LAW OF OBLIGATION ACT, PART 8, CHAPTER 40, DIVISION 3 & 4

Division 3

[Repealed – RT I 2010, 2, 3 – entry into force 22.01.2010]

Division 4

Settlement by Letter of Credit

  • 747. Definition of settlement by letter of credit

In the case of settlement by a letter of credit, the issuing bank undertakes, on the order of the originator or on the initiative of the issuing bank, to make a payment for the benefit of the beneficiary and in accordance with the terms and conditions of the letter of credit, primarily upon submission of the required documents, or to accept and cash a draft of a third party or to perform any other obligation or to authorise another payment service provider (advising bank) therefor. The issuing bank may also be the advising bank.

[RT I 2010, 2, 3 – entry into force 22.01.2010]

  • 748. Irrevocability of letter of credit

(1) An irrevocable letter of credit is a letter of credit which cannot be amended or cancelled without the authorisation of the issuing bank or the beneficiary. The irrevocable character of a letter of credit is presumed.

(2) At the request of the originator or the issuing bank, the advising bank may confirm the irrevocable letter of credit (confirming bank). By confirming a letter of credit, the confirming bank shall, in addition to the issuing bank, assume an obligation to execute the letter of credit in accordance with the terms and conditions thereof. An irrevocable letter of credit shall not be modified or cancelled without the authorisation of the confirming bank.

[RT I 2010, 2, 3 – entry into force 22.01.2010]

  • 749. Performance of letter of credit

(1) The issuing or confirming bank shall perform the letter of credit if the beneficiary submits all the documents to the bank in accordance with the terms and conditions of the letter of credit.

(2) The obligation of the bank to perform a letter of credit shall not depend on the mutual relationship between the originator and the beneficiary.

[RT I 2010, 2, 3 – entry into force 22.01.2010]

  • 750. Refusal to accept documents

(1) The issuing bank or the confirming bank shall, with professional diligence, review all the documents submitted to the bank and verify that they are in accordance with the terms and conditions of the letter of credit.

(2) The issuing bank shall notify the applicant of refusal to accept documents.

[RT I 2010, 2, 3 – entry into force 22.01.2010]

  • 751. Liability of bank for violation of terms and conditions of letter of credit

(1) The issuing bank shall not be liable for failure to observe or unsatisfactory observance of the instructions given to other banks related to the performance of the given letter of credit.

(2) In the case of failure to perform a letter of credit without good reason, the issuing bank or the confirming bank shall be liable to the beneficiary.

(3) If the confirming bank has performed the letter of credit, the issuing bank shall compensate the confirming bank for the amount paid.

(4) If the advising bank performs a letter of credit on the basis of documents accepted by the advising bank which fail to comply with the terms and conditions of the letter of credit, the issuing bank has the right to request that the advising bank return the amount paid in breach of the terms and conditions of the letter of credit to the beneficiary or to refuse to compensate for the amount paid.

[RT I 2010, 2, 3 – entry into force 22.01.2010]

  • 752. Costs of settlement by letter of credit

(1) The issuing bank shall be liable for the reimbursement of all expenses related to a letter of credit it issued which are incurred by other banks.

(2) The originator shall be liable for the reimbursement of all expenses related to a letter of credit which are incurred by banks.

[RT I 2010, 2, 3 – entry into force 22.01.2010]

  • 753. Expiry of letter of credit

(1) A letter of credit expires upon:

1) performance of the letter of credit;

2) expiry of the term of the letter of credit;

3) cancellation of the letter of credit.

(2) If the beneficiary waives a letter of credit and notifies the advising bank thereof, the advising bank shall notify the issuing bank thereof.

[RT I 2010, 2, 3 – entry into force 22.01.2010]

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