Legal Issues On Bill Of Exchange Under Letters Of Credit

As an instrument for international payment, letter of credit is becoming more and more important with the development of China's foreign trade. Instead of fabrication by law, letter of credit is a creature of merchants and bankers. Therefore, commercial practices and customs are highly emphasized during the usage of letters of credit, while few countries have special statutes concerning letters of credit. As disputes about letters of credit increase with the more and more prevalent use it, series of legal issues desiderate clarification. Among these issues, the particularity of bill of exchange used under letters of credit has caused many disputes in practice, whereas academic discussion about it is far from enough. This paper intends to analyze the particularity of bill of exchange used under letter of credit, to present the special rights and obligations of it, and to provide suggestions for solving this problem in judicial practice. The initial part of this paper introduces the historical and practical significations of draft used under letter of credit. Then through the analysis and comparison of various aspects of draft, this paper presents the adverse legal effect common negotiable instruments rules have on bill of exchange used according to letter of credit arrangement. Based on these, three conclusions are drawn: (1) letters of credit draft has the common characteristics of negotiable instruments, but it bears peculiarities because of the arrangement of letters of credit; (2) these peculiarities should be taken into consideration when settling the disputes. The conventional practice of international banks as well as rules of negotiable instruments shall bear equal importance to satisfy the internationalization of letters of credit; (3) special judicial interpretation are necessary on this issue in order to settle down the contradictory practice. Analytical and comparative methods are extensively used in this paper. In addition, typical cases are illustrated and foreign practices are referred to so as to draw the conclusions and provide suggestions.