11.4 Characteristics of a Letter of Credit信用证的特征

11.4 Characteristics of a Letter of Credit信用证的特征

To make the most of a letter of credit to your advantage,you need to keep in mind the following important features of a credit transaction,which are stipulated in UCP 600.

Firstly,a credit transaction is independent of the sales contract.A credit may be issued as per the sales contract,or even contain wordings like “other terms as per contract No.XXX”,but once it takes effect,it is a separate transaction from the sales contract that is backed by a banker’s credit.The banks are in no way concerned with or bound by such contracts,but only follows instructions in the application submitted by the importer.As long as the documents you have presented comply with the credit,the issuing bank or the confirming bank(if any)should fulfill its own undertaking to pay,regardless of other parties’ attitudes or actions.

Secondly,a letter of credit represents a transaction of documents.When a credit is used,all parties concerned deal with documents instead of goods,services or other performances to which the documents may relate.As long as the documents you have presented are in complete compliance with terms of the credit,the issuing bank or the bank nominated by the credit shall fulfill the undertaking to pay,accept or negotiate.

Thirdly,the primary undertaking to make payment rests with the issuing bank.This implies,even if the applicant is bankrupt or in default,the issuing bank still has to pay under a complying presentation.In the case of a confirmed credit,the confirming bank must honor the credit without recourse even when the issuing bank refuses to pay.

These stipulations may seem counter intuitive at first sight,but if you put yourself in the shoes of a bank,the logic will be clear—banks are no experts of goods,thus it is just impossible for them to investigateevery detail of the goods before they can honor a credit.And if they had to reference the sales contract for every decision to pay or not to pay,they would be frequently plunged into dilemmas—which document should they abide by?The credit or the contract?If a bank had to do all these,it may probably avert issuing a credit,as this would be too cumbersome and inconvenient and too much cost.