3) the applicant to the same extent as if the     nominated person were a secondary obligor of the underlying obligation owed to the applicant.
(d) Notwithstanding any agreement or term to the contrary, the
rights of subrogation stated in subsections (a) and (b) do not arise until the
issuer honors the letter of credit or otherwise pays and the rights in
subsection (c) do not arise until the nominated person pays or otherwise
gives value.  Until then, the issuer, nominated person, and the applicant do
not derive under this Section present or prospective rights forming the basis
of a claim, defense, or excuse.
(Source: P.A. 89-534, eff. 1-1-97.)
(810 ILCS 5/5-118)
Sec. 5-118. 
		Security interest of issuer or nominated person.
(a) An issuer or nominated person has a security interest in a
document presented under a letter of credit to the extent that the issuer or
nominated person honors or gives value for the presentation.
(b) So long as and to the extent that an issuer or nominated person
has not been reimbursed or has not otherwise recovered the value given with
respect to a security interest in a document under subsection (a), the security
interest continues and is subject to Article 9, but:
(1) a security agreement is not necessary to make the     security interest enforceable under Section 9-203(b)(3);
(2) if the document is presented in a medium other     than a written or other tangible medium, the security interest is perfected; and
(3) if the document is presented in a written or     other tangible medium and is not a certificated security, chattel paper, a document of title, an instrument, or a letter of credit, the security interest is perfected and has priority over a conflicting security interest in the document so long as the debtor does not have possession of the document.
(Source: P.A. 91-893, eff. 7-1-01.)