Letters of credit may be governed by Chapter 5 of the Texas Uniform Commercial Code (UCC). However, most letters of credit are governed by either the UCP or ISP98 (as these terms are defined below). Commercial Letter of Credit are governed by the Uniform Customs and Practices for Documentary Letters of Credit (the “UCP”), ICC Publication No. 600 adopted by the International Chamber of Commerce (“ICC”) effective July 1, 2007. Standby letters of credit are governed by the International Standby Practices 1998 adopted by the ICC effective January 1, 1999 (ISP98).
UCP 600 defines a letter of credit as:
•any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honor a complying presentation.
The UCC is structured to provide guidance in the use of domestic letters of credit. Over the years certain customs and practices have evolved governing the use of international letters of credit. The ICC attempted to compile the customs and practices which had evolved from many years of international trade as early as 1924. Subsequent revisions were made. The most recent revision is called “UCP 600” which became effective in 2007. ISP98 specifically applies to Standby Letters of Credit.
Although the majority of letters of credit with which the Bank will be dealing (unless it is a large Bank with an international division) will be domestic letters of credit, the UCP is important because the use of international letters of credit is growing in Texas, and many domestic letters of credit inadvertently state that they will be governed by the UCP or inadvertently utilize terms or conditions found in the UCP but not in the UCC. Copies of the UCP 600 and ISP98 may be ordered on line at www.iccbooks.com.
The UCP and ISP98 are structured similarly to Chapter 5 of the UCC, although they are substantially more expansive. There are two significant differences between the UCC and the UCP and ISP98. Article 14 of the UCP gives the issuing Bank a “reasonable time” not to exceed five banking days in which to examine the documents and determine whether to honor or refuse them; whereas Section 5.108(b) of the UCC refers to a reasonable time not to exceed seven business days and ISP98 provides that up to three business days is reasonable and beyond seven business days is unreasonable. The UCP and ISP98 require an expiry date for the presentation of documents for payment, acceptance or negotiation. There is no exact equivalent under the UCC.