Beneficiary of a SBLC/Commercial LC has presented a complying demand to the issuing bank.
Is there any responsibility of the issuing bank (under UCP or ISP)to verify the authenticity of the beneficiary's signature(s) appearing on the demand ?
Regards,
Shahed
Verification of beneficiary's signature (s)
Verification of beneficiary's signature (s)
This is a mixed law/rules question.
Under the Uniform Commercial Code, 5-109, an issuer may honor a forged document subject only to a test of good faith (defined as honesty in fact).
Under UCC 5-108 an issuer that honors a presentation in which a required signature of a beneficiary was forged is not discharged. The net effect is that the issuer remains obligated to the true beneficiary and therefore may have to pay twice (and the applicant may have to reimburse twice).
There are a few state variations on the relevant UCC sections. Also, the applicant-issuer reimbursement agreement could affect an issuer's responsibility toward the applicant. And the LC terms could affect an issuer's obligation to the true beneficiary (which is why I counsel against LC undertakings to pay against documents that are "purportedly" signed). The forger may be an unauthorized former employee of the true beneficiary or there may be other facts shifting liability for forgery back to the true beneficiary under non-LC law.
The laws of other jurisdictions, may allow for an exception to the independence principle and impose a duty on the issuer to detect forgery in the signature of a draft or other document appearing to bear the beneficiary's signature.
ISP98 Rule 4.13 expressly denies issuer responsibility to the applicant to identify the beneficiary except in certain e-presentations.
Regards, Jim Barnes
[edited 6/12/2014 8:19:05 PM]
Under the Uniform Commercial Code, 5-109, an issuer may honor a forged document subject only to a test of good faith (defined as honesty in fact).
Under UCC 5-108 an issuer that honors a presentation in which a required signature of a beneficiary was forged is not discharged. The net effect is that the issuer remains obligated to the true beneficiary and therefore may have to pay twice (and the applicant may have to reimburse twice).
There are a few state variations on the relevant UCC sections. Also, the applicant-issuer reimbursement agreement could affect an issuer's responsibility toward the applicant. And the LC terms could affect an issuer's obligation to the true beneficiary (which is why I counsel against LC undertakings to pay against documents that are "purportedly" signed). The forger may be an unauthorized former employee of the true beneficiary or there may be other facts shifting liability for forgery back to the true beneficiary under non-LC law.
The laws of other jurisdictions, may allow for an exception to the independence principle and impose a duty on the issuer to detect forgery in the signature of a draft or other document appearing to bear the beneficiary's signature.
ISP98 Rule 4.13 expressly denies issuer responsibility to the applicant to identify the beneficiary except in certain e-presentations.
Regards, Jim Barnes
[edited 6/12/2014 8:19:05 PM]
Verification of beneficiary's signature (s)
Thanks, Jim.
Is their any ruling in any ICC opinions, or the UCP 600, or the ISBP ?
Shahed
Is their any ruling in any ICC opinions, or the UCP 600, or the ISBP ?
Shahed
Verification of beneficiary's signature (s)
Regards, Jim Barnes
UCP600 Art. 34 says that a bank assumes no liability or responsibility for the genuineness of any document or for the good faith of any person.
Even assuming "document" includes the beneficiary's draft, this long standing disclaimer leaves unclear whether it does more than excuse an issuing or nominated bank that seeks reimbursement after paying against forged documents.
National negotiable instruments laws may influence the result in case of any dispute with the true beneficiary. More important, letter of credit law and policy should protect the true beneficiary. Forged drawings are not a practical problem, but they were addressed in the UCC codification of LC law to protect the reputation of the LC product.
Regards, Jim Barnes
UCP600 Art. 34 says that a bank assumes no liability or responsibility for the genuineness of any document or for the good faith of any person.
Even assuming "document" includes the beneficiary's draft, this long standing disclaimer leaves unclear whether it does more than excuse an issuing or nominated bank that seeks reimbursement after paying against forged documents.
National negotiable instruments laws may influence the result in case of any dispute with the true beneficiary. More important, letter of credit law and policy should protect the true beneficiary. Forged drawings are not a practical problem, but they were addressed in the UCC codification of LC law to protect the reputation of the LC product.
Regards, Jim Barnes