Comparative Law Researches

Comparative Law Researches

Assignability of Letter of Credit Proceeds under the Iranian Legal System

Document Type : Original Article

Author
Mohammad Arian
Assistant Professor, International Commercial Law Department, Faculty of Law, Shahid Beheshti University
10.48311/clr.2025.116827.82779
Abstract
An effective method of trade financing is the assignment of proceeds under a letter of credit, as provided for in Article 39 of the Uniform Customs and Practice for Documentary Credits (UCP 600). Although this article recognizes such a mechanism, it makes its application subject to the governing law of the credit. Where the credit is governed by Iranian law, several questions arise: Is the assignment of proceeds permitted under the Iranian legal system? What is the legal nature of this mechanism? Is the consent of the issuing bank a condition for its validity? According to the findings of this research, the assignment of proceeds can be characterized as a debt purchase agreement (contract of assignment of debt), in which the consent of the issuing bank is not a prerequisite for its validity. Furthermore, the prohibition on the discounting of foreign currency documentary credits contained in the first section of Iran's foreign exchange regulations lacks legal validity, as the Central Bank has acted beyond its statutory authority. This prohibition is also inconsistent with the rules that create rights, the revocation of which requires the approval of the legislature.
Keywords
Letter of Credit Transfer
Assignment of Proceeds
Discount
Debt Purchase Agreement
Trade Finance
Uniform Rules for Documentary Credit (UCP 600)
Subjects
 
A) Books
1.     Adodo, Ebenezer (2014). Letter of Credit: The Law and Practice of Compliance, Oxford, Oxford University Press.
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3.     Dolan, John (2012). The Law of Letters of Credit: Commercial and Standby, Vol. 2, 4th ed., New York, Lexis Nexis A.S. Pratt.
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6.     International Chamber of Commerce-ICC (2007). Commentary on UCP 600: Article by Article Analysis, Paris, ICC Publication No. 680E.
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B) Articles
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C) Cases
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[In Persian]:
A) Books
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B) Articles
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30. Fasihizadeh, A., Hosseini Khatoonabadi, S. N. and Fasihizadeh, M. (2021). “A Contrastive Study of Cession of Claim and Novation by Substitution of Creditor in Iranian Legal System”, Journal of Legal Research, 20(47), 195-217. Doi: 10.48300/jlr.2021.140168.
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38. Salehi Mazandarani, M. and Bayat, F. (2014). “Analysis of Legal Nature of Transfer of Credit Through Banking System”, Private Law Research, 2(5), 33-61.
39. Shahbazinia, M. and Ounagh, S. (2013). “Analyzing the Legal Nature and the Legitimacy of Discounting of Commercial Instruments based on their Single and Combined Nature in Islamic Jurisprudence (Figh) and Legal Opinions”, Comparative Law Researches, 17(1), 99-120.