On Legal Status Of Issuing Bank Under Documentary Credits

Letter of credit(L/C)has been an important payment way in the field of international financial and international trade, since its emergence of the 19th century. L/C formed during the banks and other financial institutions took part in settlement with the development of the international trade. The seller can get the payment and the buyer can get the shipping documents because the issuing bank guarantees to pay for the beneficiary. To some extent L/C resolves the contradiction of mutual distrust between the buyer and the seller in the field of international trade. And L/C provides money to facilitate the financing of the buyer and the seller. The issuing bank replaces the commercial credit with the bank credit under L/C. So L/C is the lifeline for the international trade. The issuing bank plays a central role in every running aspect of L/C, and it is the issuing bank that makes L/C has an unique advantage. So we can say L/C cannot exist without the issuing bank.The main body of the article is divided into three parts to analyze the issuing bank's legal status and uses the method of theory combining with cases. The first part mainly introduces the legal fundamentals that the issuing bank undertakes the paying obligation. The question of the issuing bank's paying obligation is the core and fundamental question in the whole system of L/C. It is the premise of legal relations among parties to L/C. The reason of the issuing bank's paying obligation in documentary credit is the agreement between the issuing bank and the beneficiary. If the beneficiary renders the documents which conform with the provision of L/C, the issuing bank must defray the amount of the payment under L/C to the beneficiary or accept the drafts whose drawer is the beneficiary. The issuing bank guarantees the payment depending on the bank's credit of its own, so the obligation is absolute. This part states in two sides. First, the statement is about the conception and characteristics of L/C. In essence, L/C is a promise. The issuing bank promises to pay for the beneficiary under the provisions of L/C when the beneficiary renders the documents which conform with L/C. The characteristics of L/C confirm the obligation. The issuing bank can't refuse the application for paying through the defense which the buyer has against the seller in the sale contract. Even the applicant has lost the ability to repay or has been bankrupt, the issuing bank can't avoid paying for the beneficiary. Second, the principle of the autonomy of L/C has two contents. They are about the absolute and the independence of the issuing bank's paying obligation. Finally, the issuing bank's paying under L/C shall not be influenced by the performance of underlying contracts, and they shall not intervene with those contracts, either.The second part states other questions about the issuing bank including its liability to honor to the presentation and related liability to flawed paying. The principle of strict compliance sets down the standards of the issuing bank's examination of documents. According to the principle, the issuing bank checks the documents rendered by the beneficiary on the face, but not materially. After Uniform Customs and Practice for Documentary Credits (UCP600), the issuing bank checks the documents flexibly. The issuing bank should have the checking opinion of its own.The issuing bank can't be compelled to accept the applicant's opinion although the issuing bank is afraid of having no repay. The issuing bank has the refuse right to take up the documents which have the discrepancies with L/C, during the process of examination of the documents. The issuing bank can contact the applicant to know the applicant's opinion. The applicant's acceptance can be seen it has agreed to change L/C. But the issuing bank contacts with the applicant doesn't mean that the applicant has the refuse right. The behavior of contacting doesn't mean giving up the right.The third part states the legal status of the issuing bank by researching the relationship between the issuing bank and the applicant, the relationship between the issuing bank and the beneficiary, the relationship between the issuing bank and other banks including the advising bank,the negotiating bank,the paying bank,the confirming bank. First, the legal relationship between the issuing bank and the applicant is a contract and tha has no name. The author doesn't agree with other opinions. Second, the legal relationship between the issuing bank and the beneficiary is a special relationship that the issuing bank pays for the beneficiary and the beneficiary renders the documents. The relationship is not a contract. Finally, the article states the relationship between the issuing bank and other banks. The advising bank is the agent of the issuing bank, so it has no obligation to pay for or negotiate the beneficiary and the issuing bank. The confirming bank has the independent obligation which is the same to the issuing bank paying for the beneficiary. The negotiating bank and the paying bank usually are the same one. The negotiating bank can lend the money of its own to the beneficiary and accept the documents when the issuing bank promises repayment. The paying bank is the agent instead of the issuing bank to pay for the beneficiary.