Rights and obligations of documentary credit
First, the parties in the documentary credit business
First, the parties in the documentary credit business
Parties to a credit refer to the parties involved in a credit transaction。The principal parties are the issuing bank and the beneficiary of the credit。Although a bank may issue a letter of credit in its own name, most letters of credit are opened on the instructions of the applicant, who is therefore the other principal party to the credit。In addition, the advice, confirmation, negotiation, acceptance and payment of the credit make the advising bank, confirming bank, negotiating bank and accepting bank become the relevant parties of the credit。However, not every L/C transaction involves the above parties, and sometimes one party may wear multiple hats, for example, the advising bank is sometimes the confirming bank and the negotiating bank, and the issuing bank itself is sometimes the paying bank。
Most of the company's L/C business mainly involves the issuing applicant, issuing bank, advising bank, beneficiary and other parties, so this paper is limited to discussing the rights and obligations of these four parties。
2. Rights and obligations of the applicant (buyer)
1. Obligation to open letter of credit
When the sales contract provides for payment by letter of credit, the opening of a letter of credit by the buyer shall be a prerequisite for the performance of delivery by the seller。Therefore, the buyer is obliged to open a letter of credit in favor of the seller at the time and in the manner stipulated in the contract。If the buyer fails to issue the L/C as required, the buyer will be in breach of contract and the seller has the right to terminate the contract and claim compensation from the buyer。
2. Payment responsibility
The buyer opens the L/C through the bank, which does not mean the end of the buyer's payment obligation. When the seller submits the qualified documents through the bank, the buyer shall reimburse the issuing bank for the payment。Even if the bank is unable to pay the beneficiary for various reasons (such as bankruptcy), the applicant is still liable to repay the seller。
3. The right to obtain qualified documents
In the business of documentary letter of credit, documents often represent the right to the goods. The purpose of the buyer to conclude the contract and open the letter of credit is to get the documents representing the right to the goods and finally get the qualified goods。If the documents provided by the beneficiary do not conform to the provisions of the credit, the applicant has the right to refuse payment。
4. The seller's fraudulent use of letter of credit
Without prejudice to the interests of bona fide third parties and non-payment or acceptance by the issuing bank，As long as the buyer has solid evidence of the seller's fraud，Even if the beneficiary provides a full set of documents that meet the requirements of the credit，The buyer also has the right to request the bank to refuse payment，Or request the court to force the bank to stop payment of the letter of credit through a freezing order。This is the fraud exception principle of letter of credit.。Although UCP500 does not provide any remedy for LC fraud, the laws of many countries support the "fraud exception principle".。It is the interdependence of the independent abstraction principle and the fraud exception principle of L/C that makes the payment method of L/C more just and perfect。
Rights and obligations of the issuing bank
1. Open in strict accordance with the instructions of the applicant
The applicant establishes a contractual relationship with the issuing bank by submitting the application for a letter of credit, and the issuing bank must issue the letter of credit in strict accordance with the instructions in the application。If the issuing bank issues a credit contrary to the contents of the application, the issuing bank shall be responsible for all consequences arising therefrom。Of course, the act of issuing a letter of credit as far as possible to reduce the responsibility due to the discrepancy between the letter of credit and the application for issuing a letter of credit, often in the application for issuing a number of disclaimer clauses, UCP500 article 16 and 18 also made corresponding provisions on the exemption of the issuing bank。The issuing bank may be exempted from liability for any discrepancy between the L/C and the application for L/C due to these reasons。
2. Payment obligation of issuing bank
If the documents presented by the beneficiary of a credit comply with the provisions of the credit, the issuing bank must pay the amount of the credit to the beneficiary or accept the draft issued by the beneficiary。The issuing bank's obligation to pay is not only to the beneficiary, but also to the applicant。Since the buyer and the seller stipulate in the basic contract that the payment shall be made by L/C, the buyer is obliged to open a L/C。By issuing a letter of credit, the issuing bank means that it has established a contractual relationship with the applicant and will replace the commercial credit with its own letter of credit to pay the beneficiary when it presents documents conforming to the provisions of the letter of credit。Payment by the issuing bank is not only the fulfillment of its promise to the beneficiary in the letter of credit, but also the fulfillment of its obligations with the issuing applicant in the application。
3. The right to be paid
After issuing a credit, the issuing bank is entitled to receive reimbursement from the applicant if payment is made against documents complying with the provisions of the credit。However, if the credit issued by the issuing bank deviates from the application for the credit, or the issuing bank wrongly honours documents that do not conform to the documents, the applicant has the right to refuse payment。
4. Issuing bank's obligation to review documents
A letter of credit usually stipulates that the beneficiary must submit the documents stipulated in the letter of credit to the bank when requesting the bank to perform the obligation of payment, acceptance or negotiation. The bank shall examine whether the documents submitted by the beneficiary meet the conditions stipulated in the letter of credit before payment, acceptance or negotiation。Article 9 of UCP500 also has corresponding provisions, so the examination of documents is an important obligation of the issuing bank。The bank should follow the principle of strict conformity, which requires that the documents should be strictly consistent with the terms of the letter of credit on the surface。However, Article 15 of UCP500 also provides for the exemption of bank documents, and the bank is not responsible for the form, completeness, accuracy, authenticity, falsity or legal effect of any documents。
5. Issuing bank's obligation to keep documents
The beneficiary submits the full set of documents to the issuing bank in accordance with the provisions of the credit. During the period before the issuing bank examines the documents and makes payment, the issuing bank, as the trustee of the beneficiary, has the responsibility to keep the documents。The issuing bank is therefore responsible for any defects, alterations or damages to the documents during this period。
The issuing bank shall not dispose of the documents without authorization during its possession。If the issuing bank considers the documents to be inconsistent, it should not send the original documents to the applicant, even if the applicant claims that he needs to inspect the goods, the issuing bank should not take the discretion。Otherwise, the issuing bank shall bear the consequences arising therefrom。Of course, the issuing bank may not be liable if it considers that there are no discrepancies in the documents or if the beneficiary informs the issuing bank to send the original documents to the applicant。
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