Effects of opening a letter of credit on the ordering customer and the issuing bank

Abstract

Documentary credit is a very important process in international trade. It is a contract that provides protection to its parties, facilitates their task in their commercial transactions, and gives confidence and security, because a buyer of goods from another country can gain confidence in his dealings with the seller by opening a documentary credit in the bank, which in turn disburses the credit amount to the seller But after verifying the bills of lading that represent the goods shipped on behalf of the buyer, this is a facilitation for the buyer, and for the seller as well, but obligations arise that are placed on the shoulders of the parties to the documentary credit contract, the buyer, the seller, and the bank. In this research, we are concerned with the bank’s obligations in documentary credit, which are towards the seller and towards the buyer. It is obligated towards the buyer (the client who opens the credit) to open the credit and inform the seller (the beneficiary) of it, and also to receive certain documents from the seller, examine them, and then send them to the buyer, through which he can receive his goods. The bank must also implement all instructions of the buyer (the issuing bank) verbatim, without interpretation or modification. Its obligation to the seller (the beneficiary) is to pay the seller (the beneficiary) the amount of the credit after examining the documents submitted and ensuring their apparent conformity with the letter of credit.