PARTIES TO A LETTER OF CREDIT TRANSACTIONÄ¡. > Uniform Customs and Practice for Documentary Credits (UCP) issued by the International Chamber of Commerce LAWS GOVERNING A LETTER OF CREDIT TRANSACTION In turn, this arrangement ASSURES THE SELLER OF PROMPT PAYMENT, INDEPENDENT OF ANY BREACH OF THE MAIN SALES CONTRACT. > What characterizes letters of credit, as distinguished from other accessory contract, is the ENGAGEMENT OF THE ISSUING BANK TO PAY THE SELLER ONCE THE DRAFT AND THE REQUIRED SHIPPING DOCUMENTS ARE PRESENTED TO IT. The seller gets paid only if he delivers the documents of title over the goods while the buyer acquires the said documents and control over the goods only after reimbursing the bank. The transaction is completed when the buyer reimburses the issuing bank and acquires the documents entitling him to the goods. The bank then obtains possession of the documents upon paying the seller. > The issuing bank redeems the draft and pays cash to the seller if it finds that the documents submitted by the seller conform with what the letter of credit requires. To get paid, the seller executes a draft and presents it together with the required documents to the issuing bank > Once the letter of credit is established, the seller ships the goods to the buyer and in the process secures the required shipping documents and documents of title. The buyer and seller agree on what documents are to be presented for payment, but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer > To break the impasse, the buyer may be required to contract a bank to issue a letter of credit, the issuing bank can authorize the seller to raw drafts and engage to pay them upon their presentment simultaneously with the tender of documents required by the letter of credit. > A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of the seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying LETTERS OF CREDIT- Negotiable Instruments
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