Liability Issues of the Credit Agreement Parties
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Abstract
The article analyses liability issues of the credit agreement parties that arise due to the imperfection and incompatibility of the Lithuanian system of payment by letters of credit to the existing international traditions and banking practice. The problems discussed are related to the credit agreement parties’ failure to carry out obligations or when the implementation of obligation is faulty. The article provides with the criteria for the definition of the credit agreement parties’ obligations. It also suggests supplementing the existing Civil Code of the Republic of Lithuania with the norms that would better ensure the rights and interests of the credit agreement parties.
After the analysis of the abovementioned questions, the author of the article arrives at the following conclusions:
It has been established that on the basis of the credit agreement, the legal responsibility of its participants can arise on two causes. First of all, because of the non-compliance with the main agreement, where the payment is made by a letter of credit. The second cause is the non-compliance with the main agreement, when the obligation arises from the bank account agreement.
After breaching the buyer’s rights and legitimate interests in the credit agreement, two reasons for a buyer to file a claim come out. The first one is defined as the buyer’s right to file a suit to the bank for the reimbursement of the damage done due to the obligation related to the non-compliance with the procedures of payment by a letter of credit even though the bank had to carry out this obligation according to the bank account agreement. The second reason for the lawsuit is to submit claims to reimburse the damage done related to the non-compliance with the implementation of the main agreement to the party of the main agreement (contrahent).
The responsibility of the issuing bank, as stipulated in Article 6.940, clause 1 of the Civil Code of the Republic of Lithuania, is not exhaustive on the grounds that the norm discussed does not entrench responsibility of the issuing bank in respect of the beneficiary.
It has been assessed that in case the issuing bank’s liability in regard to the advising bank is not identified in the law, the relations of the issuing bank and advising bank become complicated.
It is suggested not to exempt the issuing bank and advising bank from the liability for the non-compliance with the procedures of payment by a letter of credit, when the contrahents of the main agreement do not claim pretence.
The author of the article recommends establishing liability measures for the advising bank in the legal basis of Lithuania, when the bank fails to carry out or improperly carries out its obligation in the credit agreement.
The author suggests establishing direct liability of the issuing bank to the beneficiary and supplementing part 2 of article 6.940 of the existing Civil Code of the Republic of Lithuania.
It is recommended to establish direct responsibility of the intermediary bank that has breached an obligation in the credit agreement.
After the analysis of the abovementioned questions, the author of the article arrives at the following conclusions:
It has been established that on the basis of the credit agreement, the legal responsibility of its participants can arise on two causes. First of all, because of the non-compliance with the main agreement, where the payment is made by a letter of credit. The second cause is the non-compliance with the main agreement, when the obligation arises from the bank account agreement.
After breaching the buyer’s rights and legitimate interests in the credit agreement, two reasons for a buyer to file a claim come out. The first one is defined as the buyer’s right to file a suit to the bank for the reimbursement of the damage done due to the obligation related to the non-compliance with the procedures of payment by a letter of credit even though the bank had to carry out this obligation according to the bank account agreement. The second reason for the lawsuit is to submit claims to reimburse the damage done related to the non-compliance with the implementation of the main agreement to the party of the main agreement (contrahent).
The responsibility of the issuing bank, as stipulated in Article 6.940, clause 1 of the Civil Code of the Republic of Lithuania, is not exhaustive on the grounds that the norm discussed does not entrench responsibility of the issuing bank in respect of the beneficiary.
It has been assessed that in case the issuing bank’s liability in regard to the advising bank is not identified in the law, the relations of the issuing bank and advising bank become complicated.
It is suggested not to exempt the issuing bank and advising bank from the liability for the non-compliance with the procedures of payment by a letter of credit, when the contrahents of the main agreement do not claim pretence.
The author of the article recommends establishing liability measures for the advising bank in the legal basis of Lithuania, when the bank fails to carry out or improperly carries out its obligation in the credit agreement.
The author suggests establishing direct liability of the issuing bank to the beneficiary and supplementing part 2 of article 6.940 of the existing Civil Code of the Republic of Lithuania.
It is recommended to establish direct responsibility of the intermediary bank that has breached an obligation in the credit agreement.
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Authors retain copyright of their work, with first publication rights granted to the Association for Learning Technology.
Please see Copyright and Licence Agreement for further details.
