Buyer-Seller Relationship in the Underlying Contract in a Letter of Credit with Emphasis on Iranian law

The main parties to a letter of credit have obligations that each must fulfill and comply with. The first point is that each party has the obligations. In the obligations of the applicant for a letter of credit, the buyer is obliged to open a letter of credit in favor of the seller based on an implied condition, which is considered an active condition. The seller, along with the buyer, also has obligations that she/he must strive to fulfill, as the beneficiary of the letter of credit is obliged to fulfill her/ his obligation correctly and in good faith, free from any fraud or deceit. He/she must also undertake to contact the letter of credit broker at the designated time to request payment by presenting the letter of credit documents. In addition to the obligations of each party to a letter of credit, there are also rights that can be mentioned for each party. Among the rights that can be mentioned for the buyer is that in exchange for presenting forged documents, the buyer can file a lawsuit for compensation for the damages he/she suffers, without the right to terminate the basic contract. It is also conceivable for the seller to have legal rights, in that the seller also has the right to terminate the basic contract in the event of the buyer's failure to fulfill the basic obligations and can file a lawsuit for damages and loss of profit incurred as a result of the buyer's failure to fulfill the obligations. The main objective of this research is to analyze in detail the legal relationship between the buyer and the seller in the basic contract related to the letter of credit, focusing on the Iranian legal system. The results and achievements of the research show that the parties have contractual compensation mechanisms in case of violation of the provisions of the basic contract and its breach.