A Reflection on The Relationship Between A Banker and His Customer Under A Letter of Credit
Keywords:
Relationship, Banker, Customer, Letter of CreditAbstract
The banker/customer relationship is a relation based largely on contract with well-defined terms. The contract conferred reciprocal rights and duties upon the parties. This is to say that the bank under normal banking operation is supposed to respect only the written terms of the contract between it and the customer. However, banks often intermittently of course perform some other duties which are not spelled out in the contract. The bank at times act as an agent of the customer towards other persons with whom the customer has a transaction. A documentary credit transaction stands out as a clear example of a situation where a bank act as an agent for the customer. The base contract giving birth to the opening of a documentary credit for the customer by the bank is a sale contract between the customer (buyer) and a seller in which they agree payment be made by a documentary credit. The conclusion of payment of goods supply to be made by documentary credit often give rise to three other independent but inter-related legal transactions among which is the transaction between the customer (buyer) and the issuing bank. This article focuses on this relationship between the customer and the bank which lead to the opening of a documentary credit. The credit is opened on the request of the customer for the benefit of the seller. The objective of this article is therefore to examine the content of the relationship between a customer and the issuing bank under a documentary credit transaction.
References
1. I. J Goldface Irokalibe (2007): Law of Banking in Nigeria, Malthouse Press Limited Lagos, Nigeria. p 311
2. Letter of credit or documentary letter of credit or banker’s commercial credit.
3. Pennington et al (1978): Commercial Banking Law, 1 st Ed, McDonald & Evans Estover. Plymouth London. 309
4. That a letter of credit is an undertaking by a bank is underscored by Article 2 of the ICC Uniform Customs and Practice for Documentary Credit UCP 600. The Article provide: Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.
5. (1998) 1 NWLR (pt 532) 118. In Union Bank of Nigeria v . Sparkling Breweries Ltd (1991) 5NWLR (pt 505) 334, it was defined as a modern device whereby the buyer requests his banker to open credit in favour of the seller and in pursuance of that the banker or his foreign agent issues a confirmed credit in favour of the seller.
6. Article 5 UCP 600 is categorical on the fact that banks in documentary transaction deals with documents and not goods.
7. (1986) 4 NWLR (pt 36) 409
8. This is the concern of this article
9. Documents required under a letter of credit generally inclu de: commercial invoice (article 18 UCP 600), transport documents covering at least two mode of transport (article 19), bill of lading (article 20), non -negotiable seaway bill (21), charter party bill of lading (article 22), air transport documents (23), ra il, road or inland waterway transport documents (article 24), courier receipt, post receipt or certificate of posting (article 25), insurance document and coverage (article 28). For want of space I shall in this paper focus on bill of lading under article 20, commercial invoice under article 18 and insurance (marine insurance) policy under article 28. Article 28 covers insurance generally and is not limited to a particular class of insurance.
10. (1988) 1 WLR 88,
11. Article 20 (a) (i) UCP 600
12. Article 20 (a) (iii)
13. Article 20 (a) (vi) UCP 600.
14. (1942) 2 ALL ER 694
15. Relating to discrepancy in description Article 16 of the UCP 600 Rules is to the effect that ‘when a nominated bank acting on its nomination, a confirming bank, if any, or the i ssuing bank determines that a presentation does not comply, it may refuse to honour or negotiate’ {Art. 16(a)}. By using the word may the Rules simply put into the hands of the banker the discretion to accept or refuse to honour or negotiate a bill of exch ange drawn by the seller. If the banker decides to honour the bill of exchange despite the discrepancy between letter of credit and bill of lading, he has to approach the presenter (seller) for waiver of the discrepancy under the condition stipulated by pa ragraph (b) of Article 16 UCP 600. The banker may decide to dishonour the bill of exchange as a result of the discrepancy. Where this option is taken the banker must give notice to that effect. Article 16 (c).
16. (1960) 6 Comm.Cas 1
17. Article 28 (c) state categorically that cover notes will not be accepted.
18. Article 28 (j) UCP 600
19. Article 28 (f) (i) and (ii).
20. In a situation where the CIF or CIP value cannot be gotten from the insurance document the second proviso to paragraph (f) (ii) of article 28 is helpful. The proviso is to the effect that: the amount of insurance coverage in such situations must be calcu lated on the basis of the amount for which honour or negotiation is requested or the gross
21. value of the goods as shown on the invoice, whichever is greater.
22. Article 28 (g) JBIL (2019) 1-11 © Law Journals 2019. All Rights Reserved Page 11
23. Article 18 (b) ibid
24. One may be tempted to hold that the relationship betwe en the banker and customer under a documentary credit transaction by nature is leaned on a contract for service since the banker been an expert in his field will be considered as an independent contractor. This reasoning will not stand the test time with r egard to documentary credit transaction because it will simply be failed to explain the irrevocability of an irrevocable letter of credit.
25. Chung Hui Wang (1907): The German Civil Code, London. 137
26. For the definition of a documentary credit see the provisions of notes 3 supra
27. Delvin J in Midland Bank Ltd. V. Seymour (1955) 2 Lloyds Rep. 147
28. The undertaking of the banker is in an irrevocable letter of credit
29. It has long observed in International Railway Co. v. Niagara Parks Commission (1941) AC 328 , that in cases like this the agent is not a mere, but s/he is or has become a party to the main contract. This reasoning of the court still holds till date since the banker is a party to the main contract under a documentary letter of credit transaction.
30. (1955) 204 F. 2d 377
31. It is important to note here that the contract between a banker and a customer under a documentary credit transaction will not exist without a prior contract between the buyer and seller who are involve in an international sale of goods contract.
32. Implied acceptance will not be in the best interest of the buyer (customer) because if it happens that the banker fails to open the documentary credit it will difficult for the buyer to institute a legal action against the banker.
33. (1866) L.R 1 Ex 109. It is also important to note that even where the banker accepts the offer of the buyer in writing he (banker) must act within reasonable time.
34. Article 35 Uniform Customs and Practice for Documentary Credits 600
35. Article 37 (a) ibid.
36. (1975) 1 AEL 1071
37. 1955) 2 Lloyd’s Rep
38. Error in translation or interpretations of terms in the application is not imputable on the bank see Article 35 of UCP 600.
39. I. J Goldface-Irokalibe (2007), law of Banking in Nigeria, Malthouse Press Ltd Lagos Nigeria. 311
40. The banker will be at fault should failed to honour a conforming draft.
41. (1997) 2 NWLR (pt 485) 28
42. Article 14-a
43. To this effect i.e. duration of examination Article 14 -b provides: A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This period is not curt ailed or otherwise affected by the occurrence on or after the date of presentation of any exp iry date or last day for presentation.
44. By the underline contract I mean the contract of sale between the buyer (customer of the issuing bank) and the seller.
45. (1958) 2 Q.B 127
46. (1840) l M & G753
47. Article 34 UCP Rules 2006
48. Article 35 (a) ibid.
49. Article 36 ibid captioned force majeure provide that: A bank assumes no liability or responsibility or the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, act s of terrorism, or by any strikes or lockouts or any other causes beyond its control.
50. A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such interruption of its business. Cite this Article Mantinkang Formbasso Lawrence . A Reflection on The Relationship Between A Banker and His Customer Under A Letter of Credit . Journal of Banking and Insurance Law. 2019; 2(1): 1–11p.
