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The most commonly used irrevocable letter of credit may not be revoked or amended without the agreement of the issuing bank the confirming bank and the seller (beneficiary).Īn irrevocable letter of credit from the issuing bank insures the seller that if the required documents are presented and the terms and conditions are complied with, payment will be made. It is generally used to provide guidelines for shipment. The revocable letter of credit is not commonly used. Once the documents have been presented and meet the terms and conditions in the letter of credit, and the draft is honored, the letter of credit cannot be revoked. If a correspondent bank is engaged in a transaction that involves a revocable letter of credit, it serves only as of the advising bank. A revocable letter of credit cannot be confirmed. Whether revocable or irrevocable, it will state on the face of the document what type of credit is being presented.Ī revocable letter of credit may be revoked or modified for any reason, at any time by the issuing bank without notification. Letters of credit may be either revocable or irrevocable. Under these conditions, the promise does not pass to a purchaser of the draft as a holder in due course. If a letter of credit is a straight negotiation it is referenced on its face by “we engage with you” or “available with ourselves”. The transaction is considered a straight negotiation if the issuing bank’s payment obligation extends only to the beneficiary of the credit. A holder in due course is treated favorably under the Uniform The nominated bank becomes a holder in due course.Īs a holder in due course, the holder takes the letter of credit for value in good faith and without notice of any claims against it. To be negotiable, the letter of credit must include an unconditional promise to pay on demand or at a definite time. Negotiable instruments are passed freely from one party to another almost in the same way as money. The issuing bank is obligated to pay not only the beneficiary but also any bank nominated by the beneficiary. Letters of credit are usually negotiable.