When handling an LC, banks must focus only on documents presented, not the goods, services, or performance they represent. Article 5 of UCP 600 reinforces this key principle.
What Does Article 5 of UCP 600 Say?
“Banks deal with documents and not with goods, services or performance to which the documents may relate.”
Breaking Down Article 5
- Documents-Only Approach
- Banks examine the documents required under the LC.
- They do not inspect the goods, shipment, or service performance.
- Limit of Bank’s Responsibility
- Banks are not responsible for:
• Quality or quantity of goods.
• Whether services were performed properly.
• Whether goods even exist in reality.
- Banks are not responsible for:
- Objective Compliance
- The bank’s role is to check whether documents are complying — accurate, complete, and consistent with LC terms.
Practical Trade Example
- An LC requires a bill of lading showing shipment of 500 tons of cement.
- Exporter submits the bill of lading and other documents as required.
- The bank checks only whether the documents comply with the LC.
Even if the shipment was only 450 tons or the cement was poor quality, the bank is not liable — it deals only with the paperwork.
Why Article 5 Matters
- Protects banks from being dragged into product disputes.
- Clarifies that banks are not guarantors of goods, only of documents.
- Keeps the LC process efficient, predictable, and document-driven.
Final Thoughts
Article 5 is a natural extension of Article 4’s independence principle. It ensures banks remain neutral and focused solely on documents. For exporters and importers, it is a reminder: if you want protection over the actual goods or services, that must be handled in the sales contract, not through the LC.