Part I Legal and Practical Challenges to Traditional Trade Finance, 2 The Letter of Credit as a Contract

This chapter considers the relationships created by the issue of a letter of credit. In particular, it focuses on the relationship between the issuer and/or confirmer of the credit on the one hand, and the seller of the goods on the other. Although the letter of credit is typically referred to as creating a contractual obligation between these parties, and that characterisation is rarely disputed, a closer analysis from a common law perspective reveals that some elements for contract formation appear to be absent. The chapter re-examines this debate in the light of recent developments in the law. It concludes that the relationship is indeed contractual, albeit that some of the contractual prerequisites may be satisfied in an unorthodox way.