The Impact of Fraud in the Underlying Transaction on Documentary Credits with an Emphasis on the Approach of Iran's Civil Courts in Case of the Big Bank Fraud

The rule of fraud has a vital role on documentary credit. This rule considers as an exception to the principle of independence. In most cases, fraud is made in documents by the beneficiary, that the exception of fraud being properly applied; since the documentary credit has been formed of combination of several legal acts, the fraud may also occur in the underlying transaction. Despite the fact that most legal systems have accepted the exception of the fraud, but judicial procedures differ in terms of the limits and cases of applying fraud exception. In general, there are two approaches to extending or refusing the exception of the fraud in the underlying transaction: the broad approach, according to which the fraudulent acts should be extended to the fraudulent behavior of the underlying transaction and the narrow approach, supports the principle of independence and restricts the fraud to forgery or fraudulent documents. The examination of Civil cases of the Big Bank Fraud indicates that the majority of judges have followed the narrow approach