COULD AN L/C BE REVOKED?
Question: I am trader in Vietnam, I’ve entered into a sale contract with a trader in Singapore, we have agreed on the payment term with L/C and also the law which could be applied is the law of Vietnam. However after receiving the goods, I realized it didn’t meet the quality standard that we’ve agreed on, then I made a statement to terminate the contract and refuse to pay but the bank ( in Vietnam) told me that L/C could not be revoked and they must finish the payment procedure with the bank in Sinagapore. I want to know whether or not the L/C can be revoked? Because I assume L/C is part of the contract, then if the contract is terminated, so is the L/C.
Answer: Thank you for your question, DTD and associates is very pleasure to answer yours and give you the consultation as follows:
1. Legal basis.
2. Specific consultation.
To begin with, about the law which should be applied to regulate L/C, you and the trader in Singapore have agreed on the law of Vietnam to regulate the contract as well as the L/C, then following the Article 666 of Civil Code of Vietnam 2015 : “ Contracting parties may select international customary practices…”.
Article 664.2 Civil Code of Vietnam : “In case the international agreements to which the Socialist Republic of Vietnam is a signatory or a Vietnamese law stipulates that contracting parties have the right to select applied law, the law applied to civil relations involving foreign elements shall be determined according to the selection of the contracting parties.”
In conclusion, the agreement on the use of L/C will be regulated by UCP 600.
Secondly, about the termination of contract, in this situation it’s absolutely legal for you to unilaterally terminate the contract due to the fundamental breach of contract of the trader in Singapore.
Thirdly about the L/C, you can not revoke the L/C due to the Article 2 of UCP 600 : “ Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation”. However there are 2 types of L/C, the irrevocable and revocable L/C but no matter what type it is, it still can’t be revoked after being issued by the issuing bank. The matter on revoking the L/C is none of your business either.
In other words, L/C is a separate transaction among banks, and it’s definitely not part of the contract. : “ A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit. Consequently, the undertaking of a bank to honour, to negotiate or to fulfil any other obligation under the credit is not subject to claims or defences by the applicant resulting from its relationships with the issuing bank or the beneficiary.” - Article 4 UCP 600.
Besides, L/C is a transaction whose nature is credit ( as mentioned above ), the issuing bank (the bank that you request to open L/C) just need to receive enough valid documents from the beneficiary bank then they can start the payment.
If you have any question about this or any other matter please contact DTD and associates immediately, we are pleased to help!
