Executive Summary

Letters of credit ('L/Cs') are a tool to increase commercial predictability, allowing for enhanced risk allocation and minimization, thereby lowering transaction costs. However, L/Cs developed through practice and the law merchant, making them often seem counter-intuitive to the lawyers and judges tasked with resolving L/C disputes. With inexperienced decision-makers applying an unfamiliar legal standard-one specifically deferring to L/C practice rather than a known quantity like contract law-come results inconsistent with party expectations, and it chips away at predictive value. This ...