The Legal Status Of Negotiating Bank In The L/c Transactions

The negotiation means the purchase by the nominated bank of drafts and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due. The legal nature of the negotiation includes financing and the purchase of documents. Major theories concerning the legal status of the negotiating bank under the process of letter of credit include:agent of the issuing bank, agent of the beneficiary, the holder in due course and the transfer of claims. Through careful analyzing, it is safe to draw the conclusion that none of the above theories can clarify the legal status of the negotiating bank. It has been demonstrated that negotiating bank should be regarded as an independent party of the negotiation legal relationship. According to UCP600and the practice of letters of credit, the negotiating bank has the following rights:First, rights against the issuing bank, including:the right of denial to negotiate, the right of refusal when the presentation of documents is not comply with the L/C, the right to demand reimbursement from the issuing bank; the right to be reimbursed under the condition of fraud by the beneficiary, and the right to take an action in its own name; Second, the rights against the beneficiary, including:the right to require the beneficiary to present complying documents; and the right to recourse; Third, the rights over the documents and goods; Fourth, the right of immunity.The negotiating bank’s obligations are:first, pay careful attention to its eligibility to negotiate and state such eligibility while claiming reimbursement; second, examine the documents and/or drafts strictly; third, notify the beneficiary in a timely manner; fourth, negotiate in a timely manner; and fifth, act in good faith. Then, the issue of right of recourse and its legal basis; the rights over the bill of lading, and the risk prevention measures are further analyzed. Finally, it is recommended that the following measures shall be taken to improve the judicial interpretation of the L/C negotiation:first, explicitly clarify the status of the negotiating bank as an independent party in the negotiation relationship; second, clarify the right over bill of lading hold by negotiating bank is the right of title; third, specify the application of the right of recourse.