Banks Deal with Documents and Not with Goods, Services or Performance Essay - 1

Banks Deal with Documents and Not with Goods, Services or Performance to Which the Documents May Relate - Essay Example The limitations of the bank’s role in dealing with documents without exceeding these limits in the light of judiciary’s view will be discussed.4 This is divided into three sections: the principle of independence in the bank’s role in complying with the documents, analysing the doctrine of strict compliance and the position of the bank in interpreting the doctrine and the bank’s duty in relation to the exceptions to the above doctrines. 2. The Principle of Independence 2.1 General overview As Goode highlights, the principle of independence, or the principle of autonomy, is the most essential principle of a document of credit (DC).5 It is not an exaggeration to say that the true benefits of the LC go hand-in-hand with this principle. It is the â€Å"cornerstone of the law relating to a letter of credit†.6 This means that an LC is separate and independent from underlying contracts between the credit’s parties7. In Nareerux Import Co. vs. ... ctual obligations towards the latter.11 Generally, not carrying out some or all of these obligations does not give the buyer the right to ask the bank to withhold payment to the seller as long as the documents presented by the beneficiary are compatible ‘on their face’ with the LC12. This is true unless it does not fall into any of the exceptions13 that will be discussed in Section 3 of this essay. Therefore, the commitments of both the confirming bank and the issuing bank are considered in regards to the documents and not the goods. This has been confirmed in the Sztejn vs. Henry Schroeder Banking Corporation 14 case, where the court stated that: â€Å"It is well-established that a letter of credit is independent of the primary contract of sale between the buyer and the seller. The issuing bank agrees to pay upon presentation of documents, and not the goods. This rule is necessary to preserve the efficiency of the letter of credit as an instrument for the financing of trade.†15 Moreover, Act 4(a) the UCP 600 states that a credit is a separate transaction from any other underlying contract, and banks are not bound to such contracts. Therefore, the role of the bank is to honour, negotiate or fulfil obligations under the credit.16 However, the bank, as a plaintiff or defendant, in the case regarding the LC, does not have the right to plead its relationship with the other bank or with the buyer. This is true even in the case when the buyer does not pay for the LC.17 2.2 Case Laws under the Principle of Independence The sanctity of the LC and its separation from any contractual relations between the credit parties has been emphasized in many case laws18. This makes independency of the bank’s role related to the DC very clear. Thee role of a bank is related to the