Open Letter of Credit Law and Legal Definition
Open letter of credit means a letter of credit that can be financed on a simple draft without requiring documentary title. The interest of a beneficiary in an open letter of credit is not attachable as a debt or property since prior to the presentation of conforming documents, a confirming bank is neither indebted to the beneficiary nor holds any of its property. Generally, courts have enjoined performance of open letters of credit only upon a showing of fraud by the beneficiary in drawing on the letter and where no holder in due course interests were involved.
In Ferrostaal Metals Corp. v. S.S. Lash Pacifico, 652 F. Supp. 420 (D.N.Y. 1987), the court observed that “Under New York law it is clear that attachment on an open letter of credit is fruitless, since a levy is absolutely void unless the debt is owed at the time of service of the order of attachment, which by definition is not the case when the letter of credit is open.”