Okla. Stat. tit. 12A § 5-112

Current through Laws 2024, c. 453.

Section 5-112 - Transfer of Letter of Credit

(a) Except as otherwise provided in Section 5-113 of this title, 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 subsection (e) of Section 5-108 of this title or is otherwise reasonable under the circumstances.

Okla. Stat. tit. 12A, § 5-112

Added by Laws 1961, p. 135, § 5-112. Amended by Laws 1996, SB 1034, c. 56, §11, eff. 1/1/1997.

Oklahoma Code Comment

Revised sub section 5-112(a) continues the principle that unless a letter of credit provides it is transferable, the right of a beneficiary to draw or otherwise demand performance under the LC may not be transferred. This section essentially continues the practice codified in former sub section 5-116(1) , as well as the general rule contained in UCP 500. Revised sub section 5-112(a) contains an exception for those circumstances covered by revised Section 5-113 on transfers by operation of law.

Under revised sub section 5-112(b), even if a letter of credit provides that it is transferable, the issuer may refuse to recognize the transfer if (a) the transfer would violate applicable law; or (b) either the transferor or the transferee has failed to comply with (i) any requirements stated in the letter of credit, or (ii) any other requirement related to transfer imposed by the issuer which is within the standard practice of a financial institution that regularly issues letters of credit, or which otherwise is reasonable under the circumstances.

The Official Comments to revised Section 5-112 distinguish between a transfer of the right to draw and an assignment of proceeds. A transfer of the right to draw contemplates performance by the transferee, not merely payment to such party. An assignment of proceeds is covered by revised Section 5-114 .

Revised sub section 5-112(a) would not change the law in Oklahoma, except for those cases which are specifically excepted from the provisions of revised Section 5-112 by revised Section 5-113 .

The provisions of revised sub section 5-112(b) are new. Subsection (b) provides an issuer protection that arguably may not have existed under prior law (because apparently no cases have been decided on the issue in Oklahoma) when (i) a letter of credit provides for transferability, but such transferability would violate applicable law, or (ii) a transferor or transferee has failed to comply with a requirement within the standard practice of the financial institution or a standard that otherwise is reasonable under the circumstances. The remaining new statutory exception, the instance when the transferor or transferee has failed to comply with any requirements stated in the letter of credit, arguably is superfluous given the general parameters of revised Article 5 requiring strict compliance with all terms of the letter of credit prior to honor by the issuer.