Uniform Customs and Practice for

Documentary Credits,
Gregoria J. Doble
Dept Chair, Customs and Public Administration
This module covers the Uniform Customs for Documentary credits which involves the discussion of types of
Letter of Credit and the rules of applying it.

At the end of this module, the students should be able to:

1. Discuss the different types of letter of credit

2. Understand the meaning of UCP 600
3. Identify the rules in applying the letter of credit
Types of Letter of Credit

1. Irrevocable LC. This LC cannot be cancelled or modified without consent of the beneficiary (Seller). This LC
reflects absolute liability of the Bank (issuer) to the other party.

2. Revocable LC. This LC type can be cancelled or modified by the Bank (issuer) at the customer's instructions
without prior agreement of the beneficiary (Seller). The Bank will not have any liabilities to the beneficiary after
revocation of the LC.

3. Stand-by LC. This LC is closer to the bank guarantee and gives more flexible collaboration opportunity to
Seller and Buyer. The Bank will honour the LC when the Buyer fails to fulfill payment liabilities to Seller.
4. Confirmed LC. In addition to the Bank guarantee of the LC issuer, this LC type is confirmed by the Seller's
bank or any other bank. Irrespective to the payment by the Bank issuing the LC (issuer), the Bank confirming the
LC is liable for performance of obligations.

5. Unconfirmed LC. Only the Bank issuing the LC will be liable for payment of this LC.

6. Transferable LC. This LC enables the Seller to assign part of the letter of credit to other party(ies). This LC is
especially beneficial in those cases when the Seller is not a sole manufacturer of the goods and purchases some
parts from other parties, as it eliminates the necessity of opening several LC's for other parties.
7. Back-to-Back LC. This LC type considers issuing the second LC on the basis of the first letter of credit. LC is
opened in favor of intermediary as per the Buyer's instructions and on the basis of this LC and instructions of the
intermediary a new LC is opened in favor of Seller of the goods.

8. Payment at Sight LC. According to this LC, payment is made to the seller immediately (maximum within 7
days) after the required documents have been submitted.
9. Deferred Payment LC. According to this LC the payment to the seller is not made when the documents are
submitted, but instead at a later period defined in the letter of credit. In most cases the payment in favor of Seller
under this LC is made upon receipt of goods by the Buyer.

10. Red Clause LC. The seller can request an advance for an agreed amount of the LC before shipment of goods
and submittal of required documents. This red clause is so termed because it is usually printed in red on the
document to draw attention to "advance payment" term of the credit.
WHAT IS UCP 600?

The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication no. 600 ("UCP")
are rules that apply to any documentary credit ("credit") (including, to the extent to which they may be
applicable, any standby letter of credit) when the text of the credit expressly indicates that it is subject to these
rules. They are binding on all parties thereto unless expressly modified or excluded by .
The UCP 600 (“Uniform Customs & Practice for Documentary Credits”) is the official publication which is
issued by the International Chamber of Commerce (ICC). It is a set of 39 articles on issuing and using Letters of
Credit, which applies to 175 countries around the world, constituting some $1tn USD of trade per year.
 Credits v. Contracts

a. A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks
are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the
credit. Consequently, the undertaking of a bank to honour, to negotiate or to fulfil any other obligation under the
credit is not subject to claims or defenses by the applicant resulting from its relationships with the issuing bank
or the beneficiary.
A beneficiary can in no case avail itself of the contractual relationships existing between banks or between the
applicant and the issuing bank.
b. An issuing bank should discourage any attempt by the applicant to include, as an integral part of the credit,
copies of the underlying contract, proforma invoice and the like.
 Documents v. Goods, Services or Performance

Banks deal with documents and not with goods, services or performance to which the documents may relate.
ORIGINAL DOCUMENTS AND COPIES

a. At least one original of each document stipulated in the credit must be presented.
b. A bank shall treat as an original any document bearing an apparently original signature, mark, stamp, or label
of the issuer of the document, unless the document itself indicates that it is not an original.
c. Unless a document indicates otherwise, a bank will also accept a document as original if it: i. appears to be
written, typed, perforated or stamped by the document issuer's hand; or ii. appears to be on the document issuer's
original stationery; or
iii. states that it is original, unless the statement appears not to apply to the document presented.
d. If a credit requires presentation of copies of documents, presentation of either originals or copies is permitted.
e. If a credit requires presentation of multiple documents by using terms such as "in duplicate", "in two fold" or
"in two copies", this will be satisfied by the presentation of at least one original and the remaining number in
copies, except when the document itself indicates otherwise.
COMMERCIAL INVOICE

a. A commercial invoice:
i. must appear to have been issued by the beneficiary (except as provided in article 38); ii. must be made out in the name
of the applicant (except as provided in sub-article 38 (g)); iii. must be made out in the same currency as the credit; and
iv. need not be signed.
b. A nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may accept a commercial
invoice issued for an amount in excess of the amount permitted by the credit, and its decision will be binding upon all
parties, provided the bank in question has not honoured or negotiated for an amount in excess of that permitted by the
credit.
c. The description of the goods, services or performance in a commercial invoice must correspond with that appearing in
the credit.
BILL OF LADING

a.A bill of lading, however named, must appear to:

i. indicate the name of the carrier and be signed by:
- the carrier or a named agent for or on behalf of the carrier, or
- the master or a named agent for or on behalf of the master.
Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.
Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of
the master.
ii. indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit by:
- pre-printed wording, or
- an on board notation indicating the date on which the goods have been shipped on board.
The date of issuance of the bill of lading will be deemed to be the date of shipment unless the bill of lading contains an on
board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be
the date of shipment.
If the bill of lading contains the indication "intended vessel" or similar qualification in relation to the name of the vessel,
an on board notation indicating the date of shipment and the name of the actual vessel is required.
iii. indicate shipment from the port of loading to the port of discharge stated in the credit.
If the bill of lading does not indicate the port of loading stated in the credit as the port of loading, or if it contains the
indication "intended" or similar qualification in relation to the port of loading, an on board notation indicating the port of
loading as stated in the credit, the date of shipment and the name of the vessel is required. This provision applies even
when loading on board or shipment on a named vessel is indicated by pre-printed wording on the bill of lading.
iv. be the sole original bill of lading or, if issued in more than one original, be the full set as indicated on the bill of
lading.
v. contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage
(short form or blank back bill of lading). Contents of terms and conditions of carriage will not be examined.
vi. contain no indication that it is subject to a charter party.
b. For the purpose of this article, transhipment means unloading from one vessel and reloading to another vessel during the carriage
from the port of loading to the port of discharge stated in the credit.
c.
i. A bill of lading may indicate that the goods will or may be transhipped provided that the entire carriage is covered by one and the
same bill of lading.
ii. A bill of lading indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment, if the
goods have been shipped in a container, trailer or LASH barge as evidenced by the bill of lading.
d. Clauses in a bill of lading stating that the carrier reserves the right to tranship will be disregarded.
NON NEGOTIABLE BILL OF LADING
NON NEGOTIABEL SEA WAY BILL

Non-Negotiable Sea Waybill

a. A non-negotiable sea waybill, however named, must appear to:
i. indicate the name of the carrier and be signed by:
- the carrier or a named agent for or on behalf of the carrier, or
- the master or a named agent for or on behalf of the master.
Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.
Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on
behalf of the master.
ii. indicate that the goods have been shipped on board a named vessel at the port of loading
stated in the credit by:
- pre-printed wording, or
- an on board notation indicating the date on which the goods have been shipped on board.
The date of issuance of the non-negotiable sea waybill will be deemed to be the date of shipment
unless the non-negotiable sea waybill contains an on board notation indicating the date of
shipment, in which case the date stated in the on board notation will be deemed to be the date of
shipment.
If the non-negotiable sea waybill contains the indication "intended vessel" or similar qualification in relation to
the name of the vessel, an on board notation indicating the date of shipment and the name of the actual vessel is
required.
iii. indicate shipment from the port of loading to the port of discharge stated in the credit.
If the non-negotiable sea waybill does not indicate the port of loading stated in the credit as the port of loading,
or if it contains the indication "intended" or similar qualification in relation to the port of loading, an on board
notation indicating the port of loading as stated in the credit, the date of shipment and the name of the vessel is
required. This provision applies even when loading on board or shipment on a named vessel is indicated by
pre-printed wording on the non-negotiable sea waybill.
iv. be the sole original non-negotiable sea waybill or, if issued in more than one original, be the full set as
indicated on the non-negotiable sea waybill.
v. contain terms and conditions of carriage or make reference to another source containing the terms and
conditions of carriage (short form or blank back non-negotiable sea waybill). Contents of terms and conditions
of carriage will not be examined.
vi. contain no indication that it is subject to a charter party.
b. For the purpose of this article, transhipment means unloading from one vessel and reloading to another vessel
during the carriage from the port of loading to the port of discharge stated in the credit.
c.
i. A non-negotiable sea waybill may indicate that the goods will or may be transhipped provided that the entire
carriage is covered by one and the same non-negotiable sea waybill.
ii. A non-negotiable sea waybill indicating that transhipment will or may take place is acceptable, even if the
credit prohibits transhipment, if the goods have been shipped in a container, trailer or LASH barge as evidenced
by the non-negotiable sea waybill.
d. Clauses in a non-negotiable sea waybill stating that the carrier reserves the right to tranship will be
disregarded.
AIR TRANSPORT DOCUMENT

a. An air transport document, however named, must appear to:

i. indicate the name of the carrier and be signed by:
- the carrier, or
- a named agent for or on behalf of the carrier.
Any signature by the carrier or agent must be identified as that of the carrier or agent. Any signature by an agent
must indicate that the agent has signed for or on behalf of the carrier. [Link] that the goods have been
accepted for carriage.
iii. indicate the date of issuance. This date will be deemed to be the date of shipment unless the air transport
document contains a specific notation of the actual date of shipment, in which case the date stated in the notation
will be deemed to be the date of shipment.
Any other information appearing on the air transport document relative to the flight number and date will not be
considered in determining the date of shipment.
iv. indicate the airport of departure and the airport of destination stated in the credit. v. be the original for
consignor or shipper, even if the credit stipulates a full set of originals.
vi. contain terms and conditions of carriage or make reference to another source containing the terms and
conditions of carriage. Contents of terms and conditions of carriage will not be examined.
b. For the purpose of this article, transhipment means unloading from one aircraft and reloading to another
aircraft during the carriage from the airport of departure to the airport of destination stated in the credit.
c.
i. An air transport document may indicate that the goods will or may be transhipped, provided that the entire
carriage is covered by one and the same air transport document.
ii. An air transport document indicating that transhipment will or may take place is acceptable, even if the credit
prohibits transhipment.
ROAD, RAIL OR INLAD WATERWAY
TRANSPORT DOCUMENTS

a. A road, rail or inland waterway transport document, however named, must appear to: i. indicate the name of
the carrier and:
- be signed by the carrier or a named agent for or on behalf of the carrier, or
- indicate receipt of the goods by signature, stamp or notation by the carrier or a named agent for or on behalf of
the carrier.
Any signature, stamp or notation of receipt of the goods by the carrier or agent must be identified as that of the
carrier or agent.
Any signature, stamp or notation of receipt of the goods by the agent must indicate that the agent has signed or
acted for or on behalf of the carrier.
If a rail transport document does not identify the carrier, any signature or stamp of the railway company will be
accepted as evidence of the document being signed by the carrier.
ii. indicate the date of shipment or the date the goods have been received for shipment, dispatch or carriage at
the place stated in the credit. Unless the transport document contains a dated reception stamp, an indication of
the date of receipt or a date of shipment, the date of issuance of the transport document will be deemed to be the
date of shipment.
iii. indicate the place of shipment and the place of destination stated in the credit. b.
i. A road transport document must appear to be the original for consignor or shipper or bear no marking
indicating for whom the document has been prepared.
ii. A rail transport document marked "duplicate" will be accepted as an original.
iii. A rail or inland waterway transport document will be accepted as an original whether marked as an original
or not.
c. In the absence of an indication on the transport document as to the number of originals issued, the number
presented will be deemed to constitute a full set.
d. For the purpose of this article, transhipment means unloading from one means of conveyance and reloading to
another means of conveyance, within the same mode of transport, during the carriage from the place of
shipment, dispatch or carriage to the place of destination stated in the credit.
e.
i. A road, rail or inland waterway transport document may indicate that the goods will or may be transhipped
provided that the entire carriage is covered by one and the same transport document.
ii. A road, rail or inland waterway transport document indicating that transhipment will or may take place is
acceptable, even if the credit prohibits transhipment.
On Deck", "Shipper's Load and Count", "Said by Shipper to Contain" and Charges Additional to Freight
a. A transport document must not indicate that the goods are or will be loaded on deck. A clause on a transport
document stating that the goods may be loaded on deck is acceptable.
b. A transport document bearing a clause such as "shipper's load and count" and "said by shipper to contain" is
acceptable.
c. A transport document may bear a reference, by stamp or otherwise, to charges additional to the freight.
CLEAN TRANSPORT DOCUMENT

A bank will only accept a clean transport document. A clean transport document is one bearing no clause or
notation expressly declaring a defective condition of the goods or their packaging. The word "clean" need not
appear on a transport document, even if a credit has a requirement for that transport document to be "clean on
board".