The Standard Of "Material Fraud" In The Law Of Letters Of Credit In The United States Of America

The principle of independence is the cornerstone of letter of credit law.It supports the development of L/C transactions with its unique values.The fraud exception rule originates from the independence principle.Concretely speaking,the fraud exception is the exception to the independence principle,rather than the denial to it.The fraud exception derives from the basic principles of civil and commercial law,and thrives in the L/C transactions.As an important instrument of international payments,L/C impels publication and modification of related international customs.As for the principle of fraud exception,the International Chamber of Commerce(ICC)has not stipulated definite rules in the international customs,but rather left it to every jurisdictions.The United States of America as a large trading country,took the lead in establishing the rule of fraud exception.Later,the rule was codified.Also,with the development of judicial practice,the standard of “material fraud” was established in the revised UCC95.As an important standard gauging whether L/C fraud exists,“material fraud” is left to courts to define its width and depth in accordance with UCC95.United States has a federal system.As a result,judicial systems differ from one state to another.Based on the analysis of L/C fraud cases in the last 15 years,it is not difficult to find that different precedents and different understanding of each judge lead to standard of “material fraud” an indefinite one.The Chapter One gives an introduction of the principle of fraud exception's origin and development.Firstly,L/C as an instrument created by merchants has a long history and special meaning.Secondly,an important principle in L/C law is the principle of independence.That L/C separates from the underlying contract,and that banks have a duty to pay against the complying document constitute the unique values of the independence principle.Lastly,the principle of fraud exception originates from the principle of independence.Also,the creation and evolution of fraud exception is interwinded with the development of international trading industry.The fraud exception to the independence principle has a rational basis to exist,and it has been acknowledged and established universally.The Chapter two and Chapter Three mainly discuss “material fraud” in the law of letters of credit in the United States.The first part gives a brief introduction of standard of L/C fraud before the modification of UCC95.During this period,due to the vague stipulation of UCC,both theorists and practitioners articulate different understandings of the stipulation.The second part deals with the standard of “material fraud” set forth by UCC95 and its application.In this part,the author gives analysis and conclusion of how courts understand and apply this standard in reality,basing on the research of case law concerning L/C fraud in the past 15 years.Finally,the author lists several classic “material fraud” cases,and gives an elaborated introduction of facts and courts' reasoning.The Chapter Four sets forth the conclusion based on the previous chapters.After analyzing related cases of the United States,the author concludes four features as well as some practical problems of “material fraud”.