CDCS MENTOR

…....for Professionals

CDCS exam 2015

(October Intake)
preparation Program

A
Md. Mohiuddin, cdcs
PRESENTATION

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CDCS MENTOR, Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com
 UCP 600 - Article 4
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 defences by the applicant
resulting from its relationships with the issuing
bank or the beneficiary.

CDCS MENTOR, Md. Mohiuddin;

Mohiuddin; Cell: 01716308384; e-
e-mail: cdcs.mentor.bd@gmail.com
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 There are three main contracts relating to a
documentary credit transaction:

1. Sales Contract:
Contract: Between Seller (Exporter/Beneficiary) and Buyer
(Importer/Applicant).
2. Credit Agreement:
Agreement: Between Applicant and the issuing bank.
3. Credit itself:
itself: Between Beneficiary and the issuing bank.

Credit is INDEPENDENT from other two contracts.

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• Credit by nature is a separate
transaction from sales contract.

• Credit By nature is a separate

transaction from other contract.

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Banks are not concerned with any contract.

Banks are not concerned with any contract

even any reference exist in the credit.

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o Banks undertaking not subject to applicant’s
relationship with issuing bank (Credit agreement).

o Banks undertaking not subject to applicant’s

relationship with beneficiary (Sales Contract).

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 UCP 600 - Article 4
Credits v. Contracts

a. ………………………………………………
…………………………………………….
…………………………………………….

A beneficiary can in no case avail itself of the

contractual relationships existing between
banks or between the applicant and the issuing
bank.

CDCS MENTOR, Md. Mohiuddin;

Mohiuddin; Cell: 01716308384; e-
e-mail: cdcs.mentor.bd@gmail.com
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Contractual relationships between banks

Contractual relationships between

Applicant & Issuing Bank

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 UCP 600 - Article 4
Credits v. Contracts

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, pro-
forma invoice and the like.

CDCS MENTOR, Md. Mohiuddin;

Mohiuddin; Cell: 01716308384; e-
e-mail: cdcs.mentor.bd@gmail.com
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UCP600
UCP600,
600, Article 4 (b):
(b): An issuing bank
should discourage any attempt by the
applicant to include, as an integral part
of the credit,
credit copies of the underlying
contract, pro-forma invoice and the like.

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 Please find out Three
reasons by yourself.

UCP600, Article 4 (b): An issuing bank should discourage any attempt

by the applicant to include, as an integral part of the credit,
credit copies of
the underlying contract, pro-forma invoice and the like.

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 UCP 600 - Article 5
Documents v. Goods, Services or Performance
Banks deal with documents and not with
goods, services or performance to which the
documents may relate.

CDCS MENTOR, Md. Mohiuddin;

Mohiuddin; Cell: 01716308384; e-
e-mail: cdcs.mentor.bd@gmail.com
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 UCP 600 - Article 5
Documents v. Goods, Services or Performance
UCP 500 article 4 stated: “In Credit operations all parties concerned
deal with documents … ”. The Drafting Group discussed the previous
wording and decided that, in fact, in documentary credit operations all
parties do not just deal with documents. The beneficiary of the
documentary credit actually deals with the goods (services or
performance), and as a result it was incorrect in the UCP to state that
“all parties” do so. The article was changed to reflect the fact that banks
deal with documents and not with the goods, services and performance
to which the documents may relate.
Comments of UCP600 Drafting Group

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 UCP600 Article 5: May we
Banks deal with documents have to
and not with goods, services accept inferior
or performance to which
goods????
the documents may relate.

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 Case 1: Compliant documents are received by the issuing bank, but prior to
effecting honour the applicant informs them that they believe there may be
poor quality goods in the consignment and requests the issuing bank not to
pay. Should the issuing bank follow the instructions of the applicant?
No. The rules are quite clear (article 4) banks are not concerned with the sale
or other contract on which the credit may be based and (article 5) banks deal
with documents and not with goods, services or performances to which the
documents may relate. Issues of quality should be resolved between buyer and
seller outside the terms of the credit. If the applicant has or had potential issues
or concerns on quality, the credit should have included a requirement for the
presentation of an inspection or analysis certificate from an independent body.

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 Case 2:
2: Should a bank review documents such as inspection documents,
certificates of analysis etc. to ensure that there are no derogatory
comments regarding the goods?

No. This is not the responsibility of a bank. Sub article 14(a) emphasises
that banks examine a presentation on the basis of the documents alone as to
whether or not they appear on their face to constitute a complying
presentation. If the applicant requires that documents not contain any
adverse comments or that documents should bear specific statements as to the
quality or standard of the goods, this must form part of the terms and
conditions of the credit.

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