John F. Dolan


While efficiency analysis would leave the loss on the erring bank, the revised version of Article 5 of the Uniform Commercial Code ("Revised Article 5") includes a provision granting subrogation to letter of credit issuers as if they were sureties.2 Some commentators view this statutory provision as a surefire source of subrogation for the banks. This Article mounts an argument to the contrary. Because subrogation is an equitable remedy resting on an unjust enrichment standard,3 this Article contends that bank issuers must make an unjust enrichment case before they can avail themselves of the subrogation remedy, even under Revised Article 5. This Article attempts to demonstrate, moreover, that the case for unjust enrichment in these transactions is difficult to make and that courts should accord banks the remedy sparingly. The arguments against subrogation also expand to cover other players in the standby letter of credit transaction, and this Article concludes that as a general principle those players should not have subrogation.

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