A Reflection on The Relationship Between A Banker and His Customer Under A Letter of Credit

Abstract

The banker/customer relationship is a relation based largely on contract with well-defined terms. The contract conferred reciprocal rights and duties upon the parties. This is to say that the bank under normal banking operation is supposed to respect only the written terms of the contract between it and the customer. However, banks often intermittently of course perform some other duties which are not spelled out in the contract. The bank at times act as an agent of the customer towards other persons with whom the customer has a transaction. A documentary credit transaction stands out as a clear example of a situation where a bank act as an agent for the customer. The base contract giving birth to the opening of a documentary credit for the customer by the bank is a sale contract between the customer (buyer) and a seller in which they agree payment be made by a documentary credit. The conclusion of payment of goods supply to be made by documentary credit often give rise to three other independent but inter-related legal transactions among which is the transaction between the customer (buyer) and the issuing bank. This article focuses on this relationship between the customer and the bank which lead to the opening of a documentary credit. The credit is opened on the request of the customer for the benefit of the seller. The objective of this article is therefore to examine the content of the relationship between a customer and the issuing bank under a documentary credit transaction.