Summary. A letter of credit is a bank's independent undertaking to pay against documents, and its entire commercial value comes from that independence: the issuer pays if the paperwork conforms, without regard to whether the underlying contract was performed. Two very different instruments share the name — the commercial documentary credit, which pays the seller in a goods transaction against shipping documents, and the standby, which functions as a substitute for a guarantee and is drawn only when something has gone wrong. Both are governed by a layered set of rules that includes UCC Article 5, the applicable ICC practice rules, and the terms of the credit itself, and disputes turn almost entirely on document examination rather than on the merits. This guide covers the structures, the drafting decisions that determine whether the beneficiary can actually draw, and the mechanics of presentation, discrepancy, and dispute.

A landlord wants security for a ten-year lease and does not want a cash deposit sitting on the tenant's balance sheet. An exporter will not ship to a buyer it has never met. A construction owner needs assurance the contractor will perform. A regulator requires a licensee to post financial assurance.

In each case the answer is frequently a letter of credit, and in each case the parties routinely misunderstand what they have bought.

The essential thing to understand is the independence principle. The issuing bank's obligation runs to the beneficiary and is entirely independent of the underlying contract. The bank does not care whether the goods arrived, whether the tenant was in default, or whether the contractor performed. It cares whether the documents presented conform to the credit. If they do, it pays. If they do not, it does not — even if the beneficiary is plainly entitled to the money.

That is not a defect. It is the product. A letter of credit converts a commercial dispute into a documentary one, and its value is precisely that the beneficiary need not win an argument to get paid.

Two instruments, one name

The commercial documentary credit

Used in trade. The buyer's bank issues a credit in favor of the seller. The seller ships, presents the documents specified in the credit — commercial invoice, bill of lading, packing list, insurance certificate, certificate of origin, inspection certificate — and is paid.

The credit is expected to be drawn. It is the payment mechanism, and drawing is the ordinary course.

Governed in practice by the ICC's Uniform Customs and Practice for Documentary Credits, UCP 600, incorporated by reference into nearly every commercial credit, together with ISBP 821 on examination practice and, for electronic presentation, eUCP.

The standby letter of credit

Used as a substitute for a guarantee. A landlord, an owner, a regulator, or a counterparty holds it and draws only if the applicant fails to perform.

The standby is expected never to be drawn. Drawing is an event of failure.

Governed in practice by ISP98 — the International Standby Practices — or by UCP 600, depending on what the credit says. ISP98 was written for standbys and handles them better; UCP 600 was written for trade credits and applies awkwardly to standbys, though it is still frequently used.

Bank guarantees are the civil-law analogue, common outside the United States, governed by the ICC's URDG 758. American banks generally do not issue guarantees, because of restrictions on national banks issuing guarantees, and issue standbys instead — which is why an American company asked for a "bank guarantee" by a foreign counterparty usually delivers a standby.

The parties

  • Applicant — the party who asks for the credit and reimburses the issuer. The tenant, the buyer, the contractor.
  • Issuer — the bank that undertakes to pay.
  • Beneficiary — the party entitled to draw. The landlord, the seller, the owner.
  • Advising bank — a bank in the beneficiary's country that transmits the credit and authenticates it. It undertakes no payment obligation.
  • Confirming bank — a bank that adds its own undertaking to the issuer's. This is what a beneficiary wants when the issuer is in a jurisdiction whose banks it does not know or whose country risk concerns it. Confirmation costs money and is worth it in the right transaction.
  • Nominated bank — authorized to honor or negotiate.

A separate reimbursement agreement between applicant and issuer governs the applicant's obligation to repay, and is where the applicant's real exposure sits.

The governing law

UCC Article 5, adopted in every state, is the default. It applies except where the credit incorporates a practice rule, and even then Article 5 governs matters the rules do not address. Section 5-103(c) makes several provisions non-variable — including the definition of the issuer's obligation, the fraud provision, and the requirement of good faith.

Choice of law under § 5-116: the parties may choose, and absent choice, the law of the jurisdiction where the issuer, nominated person, or adviser is located governs as to that party. Standby credits routinely designate a state and incorporate ISP98.

UCP 600, ISP98, and URDG 758 are contractual rules, effective because the credit incorporates them.

The UN Convention on Independent Guarantees and Stand-by Letters of Credit exists and is in force among a small number of states; the United States signed but has not ratified.

Drafting: getting it right at issuance

Nearly every letter of credit dispute traces to the drafting. The document is short and every word does work.

For the beneficiary

Make the drawing requirements simple and within your control. The ideal standby requires a sight draft and a certificate signed by the beneficiary stating that the applicant is in default and the amount is due. That is it. The beneficiary can produce both documents unilaterally.

Resist any document you cannot generate yourself. A requirement for a certificate signed by an independent engineer, a court judgment, an arbitral award, a notarized statement from the applicant, or a third-party inspection converts an independent undertaking into a conditional one and hands the applicant a veto. This is the single most important drafting point on the beneficiary side.

Match the certificate language exactly to what you will be able to say truthfully at the time of drawing. If the credit requires certification that "the Lease has been terminated," and you draw while the lease is still running, you cannot make the statement.

Get the amount and currency right, and consider whether an increase mechanism is needed for a long-term obligation.

The expiry date and place of expiry. Presentation must occur at the specified place on or before expiry. A credit expiring at the issuer's counters in another country requires the documents to physically arrive there in time — courier delays are the beneficiary's problem. Negotiate for expiry at a bank in your own city, or for presentation by an approved electronic method.

Automatic extension — the evergreen clause. A standby for a long-term obligation should provide that the expiry extends automatically for successive periods unless the issuer gives notice of non-extension a stated number of days before expiry, and that notice of non-extension entitles the beneficiary to draw. Without the draw right, non-extension simply removes the security.

Transferability, if the beneficiary may assign the underlying interest — a landlord that may sell the building, for instance. Under UCC § 5-112 and § 5-113, transfer requires the credit to state that it is transferable; assignment of proceeds under § 5-114 is different and does not give the assignee the right to draw.

Partial and multiple drawings, expressly permitted where the obligation may be breached repeatedly.

For the applicant

Narrow the drawing conditions as far as the beneficiary will accept, without making them unattainable — an unreasonable credit is one the beneficiary will not take.

Cap the amount and provide for reduction as the underlying obligation amortizes. A lease standby should step down over the term; a performance standby should reduce on milestones.

Set a firm outside expiry even with an evergreen, so the obligation cannot roll indefinitely.

Read the reimbursement agreement. It is a credit agreement: it will contain representations, covenants, events of default, cross-default to other bank obligations, and a requirement to reimburse on demand with interest. It will also require cash collateral or a borrowing base availability block, which is the real cost.

Understand the collateral treatment. A fully cash-collateralized standby ties up cash; one issued against a revolver reduces availability dollar for dollar. Either way it is not free, and the fee — typically an annual percentage of face amount plus issuance and amendment fees — is only part of the cost.

Presentation and examination

The standard

UCC § 5-108(a) requires the issuer to honor a presentation that appears on its face strictly to comply with the terms of the credit. Strict compliance, not substantial compliance.

UCP 600 Article 14 and ISP98 Rule 4 supply the examination practice. The issuer examines the documents alone — not the goods, not the performance, not the underlying facts.

How strict is strict? Courts and banking practice have moderated the older mirror-image rule. ISBP 821 and UCP 600 Article 14(d) provide that data in a document need not be identical to, but must not conflict with, data in that document, other stipulated documents, or the credit. A misspelling that does not affect meaning is generally not a discrepancy; a different description of the goods in the commercial invoice is.

The classic discrepancies: late presentation, presentation after expiry, documents inconsistent with each other, an invoice describing goods differently from the credit, a bill of lading showing a different port or a late shipment, missing signatures, missing documents, and drawings exceeding the credit amount.

The issuer's timeline

UCC § 5-108(b) and UCP 600 Article 14(b) give the issuer five banking days after presentation to examine and to give notice of dishonor. Failure to give timely notice precludes the issuer from asserting discrepancies — a strict preclusion rule under § 5-108(c) and UCP 600 Article 16(f).

The notice must state that the issuer is refusing, specify each discrepancy, and state the disposition of the documents. A notice that omits a discrepancy waives it. A notice that says "documents contain discrepancies" without specifying is ineffective.

Curing and waiver

A beneficiary that receives a discrepancy notice may:

  • Cure and re-present within the presentation period and before expiry, if time remains. This is why presenting early matters.
  • Request that the issuer approach the applicant for a waiver. UCP 600 Article 16(b) permits it. The applicant frequently waives, because it wants the goods.
  • Ask for payment under reserve or against an indemnity, a practice in trade finance.

Practical instructions for a beneficiary presenting

  1. Read the credit before performing, not before drawing. A credit requiring a document you cannot obtain must be amended, and amendment requires the applicant's cooperation — which will not be forthcoming after a dispute.
  2. Prepare a document checklist from the credit's text, item by item.
  3. Present early. Time to cure is the beneficiary's most valuable asset.
  4. Present at the right place, before expiry, by the method the credit permits.
  5. Track the five-day clock and demand payment if no timely notice issues.
  6. Do not accept a vague dishonor notice.

The fraud exception

The independence principle has one narrow exception, and it is narrow deliberately.

UCC § 5-109 permits an issuer to dishonor, and a court to enjoin honor, where a required document is forged or materially fraudulent, or where honor would facilitate a material fraud by the beneficiary on the applicant or the issuer.

The classic formulation, from Sztejn v. J. Henry Schroder Banking Corp., 31 N.Y.S.2d 631 (Sup. Ct. 1941), requires fraud so egregious that it vitiates the entire transaction — shipping crates of rubbish rather than goods, not a quality dispute.

Section 5-109(b) sets demanding conditions for an injunction: no adequate remedy at law, the applicant likely to suffer irreparable harm, more likely than not to succeed, all necessary parties protected, security posted, and the issuer's protected persons — a confirmer, a nominated bank that gave value, a holder in due course — not adversely affected.

Practical reality: injunctions against letter of credit draws are rarely granted. A breach of the underlying contract, a disputed default, a bad-faith drawing that is nonetheless documentarily conforming — none of these is fraud in the letter of credit sense. Counsel asked to enjoin a draw should tell the client the odds honestly and pursue the underlying claim instead, which is the remedy the structure contemplates.

A wrongful drawing gives the applicant a claim against the beneficiary for breach of the underlying contract, and UCC § 5-111(b) gives the applicant a remedy against an issuer that wrongfully honors.

Common problems

The credit expires before the obligation ends. A five-year lease secured by a one-year standby with no evergreen. Diary it and require replacement well before expiry, with the failure to replace itself an event of default under the lease.

The bank downgrades or fails. A standby from an institution that becomes troubled is worth what the institution is. Require a minimum rating in the underlying agreement and the right to demand replacement.

Non-extension notice arrives and nobody acts. The evergreen notice period is short. Calendar it, and confirm the draw right on non-extension exists.

The beneficiary cannot make the required certification. Because the drafting required a statement about facts the beneficiary cannot establish. This is the failure that drafting attention prevents.

Sanctions and compliance. Banks screen letter of credit transactions against OFAC lists, and a credit involving a sanctioned party, vessel, or jurisdiction will not be honored regardless of documentary compliance. Many credits now contain sanctions clauses giving the issuer discretion to refuse — a clause beneficiaries should scrutinize, because a broad one undermines the independence the credit was purchased for.

Bankruptcy of the applicant. This is where the standby earns its cost. Because the issuer's obligation is independent and the credit is not property of the estate, the automatic stay under 11 U.S.C. § 362 does not prevent the beneficiary from drawing. The applicant's reimbursement obligation is a claim in the case, but the beneficiary is paid.

Two cautions: the proceeds may be examined as a preference if the credit was issued or collateralized within the preference period, and in a lease context, 11 U.S.C. § 502(b)(6) caps a landlord's claim for damages, which courts have held may limit what a landlord may ultimately retain from a drawing on a lease standby. Draft with that in mind.

Choosing among the alternatives

A letter of credit is one of several ways to secure an obligation, and it is not always the right one.

Cash deposit. Simple and absolutely reliable. The problems are that it ties up the applicant's cash, that the beneficiary may have to segregate it or pay interest depending on state law, and that in the applicant's bankruptcy a deposit held by the beneficiary may be subject to setoff analysis and to the § 502(b)(6) cap in a lease.

Surety bond. A surety's obligation is secondary — the surety may assert the principal's defenses, and it will investigate before paying. That is the opposite of a letter of credit and it makes bonds substantially slower to collect on. Bonds are standard in construction because of statutory requirements such as the Miller Act at 40 U.S.C. §§ 3131–3134 and state little Miller Acts, not because they collect better.

Parent or personal guaranty. Free to obtain and worth what the guarantor is worth, collectible only by suing. Suretyship defenses are available.

Security interest in collateral. Valuable where the collateral is identifiable and liquid, subject to perfection, priority, and — in bankruptcy — the automatic stay.

Escrow. Neutral third party holds funds subject to an agreed release mechanism. Useful where both parties need protection, slower than a letter of credit because release usually requires either agreement or a determination.

Insurance. Trade credit insurance for receivables, and for regulated obligations sometimes a statutory alternative to a letter of credit.

The comparison that matters is speed of collection under stress. Ranked from fastest to slowest: cash deposit, letter of credit, escrow with a unilateral release trigger, security interest, surety bond, guaranty. A beneficiary that needs money within a week of a default should hold cash or a standby. One that can wait a year may accept a bond for a lower cost to the counterparty.

And the cost falls on the applicant, which means the beneficiary insisting on a standby is imposing a real expense — bank fees plus collateral or reduced borrowing capacity — that will be priced into the underlying deal one way or another.

Primary authority

  • UCC Article 5, in particular § 5-102 (definitions), § 5-103(c) (non-variable provisions), § 5-106 (issuance, amendment, and cancellation), § 5-108 (issuer's rights and obligations, strict compliance, the five-day period, and preclusion), § 5-109 (fraud and forgery, and the conditions for injunctive relief), § 5-110 (warranties on drawing), § 5-111 (remedies), § 5-112 and § 5-113 (transfer and transfer by operation of law), § 5-114 (assignment of proceeds), § 5-116 (choice of law and forum), and § 5-117 (subrogation).
  • UCP 600 — in particular Article 2 (definitions), Article 4 (credits versus contracts, the independence principle), Article 5 (documents versus goods), Article 14 (standard for examination of documents), Article 15 (complying presentation), Article 16 (discrepant documents, waiver, and notice), and Article 38 (transferable credits); ISBP 821; eUCP.
  • ISP98 — the International Standby Practices, in particular Rules 1, 3, 4, 5, and 6.
  • URDG 758 — the ICC rules for demand guarantees.
  • 11 U.S.C. § 362, § 502(b)(6), and § 547 — the automatic stay, the landlord damages cap, and preference exposure.
  • 40 U.S.C. §§ 3131–3134 — the Miller Act, for the bond alternative on federal projects.
  • Sztejn v. J. Henry Schroder Banking Corp., 31 N.Y.S.2d 631 (Sup. Ct. 1941) — the origin of the fraud exception.
  • 31 C.F.R. Chapter V — the OFAC sanctions programs that override documentary compliance.
  • UN Convention on Independent Guarantees and Stand-by Letters of Credit (1995) — signed but not ratified by the United States.

Two worked credits

The lease standby

A landlord leases 40,000 square feet for ten years and requires security of $600,000, reducing over the term.

What the landlord should insist on. A standby issued by a bank with a specified minimum rating, expiring not earlier than sixty days after the lease term ends, with an evergreen provision extending automatically for one-year periods unless the issuer gives ninety days' notice — and providing expressly that notice of non-extension entitles the beneficiary to draw the full amount. Drawing conditions: a sight draft plus a certificate signed by an authorized representative of the beneficiary stating that the beneficiary is entitled to draw under the lease. Nothing else. Transferable, so the credit survives a sale of the building. Presentation at a bank in the landlord's city. Partial and multiple drawings permitted. Governed by New York law, incorporating ISP98.

What the tenant should negotiate. A step-down schedule — $600,000 for years one to three, $400,000 for four to six, $200,000 thereafter — implemented by an automatic reduction in the credit rather than by amendment. A firm outside expiry sixty days after the term. And in the lease, a covenant that the landlord will apply drawn proceeds only to amounts actually owed and will return any excess, which the credit itself cannot contain without destroying its independence.

The trap the tenant should watch. Bankruptcy. If the tenant files and the lease is rejected, the landlord may draw — the stay does not reach the issuer — but § 502(b)(6) caps the landlord's damages claim. Whether the landlord must return proceeds exceeding the cap is contested, and the lease should address it.

The trade credit

An American importer buys $1.2 million of machinery from a Korean manufacturer.

The credit is issued by the importer's bank, confirmed by a bank in Seoul — because the exporter does not want to rely on an American regional bank it has never dealt with, and confirmation converts the credit into an obligation of a bank in its own country. Payable at sight against: a commercial invoice, a full set of clean on-board ocean bills of lading consigned to order and blank endorsed, a packing list, an insurance certificate for 110 percent of invoice value, and a certificate of origin. Latest shipment date and expiry stated, presentation period twenty-one days after shipment, incorporating UCP 600.

Where it goes wrong. The bill of lading is dated three days after the latest shipment date, or the invoice describes the goods as "machinery, model X-40" while the credit says "machinery, model X40." Either is a discrepancy. The issuer refuses within five banking days, specifying each discrepancy. The exporter asks the issuer to seek a waiver, and the importer — which wants the machinery — waives.

The lesson for the exporter. Read the credit before shipping. If it requires a document you cannot obtain, or a description you cannot match, seek an amendment then — while the buyer still wants the goods and will cooperate.

Amendments, and why they are harder than issuance

A credit is issued and then the deal changes. The shipment slips, the amount moves, a document requirement proves impossible, the lease is extended.

Amendment requires consent. Under UCC § 5-106(b) and UCP 600 Article 10, a credit may not be amended without the consent of the issuer, the confirmer if any, and the beneficiary. The beneficiary is not bound by an amendment until it consents, and — importantly — silence is not consent under UCP 600 Article 10(c), though acceptance is inferred from a presentation that complies with the amended terms.

Partial acceptance is not permitted. UCP 600 Article 10(e): partial acceptance of an amendment is deemed a rejection. A beneficiary that wants two of three changes must reject and seek a new amendment.

The practical consequence is that leverage shifts entirely to the beneficiary once the credit is issued. An applicant who needs an amendment must ask the party it was securing to agree — and if that party is unhappy about something else, the amendment becomes a negotiation about the something else.

This argues for getting it right at issuance, and for building flexibility into the original credit where the deal has moving parts: automatic reduction schedules rather than amendments, a shipment window rather than a fixed date, tolerance for quantity and amount under UCP 600 Article 30, and drawing certificates drafted so they remain accurate under foreseeable variations.

Amendment fees accrue on every change and are charged to the applicant.

Cancellation likewise requires beneficiary consent under UCP 600 Article 10(a). An applicant who no longer needs a standby — the lease ended, the contract completed — must obtain the beneficiary's written release and return of the original, and until then the fee keeps running and the collateral stays committed. Companies routinely pay for years on standbys supporting obligations that ended, because nobody asked for the release. Audit the outstanding letters of credit annually against the obligations they secure; it is one of the highest-return hours in a treasury function.

The underlying agreement should do the work the credit cannot

A letter of credit is deliberately blind to the underlying relationship, which means every protection that depends on the facts must live in the contract rather than in the credit.

For the beneficiary, the underlying agreement should specify:

  • The required form of the credit, attached as an exhibit. This is the single most effective protection available: a landlord or owner that attaches the exact text avoids a negotiation later over whether what was delivered satisfies the requirement.
  • The issuer's minimum credit rating, and an obligation to replace within a stated number of days if the rating falls or the bank is placed under regulatory action.
  • A replacement obligation at least thirty days before expiry, with failure to replace an event of default and an event permitting a full draw.
  • The step-down or step-up schedule, if any.
  • Which party bears the fees.

For the applicant, it should specify:

  • That the beneficiary may draw only amounts actually due, and must return any excess with interest. The credit cannot say this without compromising independence; the contract can, and it is the applicant's principal protection against an abusive draw.
  • Notice before drawing, where the beneficiary will accept it — even a short notice period allows a cure or a negotiation, and many beneficiaries agree because they would rather be paid than draw.
  • Release and return of the original promptly on satisfaction of the secured obligation.
  • Cooperation with amendments that do not diminish the beneficiary's protection.
  • Application of proceeds to specified obligations in a specified order, so a draw does not become a windfall.

The remedy for a wrongful draw is a contract claim, and its practical value depends on the beneficiary being solvent and subject to jurisdiction. Where the beneficiary is neither — a foreign counterparty, a thinly capitalized entity — the applicant should be told plainly that the standby is effectively a cash payment the counterparty can take at will, and should price the transaction accordingly or refuse to issue.

That conversation, held before issuance, prevents nearly every letter of credit dispute that reaches a courtroom.

Where standbys are required by law

A substantial share of standby volume exists because a statute or regulator demands financial assurance, and those credits have their own constraints.

Environmental financial assurance. RCRA requires owners and operators of hazardous waste treatment, storage, and disposal facilities to demonstrate financial assurance for closure, post-closure, and corrective action under 40 C.F.R. Parts 264 and 265, and the regulations prescribe specific wording for an acceptable letter of credit. Underground storage tank rules under Part 280 do the same. Mining, landfill, and oil and gas operations have parallel state requirements.

Insurance and self-insurance. Workers' compensation self-insurers, captive arrangements, and reinsurance collateral under the NAIC credit-for-reinsurance framework all rely on standbys with prescribed terms. Reinsurance collateral credits must typically be clean, irrevocable, unconditional, and evergreen, issued by a qualified United States financial institution.

Customs and excise. Customs bonds are typically surety bonds, but standbys appear in bonded warehouse, foreign trade zone, and duty deferral contexts.

Utility deposits and interconnection. Utilities and grid operators commonly require standbys from generators and large customers, on forms they publish.

Construction and public works. Where the Miller Act or a state analogue does not mandate a surety bond, owners frequently accept a standby instead, and public owners sometimes require both.

Licensing and registration. Money transmitters, travel sellers, contractors, employment agencies, and many other licensees post financial assurance in amounts set by statute.

What is different about these credits. The wording is prescribed and the issuer cannot vary it. The beneficiary is a government agency that will not negotiate. Evergreen provisions are mandatory in most programs, with non-extension triggering an immediate draw and, frequently, a license consequence. And the amount adjusts with the regulatory formula rather than with the applicant's circumstances.

Practical guidance. Obtain the agency's approved form before approaching the bank; banks will issue on a prescribed form but will not draft one. Confirm the issuer is on the agency's acceptable-institution list, which several programs maintain. Diary the non-extension notice date twice. And treat the collateral commitment as permanent for planning purposes, because a regulator will not release the assurance until the underlying obligation — closure, wind-down, or license surrender — is complete and documented.

Electronic presentation and the direction of practice

Documentary credit practice was built on paper, and the paper is disappearing slowly.

eUCP Version 2.1 supplements UCP 600 for presentations made electronically or in a mixed paper-and-electronic form. It addresses format, the meaning of receipt, corruption of a data file, and how examination periods run when a presentation arrives outside banking hours. A credit must expressly incorporate eUCP for it to apply; incorporating UCP 600 alone does not.

eURC does the same for collections, and URDG 758 contemplates electronic demands where the guarantee permits.

Electronic bills of lading are the genuine obstacle. A negotiable bill of lading is a document of title, and its transferability depends on possession of a unique original — a concept that does not translate to a file that can be copied. The UNCITRAL Model Law on Electronic Transferable Records supplies a framework based on control of an electronic record, and it has been enacted in a growing number of jurisdictions. In the United States, UCC § 7-106 already recognizes control of an electronic document of title, and the 2022 UCC amendments added Article 12 on controllable electronic records. Adoption is uneven, and a credit calling for an electronic bill of lading requires confirming that every party in the chain — carrier, banks, and buyer — participates in a system the others recognize.

What has actually changed in practice. Presentation by secure email and through bank portals is now common for standbys, where the documents are a draft and a certificate rather than a negotiable instrument. Trade credits still move paper for the bill of lading and frequently everything else. Bank platforms have automated examination substantially, which has made discrepancy notices faster and, in some banks, more mechanical.

Practical guidance for drafting. If electronic presentation matters — and for a beneficiary whose expiry is at a distant bank's counters it matters a great deal — say so in the credit: specify eUCP or ISP98 Rule 3.06, identify the permitted format and address, and define when receipt occurs. A credit silent on the point requires paper at the stated place, and a courier delay becomes the beneficiary's loss.

Related articles

This guide is provided for general informational purposes and does not constitute legal advice. Letters of credit are governed by a layered framework of UCC Article 5, the practice rules the credit incorporates, and the credit's own terms, and small differences in wording determine whether a beneficiary can draw. Injunctions against honor are rarely granted. Consult qualified counsel before issuing, accepting, or drawing on a letter of credit, and review the drawing conditions before performing under the underlying contract.