Lesson 29: Beneficiary's Rights

In this lesson, we will explore the rights of the beneficiary under a letter of credit, as defined under Article 5 of the Uniform Commercial Code (UCC).

Note: For a general understanding of the UCC, see our Overview of the Uniform Commercial Code.

Understanding the Beneficiary

The beneficiary is the party in whose favor the letter of credit is issued. The primary right of the beneficiary is to receive payment upon presentation of the required documents that comply with the terms and conditions of the letter of credit.

Letter of Credit

Beneficiary: XYZ Corporation

Amount: $100,000

Issuer: ABC Bank

Expiry Date: 12/31/2023

Key Sections of Article 5

Article 5 of the UCC outlines several key provisions related to the rights of the beneficiary:

  • Section 5-108: Standard of compliance for letters of credit
  • Section 5-111: Remedies available to the beneficiary
  • Section 5-113: Transfer and assignment of the beneficiary’s rights

Standard of Compliance

Under Section 5-108, the issuer must honor a presentation that appears on its face to strictly comply with the terms and conditions of the letter of credit.

Important: Strict compliance is necessary for the beneficiary to enforce their rights under the letter of credit.
graph TD; A["Letter of Credit Issued"] --> B["Beneficiary Presents Documents"]; B --> C{"Do Documents Comply?"}; C -->|Yes| D["Issuer Honors Payment"]; C -->|No| E["Issuer Refuses Payment"];

Remedies for the Beneficiary

Section 5-111 provides the beneficiary with remedies if the issuer wrongfully dishonors a letter of credit. These remedies may include:

  • Specific performance to require the issuer to honor the letter of credit
  • Recovering damages caused by the dishonor

Transfer and Assignment

The rights of the beneficiary under a letter of credit may be transferred or assigned, subject to the terms of the letter of credit and applicable laws. Refer to Section 5-113 for more details.

sequenceDiagram participant Beneficiary participant Issuer participant Transferree Beneficiary->>Issuer: Request Transfer of Rights Issuer-->>Transferree: Confirms Transfer Transferree-->>Beneficiary: Acknowledges Receipt of Rights

For further reading on the basics of letters of credit, you can refer to Lesson 27: Basics of Letters of Credit. Additionally, for an in-depth understanding of the UCC, consider checking out this book on Amazon.

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