Trade Law Assignment

Letter of credit:
The following question requires in-depth research on letter of credit and its relative
importance. Furthermore, juxtaposition of other mode of payments will also be
discussed, respective of their advantages and disadvantages. In addition, distinction will
be drawn between the letter of credit and other modes of payment, concluding on the
question statement, whether letter of credit has significance in international commerce
or not. Enlightening the importance of letter of credit in international trade under RD
Harbottle v National Westminster (1978)1 case.
Letter of credit is a payment method, an essential element for international trade since
1900. Letter of credit is a documentary letter issued by issuing bank i.e., buyers country
bank to confirming bank i.e., sellers’ country bank, the letter issued is considered as a
surety of payment for a specific person over specified terms and conditions. Letter of
credit issued by bank assures that the seller will receive the payment, until the terms
and condition of the contract are met, this may comprise of description of the quality of
goods and quantity. Letter of credit is needed as an insurance for seller, in case if the
buyer cancels the order, the buyers bank will make the payment for the shipment to
seller, thus the risk is reduced.
Letter of credit benefits both parties to contract in such way, where payment for seller is
assured when he fulfills the terms and conditions of the trade contract and buyer can
exhibit his creditworthiness, buyer then can negotiate for longer payment period, this
transaction at both party’s end is supported by banks.

1
Harbottle (RD) (Mercantile) Ltd v National Westminster Bank Ltd [1978] QB 146; [1977] 2 All ER 862 … 468