Discussion On Legal Problems Of The Exception Principle Of Fraud In L/C

As an important settlement method in international trade, with the special operating mechanism of replacing commercial credit of buyers and sellers with bank credit, letter of credit has got widespread use in foreign trade to play an important role in promoting the development of international trade. As the special principled attribute of letter of credit, the principle of independent abstractness is the source for letter of credit to keep the special operating mechanism.But, as the increase of trade contacts among countries and the popular application of letter of credit, cases of fraud in letter of credit increase because immoral merchants maliciously utilize the inherent defects of the principle of independent abstractness. By utilizing the rule of strict compliance of letter of credit, the beneficiary intentionally provide bill of document with superficial compliance but not representing the real goods to cheat bank loans. The former acts not only shake the trade confidence between buyer and seller, but influence the sustainable development of international trade in the long-term. Just with the produce and development on the base of the need for restraining fraud in letter of credit, the exception principle of fraud in letter of credit does not deny the independent principle of letter of credit, but makes out remedial measures on the base of confirming the former principle, and shall not be used to the third party acting in good faith, the confirming bank as well as the negotiating bank. On the premise of being informed fraud before payment, the issuing bank has right to refuse to pay for goods, or if the issuer disagrees to pay for goods on the condition of being informed fraud, the issuer has right to apply bank to court with jurisdiction to stop cashing the payment of letter of credit. The former acts are the exception principle of fraud in letter of credit with the substance of utilizing judicial measures to protect and balance the interests of the parties.At the present time, although the exception principle of fraud in letter of credit is accepted by countries all over the world, all countries fail to make out explicit provisions on the exception principle of fraud in letter of credit. Though our country formally put in force the Provisions of the Supreme People's Court on Some Problems of Trying Cases of Letter of Credit Disputes on January 1st,2006, but the provisions on fraud in letter of credit are still ambiguous to strictly distinguish the substantiality of fraud, and because of the different apprehensive levels of local judicial organs and local regional protectionism in actual operation, so a series of problems take place for the former reasons.So this paper will discuss this topic through the following parts with the first part to put forward the basic theories of letter of credit as well as fraud in letter of credit and the reason for fraud in letter of credit. The second part will put forward the concept of the exception principle of fraud in letter of credit, discuss the conditions for developing and applying the exception principle of fraud in letter of credit, and make out specific illustration on the theories of the principles of honesty and credibility and balance of interest of the exception principle of fraud in letter of credit. The third part will put emphasis on carrying out analysis to the base of defining the principle of independent abstractness as the exception principle of fraud in letter of credit. The fourth and fifth parts will discuss the exemption and value effect of the exception principle of fraud in letter of credit. And the sixth party will discuss the legislative situations, judicial practice, existing problems as well as suggestions on perfecting legislation of our country on the exception principle of fraud in letter of credit.