Question: what is required for a letter of credit

title: Letter of credit
text: It might also be feasible to typify letters of credit as a collateral contract for a third - party beneficiary , because three different entities participate in the transaction : the seller , the buyer , and the banker . Jean Domat suggests that because letters of credit are prompted by the buyer 's necessity , the cause of a LC is to release the buyer of his obligation to pay directly to the seller . Therefore , a LC theoretically fits as a collateral contract accepted by conduct or in other words , an implied - in - fact contract where the buyer participates as the third party beneficiary with the bank acting as the stipulator and the seller as the promisor . The term `` beneficiary '' is not used properly in the scheme of an LC because a beneficiary ( also , in trust law , cestui que use ) in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor . Note that under the scheme of letters of credit , banks are neither benefactors of sellers nor benefactors of buyers and the seller receives no money in gratuity mode . Thus is possible that a `` letter of credit '' was one of those contracts that needed to be masked to disguise the `` consideration or privity requirement '' . As a result , this kind of arrangement would make letter of credit to be enforceable under the action assumpsit because of its promissory connotation .