Part IV International Business Law, XXV Letters of Credit
- Corporations — International investment law — International monetary law — Goods
This chapter provides a brief overview of ‘letters of credit’, which play an important role in international sales as an instrument for payment in international documentary sales. They establish an undertaking of a bank acting on behalf of the buyer or the seller. The chapter describes two forms. The ‘documentary credit’ guarantees fulfilment of the seller’s claim of payment upon presentation of certain documents, which may include commercial invoices, bills of lading, certificates of quality, or other papers. The ‘standby letter of credit’ secures the obligation of the seller to perform the sales contract for the benefit of the buyer. It constitutes a commitment by the seller’s bank that must be honoured upon submission of a pro forma declaration by the buyer that the seller has not complied with their contractual obligations.