LETTERS OF CREDIT: BANKRUPTCY, FRAUD AND IDENTITY OF PARTIES

Abstract

The use of the letter of credit, both internationally and domestically, has increased significantly in recent years . Yet many of the legal aspects of its operation are far from settled. This article considers three areas of controversy : the effect of the bankruptcy of the issuer, the beneficiary or the applicant; the effect of fraud on the duty of the bank to pay; and the question of whether the applicant and the beneficiary may be one and the same person. It is suggested that, in dealing with these issues, the courts ought to bear in mind the need to ensure that the letter of credit remains an effective commercial instrument and ought to avoid imposing unrealistic burdens on any of the parties involved.