Okla. Stat. tit. 12A § 5-116
Okla. Stat. tit. 12A, § 5-116
Oklahoma Code Comment
1. Choice of Law. Former Article 5 did not contain a choice of law provision, and resort had to be made to former Section 1-105 . Former sub section 1-105(1) allowed the parties to agree that the law of Oklahoma or another state or nation would govern their rights and duties so long as the transaction bore a "reasonable relation" to both Oklahoma and to the other state or nation.
Absent a choice of law agreement, courts generally have ruled that the law of the place of performance governs. In disputes involving United States issuing banks and foreign non-national beneficiaries, United States courts generally have held that the law of the jurisdiction in which the issuing bank is located and in which the letter of credit is payable governs and controls. See Trans Meridian Trading, Inc. v. Empresa Nacional De Commer. de Insumos, 829 F.2d 949 (9th Cir.1987); Roman Ceramics Corp. v. Peoples Nat'l Bank, 517 F.Supp. 526 (M.D.Pa.1981), aff'd, 714 F.2d 1207 (3d Cir.1983); Consolidated Aluminum Corp. v. Bank of Va., 544 F.Supp. 386 (D.Md.1982), aff'd, 704 F.2d 136 (4th Cir.1983). Regarding disputes among U.S. nationals, if the letter of credit provides what state's law shall govern and control, then the courts normally have enforced such provisions. See First State Bank & Trust Co. v. McIver, 681 F.Supp. 1562 (M.D.Ga.1988), aff'd, 893 F.2d 301 (11th Cir.1990); Atari, Inc. v. Harris Trust & Sav. Bank, 599 F.Supp. 592 (N.D.Ill.1984), aff'd, 785 F.2d 312 (7th Cir.1986). Some courts have taken the position that where issuance of a letter of credit is secured by collateral, the law of the state where the collateral is located governs the rights and remedies under the letter of credit. See Griffin Cos. v. First Nat'l Bank, 374 N.W.2d 768 (Minn. Ct.App.1985); In re Glade Springs, Inc., 47 B.R. 780 (Bankr. E.D.Tenn.1985).
These rules thus offered little useful guidance in LC transactions because the applicant, issuer and beneficiary all may reside in different jurisdictions, while the underlying contract supported by the LC is to be performed in yet another. In addition, in selecting a jurisdiction by agreement, the parties were limited by former Section 1-105 to jurisdictions having some "reasonable relation" to the transaction. This may be undesirable in letter of credit transactions. The LC law of a few jurisdictions, notably New York, is highly developed. The parties to an LC transaction may have good reason to adopt the law of such a jurisdiction, even though it has no connection to the transaction. Accordingly, revised sub section 5-116(a) allows the parties to select by agreement the jurisdiction whose law will apply, and that jurisdiction need not bear any relation to the transaction.
Revised Section 5-116 gives the parties unlimited freedom not only to choose the law that will govern and control, but also to choose the forum where they will litigate any disputes. Subsection (a) allows for freedom of contract between the parties as to governing law for resolving disputes. The jurisdiction chosen need not bear any relation to the transaction. Subsection (e) allows for freedom of contract between the parties as to forum selection for resolving disputes. Subsection (b) provides that for multi-branch, multi-state and multi-national banks, the jurisdiction and choice of law are treated as if all branches of a bank are considered to be separate juridical entities and a bank is considered to be located at the place where its relevant branch is located.
If the parties fail to select a jurisdiction, then the remainder of revised section 5-116 will determine the applicable law. If the parties have not designated a choice of law and jurisdiction under subsections (a) and (e), then subsection (b) declares that the liability of an issuer, nominated party or adviser is governed by the law of the jurisdiction in which the issuer, nominated party or adviser is located. A conforming amendment to Section 1-105 reflects these rules.
2. Applicable Federal Law. In Philadelphia Gear Corp. v. Federal Deposit Insurance Corp., 587 F.Supp. 294 (W.D.Okla.1984), aff'd in part, rev'd in part, 751 F.2d 1131 (10th Cir.1984), rev'd, 476 U.S. 426(1986) , the beneficiary of a letter of credit sued the FDIC in its corporate capacity and as receiver of failed Penn Square Bank for wrongful dishonor of a letter of credit. The court noted that although the suit was deemed to arise under federal law, the state Uniform Commercial Code and other state law could be used to determine the federal common law rule. The court looked to the UCC to determine the beneficiary's substantive rights and looked to non-UCC state law as a source for the federal rule to determine the beneficiary's remedies.
In Arbest Construction Co. v. First National Bank & Trust Co., 777 F.2d 581 (10th Cir.1985), the court declined to decide in a diversity suit whether Oklahoma law or federal law governed the parties' rights under a letter of credit issued pursuant to the regulations of the Federal Housing Commission. The court reasoned that federal law probably would be the same as the law of Oklahoma, because it probably would select the UCC as the source of federal law.
3. Custom and Practice. Subsection (c) expressly recognizes that the UCP, when incorporated by reference in a letter of credit, governs, except as to the nonvariable provisions specified in sub section 5-103(c) .
4. Other Code Articles. Subsection (d) recognizes that if there is a conflict between revised Article 5 and any of Articles 3, 4, 4A or 9, then Article 5 governs and controls.