On The Availability Of Subrogation Of The Paying Bank In The Letter Of Credit Context

This article is finished at May, DC 2002 and presented to the East China University of Politics & Law for the Master Degree of Law. This article is addressing the availability and reasonability of subrogation right of the paying bank in the letter of credit context. In this article we hope to find and establish the reasonability of endowing the subrogation to the banks. Since the Independent Principle has commanded the letter of credit, the banks including issuing bank, confirming bank and negotiating bank have been denied in subrogation. Witnessing and anticipating some difficult situation of the banks that performed the payment obligation, there is very need to revise the legal position of the rules and readdress balance between the international commercial custom and the internal law, the issuer and other parties. By demonstrating and inducting that the credit shares the common nature with surety, by analyzing that the bank's obligation to pay the money is secondary essentially rather than primary in the perspective of total transaction link, We conclude that permitting the bank of subrogation is reasonable and it will never harm the reasonable expectation of the beneficiary of the credit. The Judge Becker's opinion in Tudor case enlightened people and UCC revision allow subrogation to the bank who has pay according to the credit firstly, though the objections is still there even in U.S. We have to acknowledge that the legal theory of allowing or permitting subrogation to the bank of credit is just an amendment to classic theory of letter of credit rather than a creation, which will certainly exercise far-reaching influence on protecting the just benefit of the bank. Perhaps we can expect a complete legal theory of letter of credit and such autonomous obligation as the on demand guaranty. The article comprises of over 41000 Chinese phrases and is divided into four chapters containing some subsections. Chapterâ… makes a line of subrogation right in different law system and demonstrates possible difficult situation of the bank after their payment. The author points out that there is demand for the subrogation right for the bank of the letter of credit. Chapter â…¡ is focus of this article, in which author rationalizes the reasonability of permitting subrogation to banks in letter of credit by arguing that firstly the credit shares common nature with the surety, secondarily the bank's primary obligation is secondary to the bank's customer. Author makes a clear introduction of the new development of the issue in the UCC-5 (1995) of U.S. In the chapter â…¢, the author of this article makes a simple line of the subrogation right of the bank of credit. In chapter â…£, the author makes some advice to Chinese bank when China's law lends no support to the subrogation claim. The bank can take the advantage of U.S. law by selecting it as applicable law of the letter of credit, which is the only path to subrogation right for China's banks in letter of credit business before China's law adopt the theory and permit the right. However we think China should establish a new complete theory of credit and enact the banks' subrogation right.