Research On The Fraud Exception Of Letter Of Credit

Letter of credit is a mature system in the international payment, it plays a important role in this field. Because of the intervention of bank, to some extent, this system have solved the contradiction that the buyer and seller don't believe each other because of the distance in international trade, in the meantime, it also provide convenience of the financing for them. The principle of the abstraction and independence of the letter of credit is the foundation that the system of letter of credit exist and develop, but this principle is also the key cause that causes the fraud of letter of credit, so this influences the development of the international trade seriously, the principle is also faced to the challenge. In order to protect the profit of the applicant and the issuing bank and maintain the impartial and reasonable order of international trade, some nations prescribe that there should be fraud exception when there are frauds of letter of credit in the light of maintaining the principle of the abstraction and independence of the letter of creditFraud exception is not the denial of the principle of the abstraction and independence of the letter of credit, it is the complement of the principle of the abstraction and independence of the letter of credit. Then, it is the problem we should concern that when we adopt the fraud exception and how to apply the fraud exception. If the term is too strict, we will lose some opportunities of restraining the frauds, on the contrary, it will impact and even destroy the principle of the abstraction and independence of the letter of credit.Our country also adopt fraud exception to protect the profit of the applicant and issuing bank, but sometimes the judges apply fraud exception wrong and even abuse it, which influence the prestige of our banks badly. In the author's opinion, fraud exception is just a kind of means of the legal relief. If we abuse it, this will arouse the antipathy of the bankers against the fraud exception and shake people's confidence in the letter of credit system. So, we should consummate the legislationand improve judges' character to apply the fraud exception correctly. Moreover, we have been a member of WTO, it has great significance to study the fraud exception.The article integrates the researching methods of jurisprudence, civil law, commercial law, comparative law and private international law. It composes four parts. In the first part, I bring forward the cause of letter of credit fraud-the principle of the abstraction and independence of the letter of credit. This part expounds what the principle of the abstraction and independence of the letter of credit is, analysis the necessity of being about the principle and the principle objectively protects the illegal beneficiary that lead to the overflow of the letter of credit fraud. In the second part, the article discusses that the fraud exception derives from the letter of credit system. First of all, it expounds the theory basis that the fraud exception comes into being and its emergence and development in some nations. Secondly, the article discusses the determinative standards about fraud under the conditions of fraud exception. Because it is different from the common civil fraud, it should has more strict determinative standards, or, as mentioned above, if the term is too loose, it will destroy the principle of the abstraction and independence of the letter of credit, on the contrary, it can't exert the function of the fraud exception. Finally, I bring forth some cases which does not apply fraud exception even there are letter of credit frauds in order to protect the principle of the abstraction and independence of the letter of credit and the profit of the persons who participate in the letter of credit transaction with good faith. In the third part, the article discusses the realization of legal effects about fraud exception. The applicant can seek for relief from both the bank and the court when he faces the fraud that probably occurs from the beneficiary. In order to pr...