Legal position of correspondent bank in documentary letter of credit transaction

Abstract

Considering that the documentary letter of credit is the most frequently used instrument of free foreign currency payments, as well as that the correspondent bank is an almost indispensable participant in the international letter of credit transaction, this paper is dedicated to analysing its position. The correspondent bank may take on the role of advising a letter of credit to a beneficiary, honour presented documents, or add its confirmation to a letter of credit. Depending on whether it appears as an advising, nominated or confirming bank, its rights, obligations, and responsibilities will be determined. This paper discusses the legal position of the correspondent bank depending on the role it plays, but also the liability of the issuing bank for the damage that the correspondent bank causes to the beneficiary by its actions.