Accredited Land Consultant (ALC)

Correct: According to UCP 600 Article 4 (Independence of Credit) and Article 7 (Issuing Bank Undertaking), a documentary credit is by its nature a separate transaction from the sale or other contract on which it may be based. The issuing bank’s undertaking to honor a complying presentation is a primary obligation and is not subject to claims or defenses by the applicant resulting from their relationships with the bank or the beneficiary. Therefore, the applicant’s insolvency does not discharge or delay the issuing bank’s obligation to pay the beneficiary.

Incorrect: The suggestion that payment can be deferred until a liquidator releases funds is incorrect because the bank’s obligation is independent of the applicant’s reimbursement. The claim that insolvency allows for unilateral cancellation under force majeure is a misunderstanding of UCP 600 Article 36, which covers acts of God and riots, not financial insolvency. The idea that the beneficiary must first seek payment from the applicant’s estate contradicts the primary nature of the bank’s undertaking, which is not a secondary guarantee but a direct obligation to the beneficiary.

Takeaway: The independence principle dictates that the issuing bank’s obligation to honor a complying presentation remains absolute and primary, regardless of the applicant’s financial status or insolvency proceedings.

Correct: According to UCP 600 Article 36 (Force Majeure), a bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by causes beyond its control, such as acts of terrorism or cyber-attacks that suspend operations. The article explicitly states that a bank will not, upon resumption of its business, honor or negotiate under a credit that expired during such interruption. This is a critical operational risk distinction in UCP 600 compared to other rules like ISP98.

Incorrect: The suggestion that the bank must honor the presentation if documents were dispatched before expiry is incorrect because UCP 600 does not mandate honoring expired credits due to force majeure. The idea of a mandatory grace period or an automatic extension of the expiry date is incorrect under UCP 600; while ISP98 Rule 3.14 provides for an extension if a place for presentation is closed on the last day, UCP 600 Article 36 specifically protects the bank from the obligation to honor credits that expire during the shutdown.

Takeaway: Under UCP 600 Article 36, banks are not obligated to honor or negotiate documentary credits that expire during a force majeure event once business operations resume.

Correct: According to ISP98 Rule 1.06, a standby is an undertaking that is independent of the underlying transaction. The issuer’s obligation to honor a presentation does not depend on the applicant’s performance or lack of performance, and the issuer is not concerned with any claims or defenses the applicant may have against the beneficiary. This independence principle is fundamental to the operation of standby letters of credit, ensuring the beneficiary receives payment upon a complying presentation regardless of disputes in the underlying contract.

Incorrect: The approach of allowing a five-day window for applicant evidence is incorrect because ISP98 does not provide a mandatory waiting period for applicant intervention; the bank’s duty is to examine the presentation independently. The suggestion that the issuer must investigate the underlying transaction is incorrect because banks deal with documents, not the underlying facts or performance of the contract. The idea that the duty to honor is contingent upon third-party certifications due to the affiliate relationship is incorrect because the independence principle applies regardless of the relationship between the issuer and applicant; the rules of ISP98 do not change based on the corporate structure of the parties.

Takeaway: The independence principle dictates that the issuer’s obligation to the beneficiary is entirely separate from the underlying contract or the relationship between the issuer and the applicant.

Correct: According to UCP 600 Article 14(a), a nominated bank, a confirming bank, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation. This is the core of the Independence Principle, which dictates that banks deal with documents and not the goods or services to which the documents may relate.

Incorrect: Verifying the underlying default with the applicant violates the Independence Principle (UCP 600 Article 4), which states that credits are separate transactions from the sale or other contract on which they may be based. ISP98 does not automatically supersede UCP 600; the governing rules are those expressly stated in the credit. While compliance is required, UCP 600 Article 14(d) specifies that data in a document need not be identical to, but must not conflict with, data in that document or the credit, meaning a ‘character-for-character’ match is not always the regulatory standard for every piece of data.

Takeaway: Under UCP 600, the bank’s obligation is limited to determining facial compliance of documents independent of the underlying commercial transaction.

Correct: The independence principle is a cornerstone of standby letters of credit (SBLCs) under both ISP98 and UCP 600. It dictates that the bank’s obligation to pay is entirely separate from the underlying contract or the actual performance of the parties involved. By attempting to link the payment to the verification of internal project logs or physical site progress, the credit officer is introducing a non-documentary condition that contradicts the fundamental nature of the SBLC as a documentary undertaking.

Incorrect: The proposed modification does not necessarily replace the beneficiary’s statement, but rather adds an extra-documentary layer of verification, making the issue one of independence rather than just strict compliance. ISP98 does not mandate that all credits be confirmed by a secondary institution; confirmation is an optional layer of security. Furthermore, SBLCs are generally secondary payment mechanisms intended to be used only in the event of default or non-performance, unlike commercial letters of credit which often serve as the primary means of payment.

Takeaway: The independence principle ensures that a bank’s duty to honor a draw request is based solely on the presentation of complying documents, independent of the underlying contract’s performance.

Correct: According to eUCP Article e6, a presentation of electronic records must include a notice of completeness. The period for the examination of documents (not to exceed five banking days) commences on the banking day following the day on which the notice of completeness is received by the bank. Without this notice, the bank is not yet required to start the examination clock, even if some records have been received.

Incorrect: Beginning the examination immediately upon the first record is incorrect because the eUCP specifically ties the start of the examination period to the notice of completeness, not the initial upload. Rejecting the presentation for being spread over multiple days is incorrect because eUCP allows for electronic records to be presented separately, provided they are completed before the expiry. Requiring a physical cover letter via courier is not a standard requirement of eUCP; the notice of completeness itself can be an electronic record.

Takeaway: Under eUCP, the bank’s obligation to examine documents is triggered only after the beneficiary provides a formal notice of completeness.

Correct: According to UCP 600 Article 34, ‘Disclaimer on Effectiveness of Documents’, a bank assumes no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification, or legal effect of any document. The bank’s duty is limited to determining, based on the documents alone, whether they appear on their face to constitute a complying presentation. If the forgery was not apparent on the face of the document, the bank is protected.

Incorrect: The claim that banks must refund the applicant for forgeries is incorrect because the UCP 600 specifically disclaims bank liability for the genuineness of documents. The suggestion that banks must contact carriers to verify data contradicts the principle that banks examine documents solely on their face and do not investigate the underlying facts. The idea that banks are liable for the beneficiary’s performance or the actual loading of goods violates the independence principle, which states that banks deal with documents and not with the goods or services to which the documents relate.

Takeaway: Under UCP 600, banks are protected from liability regarding the genuineness or legal effect of documents as long as the documents appear to be compliant on their face.

Correct: According to UCP 600 Article 38(g), a transferable credit may be transferred with specific modifications: the amount of the credit, any unit price stated therein, the expiry date, the period for presentation, or the latest shipment date may be reduced or curtailed. Furthermore, the percentage for which insurance cover must be effected may be increased to provide the amount of cover stipulated in the original credit or these articles.

Incorrect: The option regarding transferring to a third-party supplier is incorrect because Article 38(d) explicitly states that a credit shall not be transferred at the request of a second beneficiary to any subsequent beneficiary. The option regarding the mandatory substitution of the applicant’s name is incorrect because while the first beneficiary’s name may be substituted for the applicant’s, if the credit specifically requires the applicant’s name to appear in documents other than the invoice, that requirement must be honored. The option regarding extending dates is incorrect because Article 38(g) only allows for the curtailment (shortening) of the expiry date and shipment date, not their extension, to ensure the first beneficiary has time to substitute documents before the original credit expires.

Takeaway: Under UCP 600 Article 38, a transferring bank is strictly limited to reducing amounts and prices, curtailing dates, or increasing insurance percentages when transferring a credit to a second beneficiary.

Correct: According to UCP 600 Article 39, the fact that a credit is not stated to be transferable shall not affect the right of the beneficiary to assign any proceeds to which it may be or may become entitled under the credit. However, this article relates only to the assignment of proceeds and not to the right to perform under the credit. Furthermore, the bank’s obligation to acknowledge such an assignment is governed by applicable law and the bank’s own internal policies and agreement.

Incorrect: The claim that an assignment is void because the credit is non-transferable is incorrect because Article 39 specifically allows for assignment of proceeds even in non-transferable credits. The suggestion that a bank must automatically acknowledge an assignment is incorrect because UCP 600 does not mandate banks to acknowledge assignments; such actions are subject to the bank’s consent and local law. The idea that assignment depends on partial shipment terms is a misconception, as the right to assign proceeds is a financial right independent of the shipping terms or the ability to split the performance of the credit.

Takeaway: The right to assign proceeds exists for any documentary credit regardless of its transferability status, but the bank is not compelled by UCP 600 to acknowledge such an assignment without its consent or legal requirement.