Okla. Stat. tit. 12A § 5-103

Current through Laws 2024, c. 9.

Section 5-103 - Scope

(a) This article applies to letters of credit and to certain rights and obligations arising out of transactions involving letters of credit.

(b) The statement of a rule in this article does not by itself require, imply, or negate application of the same or a different rule to a situation not provided for, or to a person not specified, in this article.

(c) With the exception of this subsection, subsections (a) and (d) of this section, paragraphs (9) and (10) of subsection (a) of Section 5-102 of this title, subsection (d) of Section 5-106 of this title, and subsection (d) of Section 5-114 of this title, and except to the extent prohibited in Section 15 of this act and subsection

(d) of Section 5-117 of this title, the effect of this article may be varied by agreement or by a provision stated or incorporated by reference in an undertaking. A term in an agreement or undertaking generally excusing liability or generally limiting remedies for failure to perform obligations is not sufficient to vary obligations prescribed by this article.

(d) Rights and obligations of an issuer to a beneficiary or a nominated person under a letter of credit are independent of the existence, performance, or nonperformance of a contract or arrangement out of which the letter of credit arises or which underlies it, including contracts or arrangements between the issuer and the applicant and between the applicant and the beneficiary.

Okla. Stat. tit. 12A, § 5-103

Added by Laws 1961, p. 132, § 5-103; Amended by Laws 1994, HB 2466, c. 46, §5, eff. 9/1/1994; Amended by Laws 1996, SB 1034, c. 56, § 2, eff. 1/1/1997; Amended by Laws 2005 , HB 2028, c. 139, § 36, eff. 1/1/2006.

Oklahoma Code Comment

Traditionally, parties have been free to vary most provisions of the UCC by agreement. Section 1-102(3) provides:

The effect of provisions of this Act may be varied by agreement, except as otherwise provided in [other Articles of the UCC] and except that the obligations of good faith, diligence, reasonableness and care prescribed by this Act may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable.

At first reading, this language would seem to mean that any provision not affecting the listed obligations, including the scope of the UCC and all of its definitions, is subject to change. However, Official Comment 2 to Section 1- 102 affirmatively states that sub section 1-102(3) does not authorize variation of the scope of the Code or its definitions. Revised Article 5 provides additional guidance on which provisions are amendable and which are not.

Sub section 1-102(3) prohibits the disclaimer of good faith, diligence, reasonableness and care; it does not prohibit elimination by agreement of the statutory duties under the UCC to which those general obligations apply. Furthermore, sub section 1-102(3) expressly permits the standards for measuring performance of those obligations to be set by agreement. The vagueness of this standard has led to some abuses in letter of credit practice. For example, issuers frequently require applicants to execute an LC application absolving the issuer of any liability for failure to examine documents unless the failure is "in bad faith" and constitutes "recklessness." Such a provision, if enforceable as a "standard for measuring performance," is objectionable because it (i) practically eliminates a core obligation of the issuer's--the examination of documents, and (ii) is so general that the applicant may not realize the import of the rights being surrendered.

Revised sub section 5-103(c) continues the prohibition on varying the obligations of good faith, diligence, reasonableness and care. It also prevents the use of vague, general language (i) to establish weak or non-existent standards for measuring the performance of obligations, or (ii) to limit the legal remedies available for breach. Official Comment 2 makes it clear, however, that a specific waiver of a statutory duty, such as the duty to examine documents, will be enforceable if sufficiently clear. The Official Comments caution that the parties generally should avoid modifying the definitions found in Section 5-102 , and sub section 5-103(c) specifically prohibits variation of the definitions of "issuer" and "letter of credit," as well as the scope of the Article, the independence principle and several other provisions. Because the intent of the Article 5 revisions is to clarify the rules regarding letters of credit, modifying a definition undoubtedly would cause confusion.

Revised sub section 5-103(c) also provides for the parties to modify the applicability of Article 5 to a letter of credit transaction by adopting the provisions of the Uniform Customs and Practice for Documentary Credits, currently published by the International Chamber of Commerce as I.C.C. Pub. No. 500 ("UCP 500"). It is common for commercial letters of credit to incorporate UCP 500 by reference. In poorly drafted LCs, it may not be clear whether the UCP or Article 5 controls in the event of a conflict. The Tenth Circuit, applying Oklahoma law, has declined to resolve this issue on the grounds that "the same governing principles with respect to letters of credit are found in both [the UCC and the UCP]." See Centrifugal Casting Mach. Co. v. American Bank & Trust Co., 17 U.C.C.Rep.Serv.2d (Callaghan) 1236, 966 F.2d 1348 (10th Cir.1992).

Revised sub section 5-116(c) addresses conflicts between Article 5 and any other standards incorporated by reference, including UCP 500. Unless otherwise specified, the standards incorporated by reference will control, except to the extent they would change one of Article 5's non-variable provisions.