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1 Introduction - Letters of Credit in International Trade.
In international trade, payment by means of a letter of credit has become so widely used that Justice Kerr of the English Court has called the instrument, "the life-blood of international commerce." [1] It is the most effective method to secure payment in an international trade transaction, in a way that takes care of the interests of both the seller and the buyer. This is due to the sanctity of the document.
1.1 Difficulties in International Sales Transactions.
Payment for goods sold in international sales transactions is often problematic, due to the international character of the transaction. The parties usually have their places of business in different states, and are therefore subject to different national legal systems. Furthermore, the seller will often transport goods across large distances and across national borders. Under such circumstances, the seller has a great interest in ensuring that it will receive payment for goods sold once the goods leave its possession and control, and the buyer has a corresponding interest to ensure that the seller has dispatched conforming goods before making payment in terms of the sale agreement.[2]
When goods travel across national borders, they are moved outside the jurisdiction in which the seller resides. Once outside the seller's jurisdiction, any attempts to regain control or possession of the goods will be significantly more difficult for the seller. Similarly, if the seller does not receive payment once the goods are delivered, it is all the more difficult to pursue the buyer for payment, because the buyer and all of his assets will probably be outside the seller's jurisdiction. The s ...