UCC Letters of Credit Law and Legal Definition

A letter of credit is document issued by a bank guaranteeing to provide a customer a line of credit (automatic loan up to a certain amount) for money or security for a loan. Article 5 of the Uniform Commercial Code, dealing with letters of credit, has been adopted in some form by almost all states. Article 5 is designed to provide a basic statutory framework for this financing device by setting forth broad definitional guidelines within which the law governing letters of credit may be expected to develop. A bank issuing a letter of credit is obligated to issue the credit according to its terms. Unless otherwise agreed, the customer assumes all risks of error in the transmission and translation or interpretation of any message relating to a credit.