Study Of Credit A Number Of Legal Issues

In international trade, the sales of goods is usually paid by documentary credit. The letter of credit utilizes the credibility of the banks to assure the seller that the payment will be made once goods shipped and documents in order. For two hundred years, merchants have utilized the letters of credit to facilitate the international trade. Letter of credit was not created by law but came from the practice in the business. So it is hard to avoid some problems in law. This paper seeks to make a comparative analysis on some of these problems.This paper consists of six chapters.Chapter I is a brief introduction to a letter of credit. Letter of credit, as an agreement of payment, is characterized by the credibility of the banks. When the payment is made by a letter of credit, the exporter don't secure promises of payment from the importer but from the issuing bank. So the exporter needn't depend on the importer's will and ability for payment. The characters of a letter of credit can be summed up as follows : (1)A letter of credit is independent to the underlying contract; (2)the issuing bank is the principal payer; (3)the transaction of letter of credit only deals with the documents. Letter of credit came from practice and developed promptly in practice. In order to unify the rules in different countries, International Chamber of Commerce formulated ICC Uniform Customs and Practice for Documentary Credits(UCP) and amended it constantly to adapt to the development of practice. Letter of credit has many species. This paper is only concerned with the species for payment in international trade.Chapter II explores the legal essence of a letter of credit. Many parties are involved in a letter of credit and different kinds of legal relations are therefore established, among which the most controversial one is about the essence of the legal relations between the issuing bank and the beneficiary. To explore the essence of a letter of credit is to explore that of the legal relations between the issuing bank and the beneficiary. Scholars in different countries have put forward a variety of theories.This section introduces the contract theory, the guarantee theory, the agency theory, the assignment and novation theory, the delegation of debt theory and the theory of contract for the benefit of the third party. All these theories can't explain the letter of credit accurately. As law systems are different from country to country, to explain the letter of credit by certain domestic law will certainly destroy the international unification on the rules of letter of credit. The opinion in this paper is that the letter of credit is a kind of special commercial behavior. It is not proper to mechanically explain the letter of credit by some specific regulations in domestic law because it proves to be no help. It is important to consider the necessity from which the letter of credit arised and its character decided by the necessity. All the characters constitute a new kind of law system-letter of credit. It has special legal essence and its own particular rules.Chapter III examines the application of the principle of strict compliance. In practice, there are some disputes from different standards regarding "strict compliance". This chapter explains the conditions for the application of this principle, including the substantive conditions and the procedural conditions. In substantive conditions, "strict compliance" includes not only absolute literal compliance but also substantial compliance. In procedural conditions, the bank must determine on the basis of the documents alone whether they appear to be in compliance with the terms and conditions of the credit or not. Moreover, the bank must comply with the strict rules regarding time limit. Otherwise the bank can't quote the principle of strict compliance to refuse the payment.Chapter IV discusses the fraud by use of the letter of credit and the fraud exception. Coated with "independence", the letter of credit is intended to provide the beneficiary with the assurance of payment...