Brief Fact Summary. Hannover brought suit against Banco Cafetero for failure to honor a letter of credit. Latino Americano de Reaseguros, S.A., (LARSA), the account party, filed a proceeding in bankruptcy court seeking to enjoin Hannover from collecting on Banco Cafetero’s letter of credit. Hannover appeals the stay.
Synopsis of Rule of Law. A letter of credit is an independent contract between the issuing bank and the beneficiary for the payment of money upon the presentation of specified documents and may not be stayed because the account party has obtained the protection of the bankruptcy court.
Issue. Whether payment of letters of credit could be stayed merely because the account party had obtained the protection of a bankruptcy court.
Held. No. Letters of credit are contracts between the issuing bank and the beneficiary may not be stayed because the account party had obtained the protection of a bankruptcy court.
Discussion. The letter of credit is an irrevocable and unconditional promise on the part of Banco Cafetero to pay the beneficiary, Hannover, upon the presentation of specified documents. The money to be used to pay a letter of credit is the bank’s money. The bank is an independent party to the transaction.