6.3 Documentary Credits

The letter of credit (L/C): the issuing bank's undertaking — on the seller-beneficiary's presentation of the DOCUMENTS complying with the credit's terms, to pay (the sight) or to accept- and-pay (the usance). The bank pays on DOCUMENTS, not on goods. The parties' chain: the applicant (the buyer) → the issuing bank → the advising bank (the notification) → the confirming bank (the added promise — the country-risk cover) → the nominated/transferring banks — the beneficiary (the seller) at the end. The two governing principles (the exam's must): The INDEPENDENCE (autonomy) principle: the credit separate from the sale — the bank's obligation to pay on complying documents regardless of the goods' story (the sale's disputes stay between the parties; the FRAUD exception the only narrow crack); The STRICT COMPLIANCE doctrine: the documents must match the credit's terms EXACTLY (the UCP 600's standard — the ICC's Uniform Customs and Practice); the discrepancies (the invoice short, the B/L claused, the date late) → the refusal's notice within the UCP's deadlines; the cure's window if the credit allows. The types (the catalogue): Sight vs. usance — the payment's timing; Irrevocable (the modern norm) — no amendment or cancellation without consent; the revocable credit's practical extinction; Confirmed — the second bank's own undertaking (the developing-country trade's staple — Nepal's imports' common face); Transferable and back-to-back…