Documentary Credit on International Trade Financing: Its Nature and the Legal Implications

Abstract

A letter of credit (L/C)[1] is defined in Article 2 of Uniform Code of Customs and Practice (UCP) as . . . any arrangement, however named or described, whereby a bank (the ‘issuing bank) acting at the request and on the instructions of a customer (the ‘Applicant) or on its own behalf:

i.              is to make payment or to the order of a third party (the ‘Beneficiary’), or is

to accept and pay bills of exchange (Draft(s) drawn by the Beneficiary; or

ii.             authorizes another bank to effect such payment, or accept and pay such bills of exchange (draft(s); or

iii.            authorizes another bank to negotiate against stipulated document(s) provided that the terms and conditions of credit are complied with.

It is an instrument issued by a bank on behalf of the importer (buyer) promising to pay the exporter (beneficiary) upon presentation of shipping documents in compliance with the terms stipulated herein.

[1] Article 2 of Uniform Code of Customs and Practice (UCP) 1993 revision