Research On The Rules Of Examination And Legal Risks Of Letter Of Credit

The payment of Letter of Credit (L/C) requires accordance from bills to L/C, so the most crucial segment of the transaction is the examination of bills and L/C. Various views and disagreement on the definition of accordance from bills to L/C evoke lots of dispute, seriously blocking the rapid development of L/C."rules on handling the cases of dispute of L/C"issued by Supreme Court, which tells on provision six item one that in China strict accordance is adopted, ending the dispute on strict accordance and substantial accordance. Actually few bills can strictly accord with L/C, so the understanding of the strict accordance is still a problem in both business and judicial field. In order to grasp the understanding of strict accordance, we must research the rules of transaction of L/C and the significance of independent examination of L/C by the bank. The innovations of this article are: 1.reaserching and explaining the essence of"rule of strict accordance"by examples explication, and displaying the ten types of accordance as well as the eight types of disaccordance, in order to expose the"rule of strict accordance"and provide an easy access to implementation. 2. explaining the thesis from the aspects of risks and interests. It's not merely an academic question of the dispute between"strict accordance"and"virtual accordance"but the interests and risk undertaking. There's no doubt that banks are the advocator and benefiteer of the"rule of strict accordance", whose risks are diminished by using"rule of strict accordance". The benefiteers of the L\C are prone to accept the"virtual accordance"because that it's a right of banks to refuse payment once the bills and L\C are teemed with disaccordance. If benefiteers are rendered the right to supervise the examining procedure with"rule of virtual accordance", banks will be hesitate to refusing the payment in order to secure the payment. The author believes that the"rule of strict accordance"should be adopted, because the"rule of virtual accordance"is more difficult to operate, if the judgment rule is equivocal, the key procedure of examination will be ambiguous. The risks existing in the examination is not caused by the"rule of strict accordance", but the misusage of this rule. The"rule of virtual accordance"will lead us to the dilemma in the international trading. As the banks dealing with international trading, the exporting and importing payment will be secured only by examining the L\C and bills strictly during the procedure. It's very crucial to let the banks control the risk, if fully application of L\C is required. 3. The premise of system of L\C is that banks examine the bills exclusively in order to control the risks. The payment of L\C is a bank credit, because the issuing bank use its credit to secure the payment, it's the credit but not the fund, so its trait is the issuing bank should pay first under the circumstance of accordance. If banks are deprived off the exclusive examination, they will be added more risks and responsibility, leading to the wither of L\C. Whether banks should examine exclusively is so important that it's related the perish of L\C. The bank exclusive examination includes exclusive examination of issuing bank, exclusive examination of Negotiating Bank, exclusive examination of confirming bank. All these banks are possessed with interest and legal risk, which should be seriously concerned.