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84-5-103. Scope. (a) This article applies to letters of credit and to certain rights and obligations arising out of transactions involving letters of credit.

(b) The statement of a rule in this article does not by itself require, imply or negate application of the same or a different rule to a situation not provided for, or to a person not specified, in this article.

(c) With the exception of this subsection, subsections (a) and (d), K.S.A. 84-5-102(a)(9) and (10), K.S.A. 84-5-106(d) and K.S.A. 84-5-114(d), and amendments thereto, and except to the extent prohibited in K.S.A. 2023 Supp. 84-1-302 and K.S.A. 84-5-117(d), and amendments thereto, the effect of this article may be varied by agreement or by a provision stated or incorporated by reference in an undertaking. A term in an agreement or undertaking generally excusing liability or generally limiting remedies for failure to perform obligations is not sufficient to vary obligations prescribed by this article.

(d) Rights and obligations of an issuer to a beneficiary or a nominated person under a letter of credit are independent of the existence, performance or nonperformance of a contract or arrangement out of which the letter of credit arises or which underlies it, including contracts or arrangements between the issuer and the applicant and between the applicant and the beneficiary.

History: L. 1996, ch. 202, § 3; L. 2007, ch. 89, § 46; July 1, 2008.

KANSAS COMMENT, 1996

This section is derived from the former 84-5-102(1) and 84-5-103(3). It is identical to the 1995 Official Text.

The letter of credit is defined in 84-5-102(a)(10), which incorporates parts of 84-5-104 and 84-5-108(g). Article 5 states only some of the obligations and duties of the parties in a transaction involving a letter of credit, as is explicitly stated in subsection (a) providing that Article 5 applies to "certain" rights and obligations. Subsection (b) thus permits the application of similar or different rules to a party to any part of the transaction which is not expressly governed by Article 5.

Subsection (c) permits most of the rules of Article 5 to be varied by the parties, especially to conform to trade practices. The basic transaction, if the document is a letter of credit as provided in subsection (a), is bound by the "independence principal" provided for by subsection (d). The "independence principal" provides that the obligation of the issuer or of a nominated person to the beneficiary relates to the required documents (see 84-5-108), and cannot be varied by the agreements of the issuer and the applicant or applicant and the beneficiary. The issuer may not be bound by the fulfillment or failure of the underlying contract. The basic underlying relationship of the parties to a letter of credit is controlled by the terms of Article 5.

Revisor's Note:

Former section 84-5-103 was repealed by L. 1996, ch. 202, § 91 and the number reassigned to the current text.

CASE ANNOTATIONS

1. Issue regarding whether seller was induced to believe lender had authority to issue open-ended letter of credit precluded summary judgment. Masek Distributing v. First State Bank & Trust Co., 908 F. Supp. 856, 859 (1995).

2. Bank had the right to dishonor letter of credit based on beneficiary's fraud. Prairie State Bank v. Universal Bonding Ins. Co., 24 Kan. App. 2d 740, 745, 953 P.2d 1047 (1998).


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