Concept and Domain of Fraud in Letters of Credit: Comparative Study in English, American and Iranian Law and Jurisprudence

Document Type : Original Article


1 Ph.D. Candidate, Law College, Shahid Beheshti University, Tehran, Iran

2 Associate Professor of Private Law, Shahid Beheshti University, Tehran, Iran



By virtue of the autonomy principle in letter of credit and independent guarantees any dispute relates to the underlying transaction shall not have any effect on the payment process. Nevertheless, in case of fraud by beneficiary, applicant may be entitled to stop the payment process. Although proving of bad faith is necessary in England law, but with regard to rules uniform commercial code and United Nations convention on independent guarantees, stand-by letters of credit applicant are not required to prove any sort of bad faith by the beneficiary. It is sufficient for the applicant to prove that demand for payment can be treated as illegitimate. Notwithstanding, it is suggested that fraud exception shall not be restricted to making fraud in document. If beneficiary makes any fraud in underlying transaction, the applicant shall be entitled to apply for injunctive relief to stop payment process.


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