- (1.) A documentary credit is defined in the Uniform Customs and Practice for Documentary Credits formulated by the International Chamber of Commerce (hereinafter referred as UCP 500) to which most credits are made subject, as any arrangement, however named or described, whereby a bank (the "Issuing Bank"), acting at the request and on the instructions of a customer (the "Applicant") or on its own behalf, (i) is to make a payment to or to the order of a third party (the "Beneficiary") or is to accept and pay bills of exchange (Draft(s))drawn by the Beneficiary, or (ii) authorises another bank to effect such payment, or to accept and pay such bills of exchange (Draft(s)), or (iii) authorises another bank to negotiate, against stipulated document(s), provided that the terms and conditions of the credit are complied with.
(2.) It follows that documentary credit transactions involve at least three parties: the buyer (the applicant for the credit), the seller (the beneficiary under the credit) and the bank issuing the credit (the issuing bank), usually there are four parties, with the introduction of a second (intermediary) bank.
(3.) In order to bring uniformity in matters pertaining to documentary letter of credit, the International Chamber of Commerce Paris have published a set of rules called Uniform Customs and Procedures for Documentary Credit (UCPDC) wherein a documentary credit has been defined as any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation Banks holding documents under a letter of credit are guided by the UCPDC Rules.;