405.114(1)(1) An issuer must honor a draft or demand for payment which complies with the terms of the relevant credit regardless of whether the goods or documents conform to the underlying contract for sale or other contract between the customer and the beneficiary. The issuer is not excused from honor of such a draft or demand by reason of an additional general term that all documents must be satisfactory to the issuer, but an issuer may require that specified documents must be satisfactory to it.
405.114(2)
(2) Unless otherwise agreed when documents appear on their face to comply with the terms of a credit but a required document does not in fact conform to the warranties made on negotiation or transfer of a document of title (
s. 407.507) or of a certificated security (
s. 408.108) or is forged or fraudulent or there is fraud in the transaction:
405.114(2)(a)
(a) The issuer must honor the draft or demand for payment if honor is demanded by a negotiating bank or other holder of the draft or demand which has taken the draft or demand under the credit and under circumstances which would make it a holder in due course (
s. 403.302) and in an appropriate case would make it a person to whom a document of title has been duly negotiated (
s. 407.502) or a bona fide purchaser of a certificated security (
s. 408.302); and
405.114(2)(b)
(b) In all other cases as against its customer, an issuer acting in good faith may honor the draft or demand for payment despite notification from the customer of fraud, forgery or other defect not apparent on the face of the documents but a court of appropriate jurisdiction may enjoin such honor.
405.114(3)
(3) Unless otherwise agreed an issuer which has duly honored a draft or demand for payment is entitled to immediate reimbursement of any payment made under the credit and to be put in effectively available funds not later than the day before maturity of any acceptance made under the credit.
405.114 History
History: 1985 a. 237;
1997 a. 297.
405.114 Annotation
An alleged bad faith breach of an underlying contract is not a species of fraud that would authorize a court under sub. (2) to enjoin honoring a letter of credit that is regular on its face. Werner v. A. L. Grootemaat & Sons, Inc.
80 Wis. 2d 513,
259 N.W.2d 310.
405.114 Annotation
Payment of a letter of credit was required notwithstanding any breaches of duties involving an underlying letter of credit. Federal Deposit Ins. Corp. v. Freundenfeld,
492 F. Supp. 763 (1980).
405.115
405.115
Remedy for improper dishonor or anticipatory repudiation. 405.115(1)(1) When an issuer wrongfully dishonors a draft or demand for payment presented under a credit the person entitled to honor has with respect to any documents the rights of a person in the position of a seller (
s. 402.707) and may recover from the issuer the face amount of the draft or demand together with incidental damages under
s. 402.710 on seller's incidental damages and interest but less any amount realized by resale or other use or disposition of the subject matter of the transaction. In the event no resale or other utilization is made the documents, goods or other subject matter involved in the transaction must be turned over to the issuer on payment of judgment.
405.115(2)
(2) When an issuer wrongfully cancels or otherwise repudiates a credit before presentment of a draft or demand for payment drawn under it the beneficiary has the rights of a seller after anticipatory repudiation by the buyer under
s. 402.610 if the beneficiary learns of the repudiation in time reasonably to avoid procurement of the required documents. Otherwise the beneficiary has an immediate right of action for wrongful dishonor.
405.115 History
History: 1991 a. 316.
405.116
405.116
Transfer and assignment. 405.116(1)
(1) The right to draw under a credit can be transferred or assigned only when the credit is expressly designated as transferable or assignable.
405.116(2)
(2) Even though the credit specifically states that it is nontransferable or nonassignable, the beneficiary may assign the beneficiary's right to proceeds before performance of the conditions of the credit. Such an assignment is an assignment of an account under
ch. 409 and is governed by that chapter except that:
405.116(2)(a)
(a) The assignment is ineffective until the letter of credit or advice of credit is delivered to the assignee which delivery constitutes perfection of the security interest under
ch. 409; and
405.116(2)(b)
(b) The issuer may honor drafts or demands for payment drawn under the credit until it receives a notification of the assignment signed by the beneficiary which reasonably identifies the credit involved in the assignment and contains a request to pay the assignee; and
405.116(2)(c)
(c) After what reasonably appears to be such a notification has been received the issuer may without dishonor refuse to accept or pay even to a person otherwise entitled to honor until the letter of credit or advice of credit is exhibited to the issuer.
405.116(3)
(3) Except where the beneficiary has effectively assigned the beneficiary's right to draw or to proceeds, nothing in this section limits the beneficiary's right to transfer or negotiate drafts or demands drawn under the credit.
405.116 History
History: 1973 c. 215;
1991 a. 316.
405.117
405.117
Insolvency of bank holding funds for documentary credit. 405.117(1)(1) Where an issuer or an advising or confirming bank or a bank which has for a customer procured issuance of a credit by another bank becomes insolvent before final payment under the credit and the credit is one to which this chapter is made applicable by
s. 405.102 (1) (a) or
(b) on scope, the receipt or allocation of funds or collateral to secure or meet obligations under the credit shall have the following results:
405.117(1)(a)
(a) To the extent of any funds or collateral turned over after or before the insolvency as indemnity against or specifically for the purpose of payment of drafts or demands for payment drawn under the designated credit, the drafts or demands are entitled to payment in preference over depositors or other general creditors of the issuer or bank; and
405.117(1)(b)
(b) On expiration of the credit or surrender of the beneficiary's rights under it unused any person who has given such funds or collateral is similarly entitled to return thereof; and
405.117(1)(c)
(c) A charge to a general or current account with a bank if specifically consented to for the purpose of indemnity against or payment of drafts or demands for payment drawn under the designated credit falls under the same rules as if the funds had been drawn out in cash and then turned over with specific instructions.
405.117(2)
(2) After honor or reimbursement under this section the customer or other person for whose account the insolvent bank has acted is entitled to receive the documents involved.
405.118
405.118
Security interest of issuer or nominated person. 405.118(1)(1) An issuer or nominated person has a security interest in a document presented under a letter of credit to the extent that the issuer or nominated person honors or gives value for the presentation.
405.118(2)
(2) So long as and to the extent that an issuer or nominated person has not been reimbursed or has not otherwise recovered the value given with respect to a security interest in a document under
sub. (1), the security interest continues and is subject to
ch. 409, but:
405.118(2)(b)
(b) If the document is presented in a medium other than a written or other tangible medium, the security interest is perfected; and
405.118(2)(c)
(c) If the document is presented in a written or other tangible medium and is not a certificated security, chattel paper, a document of title, an instrument, or a letter of credit, the security interest is perfected and has priority over a conflicting security interest in the document so long as the debtor does not have possession of the document.
405.118 History
History: 2001 a. 10.
