A documentary credit comes into existence in the context of a commercial transaction which normally involves at least four parties: the applicant (who is usually an importer), the issuing bank, the correspondent bank and the beneficiary (an exporter or provider of services). The letter of credit (“l/c”) itself constitutes the bargain between the banks and the beneficiary. Both an irrevocable credit and a confirmed credit are treated for all practical purposes as a binding contract. It follows that, for purposes such as the assessment of damages in cases of non-performance, the principles applicable are those of the law of contract.1 The same general principles of law are used to construe the terms of a documentary credit and the basic rights of the parties.

In common law countries, the most important statutory law in point is Art 5 of the Uniform Commercial Code of the United States (the “UCC”). In other common law systems, the general principles and doctrines are based on case law.2 Another, general, source of the law of letters of credit is international banking practice and the usages of international trade.3