Journal of Research and Development in Comparative Law

Journal of Research and Development in Comparative Law

Examining the Existence of Consideration in Letters of Credit and its Effects by a Comparative Study of Iranian and English law

Document Type : scientific research paper

Author
Rasool Bahrampoori
Examination of the Existence of Consideration in letters of Credit and its Effects by a Comparative Study of Iranian and English law، Tehran، Iran
10.22034/law.2025.2063634.1664
Abstract
The theory of consideration, in English law (as a country whose law governs many letters of credit worldwide) is a key theory that considers the enforceability of a contract to be dependent on its containing a consideration.Given that a letter of credit is essentially a contract under which the issuing bank is obligated to pay the beneficiary upon receiving documents that comply with the letter of credit, the existence or absence of consideration in letters of credit has been the subject of extensive debate and conflicting opinions and the issue has been raised as to in case there is consideration in a letter of credit, who has undertaken this consideration in return for the bank's commitment to pay the letter of credit amount to the beneficiary in return for the presentation of matching documents.Some writes believe that a letter of credit is an enforceable contract. However, basically, it does not require a consideration. Others are of the opinion that a letter of credit is a binding contract in which consideration also exists and is provided by the applicant, and some of them also believe in provision of consideration by the beneficiary of the letter of credit.On the contrary, some courts and authors are of the view that in a letter of credit there is no consideration (from either the applicant or the beneficiary) and therefore it cannot be considered as a binding contract, and accordingly, they deny the contractual nature of the letter of credit.In this article, it was examined in an analytical-descriptive manner that although the conditions of valid consideration and also the effects of the existence of consideration in the Iranian and English law are different, in both legal systems, in a letter of credit as a binding contract, there is need to be "consideration" and this consideration is provided by the beneficiary of the letter of credit and it is the "obligation of the beneficiary to present the corresponding documents to the issuing bank" that is considered valid consideration and provides the basis for the binding nature of the letter of credit.
Keywords
Keywords: consideration
letter of credit
principle of independence of letters of credit
uniform regulations for letters of credit
beneficiary
applicant

Subjects

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