A. Letters of Credit
That issued by one merchant to another for the purpose of attending to acommercial transaction.
An instrument issued by a bank on behalf of one of its customers, authorizing anindividual or a firm to draw drafts on the bank or one of its correspondents for its accountunder certain conditions of the credit.
An engagement by a bank or other person made at the request of a customer that theissuer will honor drafts or other demands for payment upon compliance with the conditionsspecified in the credit.
Through it, the bank merely substitutes its own promise to pay forthe promise to pay of one of its customers who in return promises to pay the bank theamount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon.
2. Governing laws
Code of Commerceb.
Uniform Customs and Practice for Documentary Credits
3. Nature of letter of credit
The LC is a financial device
developed as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, whorefuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying.
4. Parties to a letter of credit
one who purchases the goods, procures the LC, andobliges himself to reimburse the issuing bank upon receipt of the documents of title.b. Issuing/opening bank
one which issues the LC, and undertakes to pay the sellerupon receipt of the draft and proper documents of title from the seller and to surrenderthem to the buyer upon reimbursement; and
Commercial Law Review, C. Villanueva, 2004 ed.
Prudential Bank vs. CA
, 216 SCRA 257
The Uniform Commercial Practice for Documentary Credits allow Letters of Credit to be payable toorder.
mode of payment