ICC Digital Library Forum

Jeremy,

At least the drafts are useful for one thing: escape some consequences in case of fraud.
Daniel

Our Uniform Commercial Code section 5-109 expressly limits injunctive relief by requiring an applicant to show not only fraud in the drawing but also that the issuer did not act in good faith when it accepted the time draft.

What happens later, whether the banker's acceptance is held to maturity, sold into the BA market, or pre-purchased or pre-paid, cannot affect the issuer's right of reimbursement under the UCC or under the typical issuing bank reimbursement agreement. Here seeking an injunction after an issuer has accepted or incurred a deferred payment undertaking is primarily an exercise in paying the legal fees of the attorneys for both the applicant and the issuer.

The UCC -- both LC law and draft acceptance law -- would deny pre-honor relief and force the applicant to seek post-honor relief against the beneficiary.

If an issuer does not have the protection of the UCC or a helpful reimbursement agreement, then the issuer might well refuse to discount without some kind of indemnity from the beneficiary to cover the costs of litigation as well as the amount of the accepted draft.

Regards, Jim Barnes