Negotiating Bank (i) Unless the negotiating bank is nominated in the credit and it accepts the nomination or it is the confirming or paying bank, no bank can be compelled by the beneficiary to negotiate documents under the credit. A bank, under an open credit, may accept on its own to negotiate documents.
(ii) Article 13 provides: “Banks must examine all documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit. Compliance of the stipulated documents on their face with the terms and conditions of credit, shall be determined by international standard banking practice as reflected in these Articles. Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in accordance with the terms and conditions of credit.”
Therefore, the negotiating bank should accept documents tendered only if they conform to the terms and conditions of the credit. In documentary credits all parties concerned deal in documents and not in goods. Therefore, he cannot ensure correctness of the goods shipped but can only see that the documents on their face appear to be as required by the credit.
(iii) If the negotiating bank finds any discrepancies in the documents tendered , but still negotiates, it may require the beneficiary to execute an indemnity in favor of the bank. But such indemnity cannot be transferred to the issuing bank without the consent of the beneficiary.
(iv) If the terms and conditions of the letter of credit appear to be ambiguous , the negotiating bank has to decide about the interpretation and the documents to be accepted. It should act in good faith and accept only reliable documents.