A Legal Analysis of Contracts for Opening Documentary Credit in Iranian Law

Documentary credit or letter of credit (LC) is one of the methods of payment in international commerce. The documentary credit is a binding commitment from the issuing bank to pay a sum of money to the beneficiary on certain conditions. The applicant needs to contract with an issuing bank to open a LC. The legal nature of such contract is a controversy issue and thus different opinions are brought up in explaining its nature. This contract is the basis for the rights and obligations of the applicant and issuing bank. Some believe that the said contract is comparable to the proxy contracts, money order contracts and suretyship contracts. To examine the legal nature of this contract in Iranian law, we need to benefit from modern theories and legal analysis. In this article, the nature of the contract for opening LC is examined by reference to specific contracts and non-specific contracts as mentioned in Article 10 of Iranian civil code.