letter of credit

Commercial law. An instrument under which the issuer (usu. a bank), at a customer’s request, agrees to honor a draft or other demand for payment made by a third party (the beneficiary), as long as the draft or demand complies with specified conditions, and regardless of whether any underlying agreement between the customer and the beneficiary is satisfied.

• Letters of credit are governed by Article 5 of the UCC. — Abbr. LC; L/C. — Often shortened to credit.

— Also termed circular letter of credit; circular note; bill of credit. [Cases: Banks and Banking 191. C.J.S. Bills and Notes; Letters of Credit §§ 341–366, 368–370, 372–376.]


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