Letter of Credit Forum

Since coming into existence of the ICC guidelines regarding the examination of documents, the main duty of the LC bank consists of determining whether the documents appear on their face to comply with the LC provisions. The obligation to strictly follow the issuer's instructions is a consequence of the credit being an instrument of documentary payment.

Article 13 UCP 600 was drafted in order to conform with the URR Uniform Rules for Bank-to-Bank Reimbursement (URR 525). The URR 525 were in need of reform and  have been replaced by the URR 725 which entered into effect as of October 1, 2008. 

This means, that the URR are still separate from the UCP and have to be specficially referenced in order to make them part of the agreement. Unless such a reference exists Article 13 UCP 600 governs the obligations of the banks regarding reimbursement. 

Article 11 UCP 600 is identical to Article 11 a and 11c  UCP 500. Article 11b UCP 500 had been moved to Article 9 d UCP 600 ("A bank utilizing the services of an advising bank or second advising bank to advise a credit must use the same bank to advise any amendment thereto.")

Many of us have come to appreciate Peter M, whose posts have answered authoritatively many questions raised in the forum. Peter has disclosed that he is a Senior manager in the Commercial Financial Services  section of  a major North American Bank and has agreed to share with us his "Trade Finance - A User Guide".

Joint and Several Liability

Uncle Sam wants you (r money) . Anyone remember the times when health care reform for 30 billion was too expensive ? Now that the TARP flood gates of 700 billion dollars are being opened (car manufacturers are on the list, porn industry wants some, anybody else out there ?) some US policy makers devise plans to fill the treasury coffers.  

A Credit transaction will be substantially determined 

Article 4 UCP (entitled "Credits v. Contracts") confirms (as did Article 3 UCP 500), that a "A credit by its nature is a separate transaction from the sale or other contract on which it may be based." In this regard there is no change to the UCP 500: a letter of credit is not a contract to the benefit of a third party; under no circumstances can the beneficiary avail itself of the relation between applicant and issuing Bank.