Question 433. - Bank A issues a general letter of credit for $5,000, which is presented by holder at bank B, showing endorsements of $1,000. Bank B pays $3,000 against it. Later it is presented at bank C showing (according to their statement) endorsements amounting to only $1,000. (Bank B apparently having neglected to endorse their payment) and a further $3,000 is drawn. Holder disappears with letter of credit. In view of actual proof missing, has bank C any hope of avoiding a loss? Would this not suggest extra precautions for banks to take?

Answer. - This would be a matter for adjustment between the three banks concerned, but failing adjustment the rights of the parties would have to be decided on the evidence. Bank C could probably establish its claim without production of the letters of credit, in which case it would have recourse against bank A, which in turn would probably have recourse against bank B. The circumstances here are somewhat unusual, but serve to emphasize the importance of issuing letters of credit only to persons of undoubted integrity.