A Comparative Analysis of the Effect Third Party Fraud to the Payment of Transaction Documents

One of the basic characteristics of documentary transactions is the independence of these transactions from the underlying contract and the documentary payment terms in these transactions. The beneficiary of the letter of credit shall present the documents stated in the Letter of Credit or the bank guarantee in order to claim payment. In some cases, the documents presented by the beneficiary are fraudulent while this action might have been committed without cooperation or even the information of the beneficiary by a third party. Whether or not the principle of fraud would be applicable regarding the third party fraudulent actions, two viewpoints have been presented. Many lawyers believe in the view that the fraud principle is also applicable for the third party deceptions, and the payment shall be withheld (it shall be refrained from payment) in this regard. On the other hand, another group believes that the fraud principle is not applicable against the guiltless beneficiary, and the amount in the letter of credit shall be paid. This article will review and analyze the position of legal systems in this respect.