Posted: June 12th, 2022

Security Interests in Letter-of-Credit Rights

“Security Interests in Letter-of-Credit Rights”
Instructions

The following editing rules:
Word File: Font: Times New Roman 12
Space: 1,5 lines
Maximum page number: 8 pages
Referencing style: APA style
Research contents: the research shall content the following:
Introduction
Traditional Distinctions in Letter of Credit
Creating the security Interest in Letter of credit Rights: commercial letter of credit under Article 331 of Bahrain law of Commerce– security interest
Obligation subsequent to contract for a guaranteed credit: the bank obligation; the customer obligations; the beneficiary’s obligations
Conclusion
References

Kindly noted that you can refer to the following textbooks in writing your final project which all are available online in E Book in google as the following
Just to bring to your attention that there are more and more sources available just try to look for it
1. Understanding Letter of Credit: Learner’s Guide to Letter of Credit By Nisha S Koshal First Published by Notion press 2017
2. The Letter of Credit By Susan Warner
3. Letters of Credit and Documentary Collections: An Export and Import Guide By Thomas H. Ward 2016
4. Standby and Commercial Letters of Credit By Brooke Wunnicke, Paul S. Turner 2000
5. The Letter of Credit (Classic Reprint) Susan Warner 2018
6. Building an Import / Export Business By Kenneth D. Weiss fourth edition 2008
7. A Complete Guide to Letters of Credit and the UCP 2015

Thesis topics as the following
1. Letter of Credit as a Security Device in International Trade
2. Reallocation of Risk under the Letter of Credit Transaction

Please don’t copy and paste make your own writing when you want to express or explain a topic because you’re going to submit it through Turnitin
Last advice to you please make your writing consistent in tune with content and sequence of ideas to your topic that you going to write

“Security Interests in Letter-of-Credit Rights”
International trade between different parties and individuals has been influenced and facilitated by the presence of letters of credits that are a security device for international transactions to enhance the efficient transfer of risk to the relevant parties. In this regard, a letter of credit entails a letter given by a bank to another bank in different countries to serve as a guarantee for payments to identified persons under specified conditions. The banks guarantee the seller that they will receive payment from the buyer at a certain time, and the right amount once the transaction is made. In normal circumstances, the buyer is obligated to make payments to the goods or services at the time of buying them. However, in the case that the buyer will make payments at a later date, then the seller will require the guarantee from the bank. At this point, the seller is assured of their payments from the bank, even in the case that the buyer fails to make the agreed payment. In the case, the seller’s dues are settled, leaving the bank and the buyer to handle the rest of the issues. The bank facilitates international transactions through facilitation and guaranteeing the meeting of the buyer’s obligations in contracts. Consequently, the letter of credit has consistently changed from the former letters of credit. The changes effected on the letters of credit have been made in the interest of changing times and issues such as technology. Furthermore, there is a need to evaluate the source and value of security interest created by the letters of credit rights. The security interest enhances the guarantee value that makes it possible for the sellers to allow transactions to proceed. Additionally, there is a need to need to identify and appreciate the obligation of the different parties in a guaranteed credit contract. The guaranteed credit contract has various parties that include the bank, the customers, and the beneficiary. The letters of security have enhanced international trade between different parties by acting as a security device that reallocates risks to the banks, thus assuring that business transactions can be enhanced between different parties.
The traditional distinction in the letter of credit
The traditional distinction in the letter of credit is established through different features that make it worth consideration by the beneficiary or the buyer. The letter of credit is accepted due to the guarantee they have to the point of assuring the seller that they will eventually get their pay from the guarantor even in the case that the buyer fails to honor their payment agreement (Goodman and Maliza, 2004). The uniqueness of the letters of credit arises from their different features. First, the letters of credit have immense power in compelling the guarantor or the buyer to honor their payment agreement to the seller or the beneficiary. The guarantor is obligated to meet the set conditions under the letters of credit despite the failures of the buyer (Mann, 2000). In the contract, there are three parties, and thus the bank pays or meets all the conditions, thus leaving the bank to deal with the buyer, under these features the grants the beneficiary the right to withdraw.
Additionally, the beneficiary is granted the power to perform the credit conditions or even transfer the credit conditions to other parties. In the early days, the letter of credit law did not have the provision for the bifurcating the right to draw and power to implement the credit conditions. (Goodman and Maliza, 2004) More so, the beneficiary could not be in a position to freely alienate the power to conduct credit conditions or the right to draw. The credit letters grant the beneficiary the right to transfer power to draw proceeds. This fact makes the letter of credit to be a great asset that can guarantee credit from other parties. However, the law prohibits free alienability to withdrawal right but not the ability to acquire credit. The transferability can be made in whole or in parts, thus making it possible for the holder to settle debts or acquire goods on credit. In such a case, the letter of credit operates or acts as a financing device since one can buy goods, raw materials, or services with it. The transfer of the letter of credit from one party to the other is not a secured transaction as per the current law since it does not create security interests but rather than novations. Traditionally, the transferability right meant that the beneficiary had the right to develop security interests with other parties. However, in the current law, the right is not attached to the credit the beneficiary obtains using the letter of credit. In recent times the right to draw remains with the original beneficially, thus reducing the viability of the letter of credit based on the reduced benefits of transferring it.
Creating the security Interest in Letter of credit Rights
The letter of credit rights creates security rights by giving legal rights to creditors in regard to the property owned by the debtor. In this regard, in the case the debtor fails to settle their debts or adhere to the set agreement, then the creditor can take their property and use it in their interest, such as selling or owning it (Warner, 2018). Therefore, at the instance, the debtor defaults or fails to honor the secured obligation the creditor can have recourse to the debtor’s property. The letters of credit create security interests in different ways as prescribed under revised articles 5 and 9. Therefore, the letters of credit gain security interests payment of the beneficiary under the credit, supporting of obligations, and the commercial nature attached to the letters of credit.
The commercial letters of credit ensure that business transactions between parties in different countries can be affected by introducing a trusted guarantor in the financial transaction. In this regard, the buyer requests their bank to give a letter of credit in favor of the seller. The buyer’s bank nominates a bank in the seller’s jurisdiction to honor the seller’s demand for payment under credit conditions. In the international transactions the credit letter from the buyers bank must be conditioned on presentation with a seller draft copy of the amount of credit together with a bill of lading, sellers invoice, evidence of insurance and a packing list (Weiss, 2007). The different evidences are presented collectively in form of document with proper and relevant details. In the case, the seller/beneficiary wants to draw on credit they need to draw a draft and present it to their bank or the bank that honored the letters of credit before the expiry of the credit period. The buyer uses the letters of credit to secure deals with other parties since it has the security interests (Aicher, Cotton and Khan, 2004). For instances, the seller can use the letter of credit to secure goods on credit from their supplier since they are assured that the goods will eventually be paid at the agreed date and in the right amount. In this case, the letters of credit secures a security interest to the supplier if there is a value to the transaction and goods in question, if the debtor has rights in collateral for the secured transaction in the letter of credit and when the secured party has the control of the letter of credit rights or in the cases the secured party a genuine security agreement from the debtor. The control of the letter of credit rights can be controlled when the seller’s bank agrees to the assignment letter of credit proceeds.
The letters of credit gain a security interest in the cases that they can effectively and sufficiently support obligations. In this case, the security interest becomes the subject of the obligation, thus making it viable. The party in the transaction holding the security interest gains the letter of credit rights as per the letter of credit supporting the obligations. The letter of credit with the supporting obligation element is one that has the security interest for parties in a transaction (Weiss, 2007). In this case, the seller sells their products to the buyer, where the buyer requests their bank to issue a standby letter of credit in favor of the seller to get paid to an open account obligation. The invoice standby transaction requires the seller to present an invoice within a specified period, and if the buyer fails to make payments in the required or set time, the sellers present an invoice to the standby credit issuer accompanied with a certificate indicating the invoice was not paid (Bergami, 2012). This approach makes the seller use the seller’s obligation to secure loans with the buyer’s working capital as a form of payment. The arrangement makes the buyer to automatically gain security interest. Therefore, the supporting obligations gain the seller security interests that are powered and enforced through the established standby credit.
Additionally, there are security interests that arise amendments to Article 5, directing the nominated bank or the letter of credit issuer to make payment to beneficiaries holding a letter of credit with security interests. The creditor/beneficiary presents a document containing the security interest to the bank, together with documents meeting the credit conditions (Bergami, 2012). In such cases, the beneficiary can be required to documentary conditions as contained in the letter of credit. The agreement between the two issuer letters from the banks involved in the transaction ensures that the nominated bank gains the security interest. The security interest, in this case, ensures that the original transactions are completed by the beneficiary receiving their total dues from the financial transactions.
Obligation subsequent to contract for a guaranteed credit: the bank obligation; the customer obligations; the beneficiary’s obligations
The parties involved in a letter of credit transaction have rights and duties that should be met for successful and efficient business transactions. The different parties are required to meet their obligations as spelled out in the letters of credit (Levit, 2007). The letters of credit system have different parties that include the banks, the customers, and the beneficiaries, and all have an obligation to meet in the letters of credit contracts.
Banks obligations
The letter of credit transaction has several banks that include issuing banks, advising banks, and confirming banks and all have different obligations and functions under the arrangement. The issuing bank is concerned with documents as opposed to goods; thus, it is obligated to making payments to the beneficiary. The banks are obligated to make payments to the beneficiary within a reasonable period after receiving the relevant documents of payment (Dolan, 2007). The beneficiary receives the payment when documents, which include insurance documents, airway or lading bill, and the commercial invoice, are in compliance with the terms and conditions of the credit. Consequently, the advising is a foreign correspondent bank of the issuing bank that is obligated with sufficiently advising seller/beneficiary. Moreover, the advising bank is obligated to send the transaction document to the issuing bank since the beneficiary uses their local bank to ensure that the letter of credit is genuine. Finally, there is the confirming bank is obligated to confirm the letters of credit for the seller/beneficiary as well as ensuring payment in the letter of the credit contract (Kurkela, 2007). The confirming bank works hand in hand with the correspondent bank to ensure that all the aspects of the contract are in their right position.
The obligation of the customer (buyer) in the letter of the credit transaction
The buyer in the letters of credit transaction is obligated to make a request to his bank (issuing bank) to open a credit in interest of the seller (Wunnicke and Turner, 2000). The customer initiates the transaction where the issuing bank offers a letter of credit in favor of the beneficiary. The buyer is obligated to acknowledge the receipt of the goods and services, and if they meet the quantity and quality as per the agreement. Moreover, the buyer is obligated to facilitate the payment of goods and services upon receiving them to ensure that the transaction is completed with success.
The obligation of the beneficiary (Seller) in the letter of the credit transaction
The seller/ beneficiary is obligated with the delivery of the goods to the buyer in the right quantity and quality (Wunnicke and Turner, 2000). The seller ships the goods and is required to collect the document needed in order to meet the letter of credit requirements. Finally, the seller is obligated to present the relevant documents to the confirming or the advising bank in order to collect the payment. The seller must confirm that the documents are in compliance with the agreed terms and conditions under the letter of credit.
Conclusion
The letters of credit ensure that international transactions are facilitated by incorporating an element of guarantee between the relevant parties. The beneficiary or the seller of the international trade is guaranteed that they will receive payment once they send goods to the seller as per the terms and conditions in the credit letters. Consequently, the letter of credit has changed in modern times with the immense power of the credit letters being reduced, and their transferability nature made ineffective due to barriers imposed by parties in the transaction. Furthermore, the credit letters gain the interests security from commercial letters facilitating transactions, the inherent support obligation, and amendments in Article 5 that directs the nominated banks to make payments to the beneficiary when the terms and conditions are met. Finally, the parties to the letters of credit contract such as the banks, customers, and the beneficiary have specified obligation that they should meet to ensure that the transaction under the credit letter is achieved.

References
Aicher, R. D., Cotton, D. L., & Khan, T. K. (2004). Credit Enhancement: Letters of Credit, Guaranties, Insurance and Swaps (The Clash of Cultures). The Business Lawyer, 897-973.
Bergami, R. (2012). The Rotterdam Rules and Bills of Lading: challenges for Letter of Credit transactions. In Conference on International Trade, Education and Marketing (p. 14).
Dolan, J. (2007). The Law of Letters of Credit. THE LAW OF LETTERS OF CREDIT, 4th edition, John F. Dolan, AS Pratt & Sons, 07-36.
Goodman, G. A., & Maliza, A. K. (2004). The Fading Distinction between Letters of Credit and Guarantees. Banking LJ, 121, 523.
Kurkela, M. S. (2007). Letters of credit and bank guarantees under international trade law. OUP Catalogue.
Levit, J. K. (2007). Bottom-Up Lawmaking Through a Pluralist Lens: The ICC Banking Commission and the Transnational Regulation of Letters of Credit. Emory LJ, 57, 1147.
Mann, R. J. (2000). The role of letters of credit in payment transactions. Michigan Law Review, 2494-2536.
Warner S. (2018). The Letter of Credit: Classic Reprint.
Weiss, K. D. (2007). Building an import/export business. John Wiley & Sons.
Wunnicke, B., & Turner, P. S. (2000). Standby and Commercial Letters of Credit. Aspen Publishers Online.

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