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Tethering the Fraud Inquiry in Letter of Credit Law

Banking and Finance Law Review, Vol. 21, p. 479, 2006

Wayne State University Law School Research Paper No. 07-43

27 Pages Posted: 8 Dec 2007  

John Dolan

Wayne State University Law School

Abstract

The law of abstract payment undertakings fashions a rule that the undertakings are, as their name implies, independent of the transactions out of which they arise. That independence principle admits of an important exception if the beneficiary of the undertaking fraudulently seeks payment when he has no colorable right to payment. The parameters of the fraud exception to the abstraction principle are of necessity imprecise. Although courts have developed a number of limits to the exception, some courts, unaware of the danger they pose to the commercial efficacy of these undertakings, sometimes engage in a wide-ranging fraud inquiry. This article contends that courts must limit the inquiry. The article illustrates the problem with analysis of three cases, one each from Australia, Canada and the United States.

Suggested Citation

Dolan, John, Tethering the Fraud Inquiry in Letter of Credit Law. ; Wayne State University Law School Research Paper No. 07-43. Available at SSRN: https://ssrn.com/abstract=1060881

John Dolan (Contact Author)

Wayne State University Law School ( email )

471 W. Palmer
Detroit, MI 48202
United States
313-577-4856 (Phone)

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