Letters of credit are the most common method of payment in international trade as they provide The bank is not required to make any judgment as to the adequacy of the performance of the beneficiary, nor as to the importance of any particular term of the letter of credit. This rule is necessary to preserve the letter of credit as an instrument for the financing of trade.
Furthermore, the seller will often transport goods across large distances and across national borders. Furthermore, the seller will often transport goods across large distances and across national borders. It is thus unclear whether the fraud relates to the underlying transactions, the documentation, or both.
Spread - The difference between the buying bid rate and the selling offer rate of any foreign currency for any particular period. There is case law to support the view that in order for the fraud to justify dishonour of the credit, it must be a fraud that exists in the presentation of the documents, and applies only when a fraudulent credit transaction is alleged, as opposed to a fraud relating to the underlying contract.
If performance were not made in strict accordance with the letter of credit, the bank would then be contractually obliged to the applicant, to refuse payment on the credit. Highly Customizable A letter of credit is highly customizable.
Prior to the revision to the UCC,  there was an ongoing debate as to whether the concept of fraud in the underlying transaction, as provided in the old Article of the UCC, referred only to the transaction between the issuer of the credit and the beneficiary, or whether it also referred to the underlying transaction between the beneficiary and the applicant of the credit.
Letters of credit are the most common method of payment in international trade as they provide Beneficiary - The party who receives payment as stipulated in a letter of credit.
Advising Bank - A bank that accepts a letter of credit from the issuing bank, verifies its authenticity, and forwards it to the beneficiary.
In this regard, it is vital to recognise the distinction between a fraud that relates to the underlying agreement, and one that relates to the documents. The doctrine of strict compliance is not the focus of this dissertation, but it is a vital component of the structure of credits.
This would entail that the beneficiary, if it had been truthful in its representations, would have presented documentation that did not strictly comply with the requirements of the letter of credit. See also "negotiating bank".
Shientag sought to overcome this problem by treating the fraud as one that existed in the documentation. Unless that, the bank will not issue payment. Negotiating Bank - The bank that reviews the documents required in the letter of credit for compliance with its terms and remits payment to the beneficiary.
The commercial practice of documentary credits entails that the buyer makes an application to a bank to issue an undertaking to make payment to the seller, once the bank receives certain documentation on behalf of the buyer from the seller, indicating that the seller has dispatched conforming goods.
However, this distinction is sometimes superficial. The parties establish a letter of credit,  which enables the seller to obtain payment from a bank within his jurisdiction. These were originally published in Fraud on the part of the beneficiary in such breach is a vital element.
Safely Expand Business Internationally A letter of credit gives the trade partners an ability to transact with unknown partners or in newly established trade relationships.
By accepting a draft, the bank is obligated to pay the face amount at a specified time in the future, usually six months or less after acceptance. However, one can envisage circumstances where it would be unconscionable to insist that a bank makes payment to a seller, if the seller has been unscrupulous towards the buyer.
Shientag based this exception squarely on the ex tur pi caus a rule. The UCP upholds and applies the principle of independence. When a draft bears this phrase, the time begins to run from its date. The issuing bank must honor the draft s negotiated before the notice of revocation has been made.
The buyer may also request the seller to submit insurance documentation, certificates to prove quantity or quality, packing lists, and any other documentation required to show that the seller has complied with the terms of the underlying sales agreement.
The Defendant argued that the bank could only concern itself with the documents, which on their face complied with the terms of the credit. The Sztejn matter was central to the development of the law relating to the fraud exception in America, as it was the first reported matter where the exception was upheld in no certain terms, and where a broad formulation for the exception was outlined by the court.
Issuing Bank - Bank that draws up and issues the letter of credit and that makes payment according to the conditions Letter of Credit - An instrument issued by a bank, at the request of the applicant, promising to pay the beneficiary upon his presentation of stipulated documents in accordance with the terms and conditions of the credit.
During the course of his judgement, Shientag J stated the following:With the development of international trade, many methods of payment in foreign trade appeared, such as open account, the letter of credit, bill of collection and advantage payment.
Direct Collection - Method of payment for goods in which the seller sends a draft drawn on the buyer, the shipping documents, invoices, insurance See also “letter of credit”.
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Additional Cost – Bank Fee; Time-Consuming Formalities; Advantages of Letter of Credit. A letter of credit enjoys various advantages in executing an international trade transaction. Some of the major ones are below.Download