Table of Contents Preface... Table of Cases... v TC-1 Chapter 1 INTRODUCTION... 1-1 1. Definitions... 1-1 2. Foreign Trade Transactions... 1-3 3. Domestic Use... 1-8 (a) Sources of Law... 1-12.1 4. Types of Credit... 1-13 (a) Revocable Credit... 1-13 (b) Revolving Credit... 1-14.2 (c) Irrevocable Credit... 1-14.3 (d) Confirmed and Unconfirmed Credits... 1-14.4 (e) Back-to-Back Credits... 1-16.1 (f) Transferable Credit... 1-17 (g) Standby Credit... 1-18 (g.1) Counter Standby... 1-20 (h) Negotiation and Straight Credits... 1-20 (i) Notation Credits... 1-20.1 (j) Simple or Reimbursable Credits... 1-21 (k) Currency Credits... 1-21 (l) Deferred and Acceptance Credits... 1-21 (m) Cable Credits... 1-22 (n) Red Clause Credits... 1-22 (o) Performance Bonds... 1-23 (p) Courtesy Credit... 1-23 (q) Clean Credit... 1-25 (r) Electronic Credit... 1-25 (s) Circular Credits... 1-25 (t) Direct Pay Letters of Credit... 1-25 Chapter 2 LEGAL NATURE OF THE LETTER OF CREDIT... 2-1 1. Introduction... 2-1 2. The Problem of Consideration... 2-2 3. Stipulation pour Autrui... 2-5 4. Delegation of Payment... 2-9 5. Sale... 2-11 5.1 Insurance... 2-14 vii (Letters of Credit) (2012 Rel. 5)
6. Suretyship... 2-14 7. Agency... 2-16.2 8. The Partnership Analogy... 2-18 9. Theory of Estoppel and Trust... 2-18 10. Letter of Credit as a Bill of Exchange... 2-20 11. The Anticipated Acceptance Theory... 2-22 12. Usage... 2-22.1 13. Uniform Customs and Practice... 2-24 14. Uniform Commercial Code Letters of Credit... 2-33 15. International Standby Practices (ISP 98)... 2-36 16. eucp (Version 1.1)... 2-37 Chapter 3 PARTIES TO THE LETTER OF CREDIT... 3-1 1. Issuing Bank and the Applicant... 3-1 (a) Capacity of the Bank... 3-1 (b) Agreement for Issuance... 3-4 (b.1) Side Agreements... 3-8.1 (c) Strict Compliance... 3-8.2 (i) Discrepancies in Purpose... 3-16.4 (ii) Discrepancies in Description of Goods... 3-16.5 (iii) Discrepancies as to Documents... 3-16.8 (iv) Discrepancy in Destination... 3-16.9 (iv.1) Discrepancy as to Delivery... 3-16.10 (v) Forgery... 3-17 (vi) Notification of Discrepancies... 3-19 (vii) Timeliness... 3-21 (d) Duty to Inform... 3-22 (e) Trust Receipts... 3-24.3 (f) Extraneous Duties... 3-24.5 (g) Power of Attorney... 3-24.6 2. Issuing Bank and the Beneficiary... 3-24.7 (a) Notional Beneficiary... 3-29 3. Intermediary Banks... 3-30 (a) Confirming Bank... 3-30 (b) Advising and Negotiating Banks... 3-32.2 4. Holders and Holders in Due Course... 3-33 (a) Holders Generally... 3-33 (b) Holders in Due Course... 3-34 5. Other Parties... 3-36 6. Identity of Parties... 3-36.2 7. Chart Summaries... 3-38 Chapter 4 DOCUMENTARY REQUIREMENTS... 4-1 1. Documentary Requirements Generally... 4-1 viii
Chapter 5 Chapter 6 Chapter 7 2. Invoices... 4-8 3. Certificates... 4-13 4. Drafts... 4-19 5. Bills of Lading... 4-22 5.1 Transport Documents Generally... 4-28 6. Insurance... 4-28 7. Electronic Letters of Credit... 4-29 8. Corrections and Alterations... 4-32 AUTONOMY OF THE CREDIT TRANSACTION... 5-1 1. Introduction... 5-1 2. Effect... 5-2.1 3. Exceptions to the Rule of Autonomy... 5-4.1 (a) Consent of the Parties... 5-4.1 (b) Public Policy... 5-6 (b.1) Sanctions Clauses... 5-8.4 (c) Fraud... 5-8.5 (i) Fraud by the Parties... 5-8.5 (ii) Fraud by Third Parties... 5-23 (iii) Fraud in Standby Credits... 5-24.1 (iv) Fraud and Security Credits... 5-25 (v) Fraud and Confirming Banks... 5-26 (vi) Fraud against the Issuer... 5-26 (vii) Scams... 5-28 4. Letters of Credit and Bankruptcy... 5-28.2 PAYMENT THROUGH LETTERS OF CREDIT... 6-1 1. Introduction... 6-1 2. Absolute and Conditional Payment... 6-2 3. Currency Problems... 6-6 3.1. Limitations Period or Prescription... 6-8 (a) Action for Payment or Reimbursement by Beneficiary Against the Payer... 6-8 (b) Other Periods... 6-10 4. Set-Off... 6-10 5. Return of the Credit... 6-12 DURATION, AMENDMENT AND TRANSFER... 7-1 1. Duration of the Letter of Credit... 7-1 2. Amendments to Letters of Credit... 7-6.1 3. Transfer of Credits... 7-9 3.1. Trust... 7-17 Chapter 8 JUDICIAL REMEDIES... 8-1 ix (Letters of Credit) (2013 Rel. 1)
1. Introduction... 8-1 2. Payment and Damages... 8-1 2.1. Recovery under Mistake of Fact or Unjust Enrichment... 8-4 3. Injunction... 8-4.1 4. Seizure Before Judgment or Freezing Orders... 8-8.3 4.1. Unconscionable Transactions... 8-10.1 4.2 Declaratory Judgment... 8-10.2 5. Stay of Proceedings... 8-10.3 6. Sovereign Immunity... 8-15 7. Tender or Court Deposit... 8-17 8. Evidentiary Matters... 8-19 9. Reimbursement... 8-20 10. Dispute Resolution... 8-21 11. Recovery of Credit... 8-22 Chapter 9 CONFLICT OF LAWS... 9-1 1. Conflict of Laws... 9-1 2. Forum Selection... 9-2.1 3. Choice of Law... 9-4.1 4. Conclusions... 9-6.1 Chapter 10 BANKERS ACCEPTANCES... 10-1 1. Types of Acceptances... 10-1 2. Uses of a Bankers Acceptance... 10-1 3. The Mechanics... 10-3 4. Specific Acceptance Credit Agreement... 10-8 5. The Bankers Acceptance Market... 10-8 (a) Market Activity... 10-8 (b) Roly-Poly... 10-10 (c) Bankers Acceptances and Loan Participation... 10-11 6. Costs and Discounts... 10-12 7. Drawer not a Borrower... 10-13 8. Trade Acceptances... 10-14 9. Legislation Affecting Bankers Acceptances... 10-15 (a) Canadian Legislation... 10-15 (i) Bills of Exchange... 10-15 (ii) Time... 10-16 (iii) Qualifications... 10-16 (iv) General... 10-16 (v) Bill of Exchange... 10-17 (vi) Incomplete Bills... 10-17 (vii) Delivery... 10-18 (viii) Capacity and Authority of Parties... 10-18 x
(ix) Consideration... 10-19 (x) Presentment for Acceptance... 10-20 (xi) Presentment for Payment... 10-21 (xii) Liability of the Acceptor... 10-22 (xiii) Promissory Note... 10-23 (b) Canadian Banking Legislation... 10-23 (c) United States Legislation... 10-25 (i) Bill of Exchange... 10-25 (ii) Acceptor s Liability... 10-26 (iii) Acceptance in Writing... 10-27 (iv) Payment is not Acceptance... 10-29 (v) Implied Acceptance... 10-29 (vi) Qualification of Acceptance... 10-29 (vii) Certification... 10-30 (d) United States Federal Reserve... 10-30 10. Bankers Acceptances and Other Instruments... 10-34 (a) Commercial Paper and Bankers Acceptances... 10-34 (b) Letter of Comfort and Bankers Acceptances... 10-34 (c) Guarantee and Bankers Acceptances... 10-35 (d) Letters of Credit and Bankers Acceptances... 10-36 (e) Loans and Bankers Acceptances... 10-38 11. Conclusion... 10-42 Chapter 11 CONCLUSIONS... 11-1 APPENDICES... App-1 1. Application for Documentary Letter of Credit... App-1 2. Master Agreement for Issuance of Letters of Credit... App-3 3. Irrevocable Documentary Credit... App-7 3A. Irrevocable Standby Letter of Credit... App-9 3A.1. Basic Standby Credit Undertaking ISP98...App-10.0.1 3A.1.1 Short Form Standby Letter of Credit...App-10.0.2 3A.2. Standard Standby Credit (ISP98)...App-10.0.2a 3A.3. Standard Standby Credit (ISP98) With Extension Clause...App-10.0.4 3A.4. Standard Standby Credit (ISP98) With Extension Clause and Reduction Feature...App-10.0.6 3A.5. Demand For Reduction of the Amount of Standby Credit (ISP98)...App-10.0.8 xi (Letters of Credit) (2013 Rel. 1)
3A.6. Transferable Standby Credit (ISP98) With Extension Clause, Reduction Feature...App-10.0.9 3A.7. Counter Standby Credit (ISP98)...App-10.0.12 3A.8. Standard Standby Credit (ISP98) Confirmation Required...App-10.0.14 3A.9. Confirmation of Standby Credit (ISP98)...App-10.0.17 3B. Draft Form of Irrevocable Letter of Credit... App-10.1 3C. Required Form of Letter of Credit to be Used as Performance Bond Under Chicago Mercantile Exchange Inc. Rule 930... App-10.2 3C.01. CME Approved Letter of Credit Banks... App-10.4(1) 3C.1. Land Rehabilitation Performance Bond... App-10.4(3) 3D. Irrevocable Standby Letter of Credit for Lease Permits... App-10.5 3E. Irrevocable Standby Letter of Credit for Landfills... App-10.7 3F. Irrevocable Transferable Standby Letter of Credit... App-10.10 3G. Irrevocable Standby Letter of Credit for Compensation and Monitoring... App-10.12 3H. Irrevocable Letter of Credit for Procurement of Government Services... App-10.14 3I. Standby Letter of Credit to be Given by a Foreign Bank in Support of Credit Facilities Established for a Local Borrower... App-10.16 4. Sight Draft... App-11 5. Confirmed Advice of Credit... App-12 6. Bank Draft... App-14 7. Notification of Irrevocable Credit... App-15 8. Amendment to Documentary Credit... App-16 8A. Letter of Transfer...App-16.0.1 9. Certificate of Inspection... App-16.1 9A. Certificate of Inspection [Alternate]... App-16.2 10. Commercial Invoice... App-17 11. Bill of Lading... App-18 12. Uniform Commercial Code Article 5 Letters of Credit... App-19 13. Sztejn v. J. Henry Schroder Banking Corporation et al.... App-27 14. Bank of Nova Scotia v. Angelica-Whitewear Ltd. and Angelica Corporation... App-32 15. Letter of Guarantee... App-61 16. The Uniform Customs and Practice for Documentary Credits 1983-1974-1962 Table of Concordance... xii App-62
16A. The Uniform Customs and Practice for Documentary Credits 1993 and 2007 Table of Concordance... App-64 17. Uniform Customs and Practice for Documentary Credits: 1983 Revision... App-64 17A. Uniform Customs and Practice for Documentary Credits: 1993 Revision... App-82.1 17B. Adherence List to the Uniform Customs... App-82.33 17B.1. National Committees of the ICC...App-82.50.1 17C. ICC Uniform Customs and Practice for Documentary Credits: 2007 Revision (UCP 600)... App-82.51 17D. ISBP International Standard Banking Practice... 82.79 17E. Supplement to the Uniform Customs and Practice for Documentary Credits for Electronic Presentation (Version 1.1)(the eucp )... App-82.111 17F. ICC Rules of Arbitration (2012)... App-82.117 18. Uniform Customs and Practice for Documentary Credits: 1974 Revision... App-83 19. Uniform Customs and Practice for Documentary Credits: 1962 Revision... App-96 19A. United Nations Convention on the Use of Electronic Communications in International Contracts... App-106.1 19B. United Nations Convention on Independent Guarantees and Standby Letters of Credit...App-106.12 19C. The Hague-Visby Rules The Hague Rules as Amended by the Brussels Protocol 1968 (extracts)...app-106.23 20. General Security Agreement Relating to Goods... App-107 21. Bill of Exchange (Draft) Form... App-114 22. Bill of Exchange (Draft) Complete... App-115 23. Bill of Exchange (Draft) Accepted... App-116 24. Bill of Exchange (Draft) Accepted for Specific Purpose... App-117 25. Bills of Exchange Forms (Bill of Exchange Act, Canada) (Schedule of Forms)... App-118 26. Bank Credit Agreement... App-127 27. Short Form Acceptance Credit Agreement... App-146 28. Agreement for Bankers Acceptances Date (Alternate Form)... App-148 28A. Credit Facility Agreement... App-152 xiii (Letters of Credit) (2013 Rel. 1)
29. Agreement Respecting Separate Acceptance Facility... App-154.3 30. Partial Checklist... App-155 30.1. Checklist for Drafts... App-158.1 30.2. Checklist for Insurance Documents... App-158.2 30.3. Checklist for Transport Documents... App-158.3 31. Application for Confirmation of Letter of Credit by Export Bank... App-159 32. Letter of Credit (2010) EPA Allowance Auctions... App-162 32.1. Revolver Letter Of Credit Facility... App-164 32A. Code of Federal Regulations, Title 12 Banks and Banking, Chapter II Federal Reserve System... App-167 32B. Code of Federal Regulations, Title 12 Banks and Banking, Chapter III Federal Deposit Insurance Corporation... APP-168 32C. Code of Federal Regulations, Title 12 Banks and Banking, Chapter VI Farm Credit Administration... APP-170 32D. Code of Federal Regulations, Title 12 Banks and Banking, Chapter XII Federal Housing Finance Agency... APP-171 32D.1 Utah Administrtive Code Rule R509-114, Letters of Credit...App-174.01 32E. Contracting Policy of the Canadian Government... App-174.1 33. Trust Receipt... App-175 34. Packing List... App-177 35. Sales Confirmation Pro-Forma Invoice... App-178 36. United City Merchants (Investments) Ltd. v. Royal Bank of Canada (The American Accord)... App-179 37. Federal Deposit insurance Corporation Risk Management Manual of Examination Policies... App-203 38. Table of Swift Messages... App-213 38A. SWIFT MT 700 Format Specifications... App-230.1 39. Documentary Credit... App-231 40. Clean Letter of Credit... App-233 41. Standby Credit... App-234 42. Assignment of Letter of Credit In Its Entirety... App-235 43. Partial Assignment of Letter of Credit... App-236 44. Assignment of Proceeds of Letter of Credit... App-238 xiv
45. Confirmed Advice of Credit.... App-240 46. Advice of Transfer of Letter of Credit... App-242 47. Advice of Partial Transfer of Letter of Credit... App-243 48. Letter of Credit Guarantee... App-244 49. Agreement for Documentary Letter of Credit... App-245 50. Agreement for Standby Letter of Credit... App-252 51. Irrevocable Documentary Letter of Credit... App-258 52. Irrevocable Standby Letter of Credit... App-260 Index... I-1 xv (Letters of Credit) (2013 Rel. 1)