LC & Guarantee Issuance: Under or Out of Control?

Questions and debate continue to linger as regards at what point an independent undertaking is deemed to be issued. Is such instrument considered issued once it leaves the issuer’s control even if it has not been advised to the beneficiary?

As a matter of letter of credit practice, issuance of an LC is linked to it being booked. US UCC Article 5 (Letters of Credit) reflects that simple basis for determining LC issuance as opposed to receipt by the beneficiary, which is impossible for the issuer to determine with any precision. UCC Section 5-106(a) states: “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 similar rule is contained in Article 7(1) of the UN Convention on Independent Guarantees and Standby Letters of Credit: “Issuance of an undertaking occurs when and where the undertaking leaves the sphere of control of the guarantor/issuer concerned.”