Notes in documentary credits includes letter of credit; advantages of using the documentary credits; credit vs. contracts; instructions to issue amend credits; form and notification of credits revocable credits; revocable credits; liability of issuing bank. | NOTES IN DOCUMENTARY CREDITS. Prepared by Nguyen Minh Duc 2009 1 LETTER OF CREDIT l “Any arrangement, however, named or described, whereby a bank (issuing bank) acting at the request and on the instructions of a customer (the applicant) or on its own behalf: l l l makes a payment to a third party (beneficiary) or, authorizes another bank to effect such payment or authorizes another bank to negotiate Prepared by Nguyen Minh Duc 2009 2 ADVANTAGES OF USING THE DOCUMENTARY CREDITS facilitate the obtainment of a financial transaction, give to a concrete transaction an independent credit support and a payment agreement well defined. l satisfy the financial needs of the seller and the purchaser providing both the solvency of a bank. l reduce the commercial credit risk, since the payment is guaranteed by the issuing bank, the seller is no longer worried by the payment capacity of the purchaser. l reduce some political risks but does not eliminate the same. l Prepared by Nguyen Minh Duc 2009 3 1 ADVANTAGES OF USING THE DOCUMENTARY CREDITS open the business universe for sellers and buyers since the lack of trust between them could be minimized using the documentary credits, l both parts has the security to receive the payment/goods if they ship the goods & comply with the terms of the credit. l guarantee that documents will be examined by experts l Prepared by Nguyen Minh Duc 2009 4 CREDIT VS. CONTRACTS D/C are separate transactions from the sales or other contracts on which they may be based. l banks are not concerned with such contracts. l the undertaking of a bank to fulfill its obligations is not subject to claims or defenses by the applicant resulting from his relationship with the issuing bank or the beneficiary. l “beneficiary can not avail himself of the contractual relationships existing between banks or between applicants and the isuing bank.” l Prepared by Nguyen Minh Duc 2009 5 CREDITS VS. GOODS/SERVICES/PERFORMANCES l “in .
