Abstract

If a person is going to give up something of value, what is to ensure that something of value will be received in return? This exchange occurs familiarly in trade transactions. A person giving up goods for money wants to make sure that the money will be received. A letter of credit, with documents attached, can be used to accomplish the transaction. In the past, the seller1 in a securities transaction would give the securities with a demand draft attached to a messenger. The messenger would walk to the buyer’s firm and present the demand draft with the attached securities for payment. The buyer would try to ascertain whether the securities were genuine; if they were, the buyer paid with a certified check (a check that had been stamped as certified by a bank, resulting in the debiting of the buyer’s account by the bank). Consequently, the seller had the bank’s obligation, not the buyer’s. If the buyer could not pay for the securities, the messenger would return with them. In those transactions, therefore, there would only be delivery against payment (that is, the certified check).