When dealing with international trade and Letters of Credit (LCs), one of the biggest sources of misunderstanding is the relationship between the sales contract and the credit (LC). Article 4 of UCP 600 clears this up by drawing a very clear line.
1. Independence of the Credit
Article 4 establishes the independence principle.
- A Letter of Credit is a separate transaction from the underlying contract between the buyer and seller (such as the sales agreement, proforma invoice, or purchase order).
- Banks are not concerned with contracts, disputes, or negotiations between buyer and seller.
- Their only role is to deal with documents presented under the LC.
👉 Example: Even if goods arrive late, damaged, or don’t match the contract, the bank still has to pay if the documents comply with the LC terms.
2. Banks Deal in Documents, Not Goods
This is one of the fundamental principles of documentary credits:
- Banks look at documents, not the actual shipment of goods or services.
- As long as the presented documents strictly comply with the terms of the LC, banks must honor them.
- Banks are not expected to verify the accuracy of facts in those documents (e.g., whether the goods actually exist or are of good quality).
3. Buyer and Seller Responsibilities
- The applicant (buyer) cannot use disputes under the sales contract as a reason to block payment under the LC.
- The beneficiary (seller) should ensure that documents exactly match the LC terms, as that is the only thing the bank will check.
4. Practical Importance
Article 4 protects the integrity and reliability of Letters of Credit as a payment instrument in international trade.
- Exporters can ship goods with confidence, knowing that payment depends only on presenting compliant documents—not on the buyer’s satisfaction.
- Importers gain security by controlling the documentary requirements before shipment.
✅ Key Takeaway:
Article 4 reinforces that LCs are autonomous instruments. Banks are not part of the sales contract—they only examine documents. This independence ensures that Letters of Credit remain a trustworthy tool in global trade, regardless of commercial disputes.