Letters Of Credit

Front 1

Who are the 5 typical parties in a documentary sales transaction?

Back 1

1) Buyer
2) Buyer's Bank
3) Seller
4) Seller's Bank
5) Carrier

Front 2

What are the three typical contracts in a documentary sales transaction?

Back 2

1) sale of goods contract
2) bill of lading
3) letter of credit

Front 3

Negotiable Bill of Lading

Back 3

Issued by carrier. Carrier promises to deliver goods to physical holder of BOL in exchange for freight charge.

Front 4

Letter of credit

Back 4

Promise by a bank (usually Buyer's Bank) that it will pay seller the contract price on condition of seller presenting evidence that goods have shipped to buyer.

Front 5

Confirmed Letter of Credit

Back 5

Seller has promise from a local bank, before shipment of the goods, of payment if the goods are shipped.

Front 6

Which type of letter of credit is customary in a documentary sales transaction?

Back 6

Confirmed, Irrevocable Letter of Credit

Front 7

Who is the first party to initiate a Letter of Credit?

Back 7

Buyer will contract with Buyer's Bank to issue a Letter of Credit.

Front 8

Irrevocable Letter of Credit

Back 8

Bank is bound to terms of Letter of Credit after issuance.

Front 9

Who is the first party to initiate a Bill of Lading?

Back 9

Carrier issues Bill of Lading to the Seller upon receipt of goods to be shipped.

Front 10

UCC Article 5

Back 10

UCC rules for Letters of Credit

Front 11

ICC

Back 11

International Chamber of Commerce

Front 12

UCP

Back 12

Uniform Customs and Practices for Documentary Credits. (incorporated by reference in most international letters of credit)

Front 13

Is the UCP law?

Back 13

No. It is more of a manual of operations for banks that restates "custom" in the industry.

Front 14

Is UCP binding?

Back 14

Only if "incorporated into the text of the Credit" as a contract term.

Front 15

Do UCP provisions prevail over "gap-filler" provisions of UCC Article 5?

Back 15

Yes, because most of UCC Article 5 is not mandatory law.

Front 16

What are the two primary differences between the UCC provisions and the UCP?

Back 16

UCC has provisions on fraud and on enjoining payment against documents where fraud or forgery exist. UCP does not.

Front 17

What are the 2 basic principles of the letter of credit rules promulgated by the UCP?

Back 17

1) Banks' obligations under the LOC are independent of the buyer's and seller's obligations under the sales contract.
2) Banks deal only with documents, not with goods or any issues conerning performance of the sales contract.

Front 18

What is the primary document for describing goods in a documentary sales transaction?

Back 18

Commercial Invoice: Description in invoice must be specific and must "correspond with the description in the credit." (Rayner v. Hambros Bank)

Front 19

Hanil Bank v. PBN (Indonesian bank)

Back 19

Bank allowed to refuse payment because of a typo on the letter of credit which made it not match other documents exactly.

Front 20

Wrongful dishonor of a credit

Back 20

When either the issuing or confirming bank refuses to pay when proper documents are presented.

Front 21

Wrongful honor of the credit

Back 21

When the issuing bank honors the beneficiary's presentation when the documents has discrepancies or are fraudulent.

Front 22

UCP Article 14(a)

Back 22

Allows, but doesn't require a bank to consult the buyer for a waiver of discrepancies it has discovered in the LOC.

Front 23

What is the "reasonable time" that the UCP gives banks to take up or refurse documents?

Back 23

7 banking days or less depending on nature of transaction. This includes petitioning for waiver from buyer and notifying party presenting documents.

Front 24

What is the rule for a bank stating discrepancies to the party that presents documents to it?

Back 24

When stating discrepancies to the party presenting documents, bank must state all that it will rely upon. Failure to state all "precludes" bank from claiming non-compliance due to any unstated discrepancies later on. (only ONE chance to reject documents)

Front 25

What is the most important document required by a letter of credit?

Back 25

transportation document (could be bill of lading, air transport documents, etc.)

Front 26

UCC §5-116(2)

Back 26

Provides that issuing banks and confirming banks are each governed by the law of the jurisdiction in which they are located, thus providing different rules for different parties to the same transaction.

Front 27

SWIFT

Back 27

Society for Worldwide Interstate Financial Telecommunications: dedicated lines for bank-to-bank communication often used for letters of credit