In documentation for a letter of credit, certify means to make known;
confirm formally as true, accurate, or genuine; to tell positively; or to
vouch for in writing. Brown v. United States Nat. Bank of Omaha, 220 Neb.
684, 371 N.W.2d 692 (1985).
The official comment to the original section 5-101 was a remarkably
brief inaugural address. Noting that letters of credit had not been the subject
of statutory enactment and that the law concerning them had been developed
in the cases, the comment stated that article 5 was intended "within its limited
scope" to set an independent theoretical frame for the further development
of letters of credit. That statement addressed accurately conditions as they
existed when the statement was made, nearly half a century ago. Since article
5 was originally drafted, the use of letters of credit has expanded and developed,
and the case law concerning these developments is, in some respects, discordant.
Revision of article 5 therefor has required reappraisal both of the
statutory goals and of the extent to which particular statutory provisions
further or adversely affect achievement of those goals.
The statutory goal of article 5 was originally stated to be: (1) To
set a substantive theoretical frame that describes the function and legal
nature of letters of credit; and (2) to preserve procedural flexibility in
order to accommodate further development of the efficient use of letters of
credit. A letter of credit is an idiosyncratic form of undertaking that supports
performance of an obligation incurred in a separate financial, mercantile,
or other transaction or arrangement. The objectives of the original and revised
article 5 are best achieved (1) by defining the peculiar characteristics of
a letter of credit that distinguish it and the legal consequences of its use
from other forms of assurance such as secondary guarantees, performance bonds,
and insurance policies, and from ordinary contracts, fiduciary engagements,
and escrow arrangements; and (2) by preserving flexibility through variation
by agreement in order to respond to and accommodate developments in custom
and usage that are not inconsistent with the essential definitions and substantive
mandates of the statute. No statute can, however, prescribe the manner in
which such substantive rights and duties are to be enforced or imposed without
risking stultification of wholesome developments in the letter of credit mechanism.
Letter of credit law should remain responsive to commercial reality and in
particular to the customs and expectations of the international banking and
mercantile community. Courts should read the terms of this article in a manner
consistent with these customs and expectations.
The subject matter in article 5, letters of credit, may also be governed
by an international convention that is now being drafted by UNCITRAL, the
draft Convention on Independent Guarantees and Standby Letters of Credit.
The Uniform Customs and Practice (UCP) is an international body of trade practice
that is commonly adopted by international and domestic letters of credit and
as such is the "law of the transaction" by agreement of the parties. Article
5 is consistent with and was influenced by the rules in the existing version
of the UCP. In addition to the UCP and the international convention, other
bodies of law apply to letters of credit. For example, the federal bankruptcy
law applies to letters of credit with respect to applicants and beneficiaries
that are in bankruptcy; regulations of the Federal Reserve Board and the Comptroller
of the Currency lay out requirements for banks that issue letters of credit
and describe how letters of credit are to be treated for calculating asset
risk and for the purpose of loan limitations. In addition there is an array
of antiboycott and other similar laws that may affect the issuance and performance
of letters of credit. All of these laws are beyond the scope of article 5,
but in certain circumstances they will override article 5.