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138 Banking L.J. 108 (2021)
The Negotiating Bank in a Documentary Credit

handle is hein.journals/blj138 and id is 116 raw text is: The Negotiating Bank in a Documentary
Sang Man Kim'
In a documentary credit transaction, a beneficiary normally obtains
post-shipment finance through negotiation of the documents and/or bills of
exchange to their bank. Under the UCP 600, only a nominated bank
which is authorized to negotiate can be a negotiating bank. A negotiating
bank has various duties and rights to an issuing bank as well as to a
beneficiary. This article discusses issues concerning the elements of negotia-
tion in a documentary credit including the concept and operation of
negotiation, and the subject and object of negotiation. The article also
discusses the negotiating bank's legal status with respect to an issuing bank
and a beneficiary. In addition, the article explores a negotiating bank's
various duties and rights to an issuing bank and a beneficiary and suggests
points and cautions for a negotiating bank in the process of negotiation in
a documentary credit transaction.
A documentary credit is a definite undertaking of an issuing bank to honor
a complying presentation.1 A documentary credit provides certainty of payment
to a beneficiary and allows an issuing bank to evaluate precisely its risks under
the credit.2 In a documentary credit, a bank shall pay to a beneficiary against
a complying presentation of documents, a payment is made on the basis of the
documents presented, and a documentary credit is thus called a paper
transaction or documentary transaction.3 A bank to which documents are
presented for payment or negotiation shall examine the documents to decide
whether they are complying with the terms and conditions of a documentary
credit.4 A bank does not have to assess whether or not the terms and conditions
Sang Man Kim (ksm03O 1 @hotmail.com) is a professor at the Department of International
Trade, Duksung Women's University, Seoul, Korea, an attorney at law (New York), and a former
director at the Korea Trade Insurance Corporation.
1 See UCP 600 Article 2.
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.
2 See Bisker v. NationsBank NA, 686 A 2d 561 (District of Columbia Court of Appeals,
3 Carole Murray et al, Schmitthoffs Export Trade: the Law and Practice ofInternational Trade,
11th ed, Thomson Reuters (2010), at 190.
4 See the UCP 600, Article 7(c): An issuing bank undertakes to reimburse a nominated bank


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