Operative Instrument

Summary of Operative Instrument

A letter of Credit (read this and related legal terms for further details) transmitted by cable rather than on bank stationery. Customarily a bank may send a telex notification to the beneficiary of the letter of credit to inform that the actual instrument is being sent. This cable communication, known as an advice or preadvice, does not normally contain extensive details of the transaction being financed and offers no security to the intended beneficiary. When the cable contains full particulars of the transaction and does not contain a clause such as “mail confirmation to follow”or words of like import, the cable is the actual letter of credit, and drafts may be drawn and presented under it. A telex letter of credit would usually include the statement “this is the operative instrument”or a similar definitive statement, although this affirmation is not required under the Uniform Customs And practices (read this and related legal terms for further details), which governs most letter of credit transactions.

(Main Author: William J. Miller)