Okla. Stat. tit. 12A § 5-111

Current through Laws 2024, c. 378.

Section 5-111 - Remedies

(a) If an issuer wrongfully dishonors or repudiates its obligation to pay money under a letter of credit before presentation, the beneficiary, successor, or nominated person presenting on its own behalf may recover from the issuer the amount that is the subject of the dishonor or repudiation. If the issuer's obligation under the letter of credit is not for the payment of money, the claimant may obtain specific performance or, at the claimant's election, recover an amount equal to the value of performance from the issuer. In either case, the claimant may also recover incidental but not consequential damages. The claimant is not obligated to take action to avoid damages that might be due from the issuer under this subsection. If, although not obligated to do so, the claimant avoids damages, the claimant's recovery from the issuer must be reduced by the amount of damages avoided. The issuer has the burden of proving the amount of damages avoided. In the case of repudiation the claimant need not present any document.

(b) If an issuer wrongfully dishonors a draft or demand presented under a letter of credit or honors a draft or demand in breach of its obligation to the applicant, the applicant may recover damages resulting from the breach, including incidental but not consequential damages, less any amount saved as a result of the breach.

(c) If an adviser or nominated person other than a confirmer breaches an obligation under this article or an issuer breaches an obligation not covered in subsection (a) or (b) of this section, a person to whom the obligation is owed may recover damages resulting from the breach, including incidental but not consequential damages, less any amount saved as a result of the breach. To the extent of the confirmation, a confirmer has the liability of an issuer specified in this subsection and subsections (a) and (b) of this section.

(d) An issuer, nominated person, or adviser who is found liable under subsection (a), (b), or (c) of this section shall pay interest on the amount owed thereunder from the date of wrongful dishonor or other appropriate date.

(e) Reasonable attorney's fees and other expenses of litigation must be awarded to the prevailing party in an action in which a remedy is sought under this article.

(f) Damages that would otherwise be payable by a party for breach of an obligation under this article may be liquidated by agreement or undertaking, but only in an amount or by a formula that is reasonable in light of the harm anticipated.

Okla. Stat. tit. 12A, § 5-111

Added by Laws 1961, p. 134, § 5-111. Amended by Laws 1996, SB 1034, c. 56, §10, eff. 1/1/1997.

Oklahoma Code Comment

Revised Section 5-111 sets forth the remedies for wrongful dishonor or improper honor of an LC. Consequential damages are now expressly precluded, but other incentives (such as attorney's fees, pre-judgment interest and specific performance) are added to encourage issuers to honor. Subsections (a), (b) and (c) set forth the basic rules for calculating damages for wrongful dishonor, improper honor or other breach of an obligation under revised Article 5.

To discourage wrongful dishonor, revised sub section 5-111(a) provides that if an issuer wrongfully dishonors or repudiates an LC, then the claimant (beneficiary) may recover the amount that is the subject of the dishonor or repudiation, together with incidental, but not consequential, damages. The exclusion of consequential damages is intended to preclude punitive damages for breach of Article 5 obligations. But see Official Comment 4. To further prevent dishonor from being a better choice than honor and reimbursement, the claimant also is relieved of any obligation to mitigate damages; however, if the claimant does avoid damages, then the claimant's recovery from the issuer is reduced by the amount of damages avoided.

If an issuer wrongfully dishonors a draft or improperly honors a draft, then revised sub section 5-111(b) provides that the applicant may recover damages resulting from the breach, including incidental damages but excluding consequential damages. It is left to the courts to decide what damages result to an applicant from a wrongful dishonor or improper honor. Former Article 5 does not specifically address the damages an applicant may recover for wrongful dishonor or improper honor.

If an adviser breaches an obligation under revised Article 5, or if an issuer breaches an obligation under revised Article 5 that is not covered by revised sub sections 5-111(a) or (b), then the measure of damages under revised sub section 5-111(c) is the same as set forth in revised sub section 5-111(b) . Revised sub section 5-111(c) further provides that a confirmer has the same liability as an issuer under revised sub sections 5-111(a), (b) and (c), to the extent of the confirmation.

When an issuer or other party is found liable under revised sub sections 5-111(a), (b) or (c), revised sub section 5-111(d) provides for pre-judgment interest to be assessed from the date of wrongful dishonor or another date determined by the court to be appropriate. Current Oklahoma law does not expressly authorize an award of pre-judgment interest on a claim for wrongful dishonor or other claim arising under an LC. Although revised sub section 5-111(d) does not specify the rate or method of calculating pre-judgment interest, the rate and method determined under 12 Okla. Stat. § 727 should govern.

Revised sub section 5-111(e) provides that the court must award attorney's fees to the prevailing party in any action seeking a remedy under revised Article 5. This is designed to make whole a beneficiary who is wrongfully deprived of funds. Former Article 5 and current Oklahoma law do not provide for an award of attorney's fees in an action for the wrongful dishonor of an LC. See Philadelphia Gear Corp. v. FDIC, 587 F.Supp. 294 (W.D. Okla.), aff'd in part, rev'd in part [on other issues; denial of attorney's fees not appealed], 751 F.2d 1131 (10th Cir.1984). Revised sub section 5-111(e) also requires the court to award "other expenses of litigation" to the prevailing party. These "other expenses" are intended to be broader than costs and to encompass expert witness fees, witness travel expenses and expenses associated with taking depositions.

Revised sub section 5-111(f) would enforce a liquidated damages clause in an agreement or undertaking relating to an LC, provided the liquidated damages are of an amount (or determined in accordance with a formula) that is reasonable in light of the harm anticipated. The "harm anticipated" must be anticipated at the time the agreement that includes the liquidated damages clause is executed. Former Article 5 is silent on the question of liquidated damages. Other contract law generally provides that a liquidated damages clause in a contract (other than a contract to purchase and sell real property) will be valid if, from the nature of the case, it would be impractical or extremely difficult to determine the actual damages. See 12 Okla. Stat. § 215(A). However, the application of the general contract statute is unclear due to the non-contractual nature of an LC and the statute's rule is less advantageous than that under revised Article 5.