The Relationship Between Letter Of Credit And Sale Contract In The View Of Contract Principles

As a general mode of payment in the contract of international goods sale, letter of credit (abbreviated as L/C) weighs heavily with the sale contract. The principle of independence requires L/C being independent from the sale contract and free from the binding and restriction of the contract; however, the sale contract providing the clause of L/C cannot and ought not to be independent from the L/C. Within the legal relationship of L/C, buyer and seller have special obligations and either L/C opening, amendment, or document presenting would affects the contract, resulting in modification or rescission of the contract.This thesis expatiates on the subject of relationship between L/C and sale contract from the following aspects:essence of L/C independence principle, L/C opening and amendment, discrepant document, etc. Except the Introduction, the thesis is subdivided into five chapters:The first chapter, effect of L/C opening on sale contract, states the relevant concepts of L/C at first; then expounds that L/C opening plays a significant role in sale contract by the flowing three ways:1. L/C is a prerequisite for the contract becoming effective;2. The buyer ought to open the L/C on schedule;3. The buyer ought to open a L/C that conforms to the contract provision.The second chapter, effect of discrepant L/C on sale contract, sets the premise of the discussion as that the seller has accepted the discrepant L/C explicitly or implicitly. Under this premise, this part analyses the reasons why the discrepant L/C has the effect to amend the sale contract. That the discrepant L/C has such an amendment effect is further demonstrated from the view of fact, result and the way to accept the discrepant L/C.The third chapter, effect of discrepant document on sale contract, begins with the analysis of the consequences occurred after bank’s dishonor due to the discrepant document, which is followed by the analysis of buyer’s and seller’s rights and obligations provided in L/C payment. In the symbolic-delivery international trade in goods, the documents stand for the ownership. And argues for why the seller presentation of the discrepant document means they have fundamental breached. Then make clear that whether the sellers have rights to ask the buyers to pay.The fourth chapter, jurisprudential analysis of the characters of L/C, discusses the legal characters of L/C as well as independence principle of L/C. Letter of credit is a contractual relation binding the applicant, issuing bank and beneficiary. The essence of L/C is to liberate the financial institutions, such as banks, from the contracts of international goods sale and make their processing the documents without tying down by the contracts possible, rather than proving that L/C should be separated from the sale contract after its opening.The fifth chapter concludes that L/C weighs heavily with sale contract and the contract cannot be independent from the L/C. Effect of L/C on sale contract is a complicated legal issue that needs paying attention to and further study.