On The Issuing Bank And The Legal Relationship Between The Negotiating Bank

Letter of credit is one of the most important settlements in international trade, but there is no denying that there exists many disputed issues needed to be resolved among which the most controversial one is about the legal relationship between issuing bank and negotiating bank. It is well-known that letter of credit is not created by law but originates from the practice in the business. However, UCP is just a set of rules of operation. Many problems are not involved in UCP. Consequently, these problems are mainly resolved by domestic law. Therefore, to explore the legal relationship between the two cannot avoid facing many difficult problems. This thesis seeks to make an analysis on the subject.This paper consists of four parts:ChapterⅠ introduces the legal feature of letter of credit. Many parties are involved in a letter of credit and therefore different kinds of legal relations are established. The author deems that the legal essence of letter of credit is the premise and basis on the legal relationship between issuing bank and negotiating bank. That is , the latter largely depends on the former. After discussing the definition of letter of credit, the author introduces some typical theories on the legal properties of letter of credit. In the end, the author puts forward his own idea on this subject.ChapterⅡ discusses negotiation and negotiation credit. How to ascertain the meaning of negotiation has evoked much controversy in both theory and practice. Scholars in different countries have put forward a variety of viewpoints. In fact, the key to understanding the relations between issuing bank and negotiating bank is to grasp the negotiation. Negotiation Credit has its own prominent characteristics. Negotiating bank is the bank that is authorized to negotiate draft(s) or document(s) and its rights and obligations straightly reflect the legal relationship between issuing bank and negotiating bank. ChapterⅢ is the keystone of the thesis. The legal relationship between issuing bank and negotiating bank is the subject of widespread controversy and there exists several representative theories. The contract theory maintains that a letter of credit is a chain of contracts and therefore there is also a kind of contract between the two parties whose rights and obligations will be adjusted by this contract. The theory on the negotiating bank as agent of the issuing bank is widely supported by lots of scholars and judges in the world. The view holds that negotiating bank is authorized to negotiate document(s) by the issuing bank possessing right to indicate negotiation. The theory is exposed to criticize strongly by another theory whose principal opinion is that the negotiating bank actually is on behalf of the beneficiary's interests and acts as an agent of the beneficiary. In addition, some scholars interpret the relationship between two parties as bill relation. Chapter Ⅳ is the author's consideration about the legal relationship between the two parties. To analyze the legal relationship should begin with the essence of letter of credit. In the end, the author puts forward his suggestions and gives the qualifications of a negotiating bank.