Books

There are examples of the use of rules of practice similar to the UCP long before the formal development of rules by the International Chamber of Commerce (“ICC”).

Following the enactment of the Federal Reserve Act in the US on 23 December 1913, a number of issues were raised in connection with national and international expansion of the US banking business. With the end of World War I in 1918, world trade started to expand, and many governments began to focus on international trade and improvements in their financial sectors. Total world trade in 1920 was about USD100 billion and had increased from USD40 billion from the beginning of World War I in 1914. Communications were improving and nations were beginning to focus on expanding their trade relationships. In August 1920, the first commercial radio station in the US began operations, and in November the first assembly of the League of Nations was held in Geneva.

A number of banks in New York established study groups to address new services and how to standardize existing banking practice. One such study group was the New York Bankers Commercial Credit Conference chaired by Wilbert Ward, Assistant Vice President at National City Bank of New York (now Citi). This group, comprised of representatives of 34 banks, set out to draft a document which reflected practice in the processing of export commercial letters of credit. In early 1920, this group published the Regulations Affecting Export Commercial Credits adopted by the New York Bankers Commercial Credit Conference of 1920. This document was subscribed to by the 34 named financial institutions that contributed to its text. The regulations addressed issues such as general responsibilities, interpretation of terms, definitions and general customs. Each bank that subscribed to the Regulations advised its correspondent banks overseas that the Regulations would govern its treatment of export credits. Thus, the Regulations Affecting Export Commercial Credits (RAECC) were the first instance of codified banking practice involving letters of credit in the US and, as far as I have been able to ascertain, the first in the world.

The 1920 version of the RAECC specifically incorporated export terms adopted in the US on 16 December 1919. These were later to become known as the American Foreign Trade Definitions. The original organizations that drafted the American Foreign Trade Definitions were: The National Foreign Trade Council, Chamber of Commerce of the USA, National Association of Manufacturers, American Manufacturers Export Association, Philadelphia Commercial Museum, American Exporters and Importers Association, Chamber of Commerce of the State of New York, The New York Produce Exchange and the New York Merchants Association. These definitions existed in practice until the introduction by the International Chamber of Commerce of Incoterms.¹

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In 1922, Wilbert Ward published a comprehensive work on the use of letters of credit in the United States entitled American Commercial Credits. Contained in the book was a copy of the 1920 RAECC, along with a commentary on the rules and how they related to letter of credit practice in the US.

On 16 January 1924, what is now known as the International Financial Services Association was founded in New York under the name of the Junior Committee.² In early 1926, the Junior Committee assumed the role of revising the RAECC, since the New York Bankers Commercial Credit Conference was no longer in existence, and the operational forum of the Junior Committee was the logical body to undertake such a revision. On 27 January 1926, the Junior Committee appointed a sub-committee to work on the revision of the 1920 RAECC. At that time it was felt that changes were needed to the RAECC, because changes in practice and case law had developed through litigation involving letters of credit.

During the 1920s, a great deal of litigation and dispute developed surrounding letters of credit in the US Many of cases were the consequence of the 1921 recession and consequent falling prices of imported goods. A number of landmark letter of credit decisions were promulgated in the US during this period.³

At a meeting of the Junior Committee on 14 April 1926, all of the Junior Committee’s member banks agreed to a draft proposed by their sub-committee. As part of the formal approval process, each member bank of the Junior Committee was sent a copy of the proposed RAECC and asked to put an official stamp and authorized signature of the bank on the copy signifying its agreement.⁴ At the Junior Committee’s meeting on 26 May 1926, all responses had been received, and the RAECC was adopted for implementation on 1 June 1926. Each member bank supplied the organization with the quantity of copies of the RAECC needed, so that each bank could send them to their foreign correspondent banks. Over 15,000 copies were purchased and distributed. During the period 1920–1927, the RAECC were widely distributed by US banks to their correspondents in Europe. In fact, the use of the RAECC by US banks created interest on the part of European banks in drafting similar rules for their export credits.

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During the mid 1920s, other countries developed rules similar to those in the US Specifically, Argentina, Czechoslovakia, Denmark, France, Germany, Italy, Norway and Sweden created rules for export commercial credits.⁵

In 1928, several banks in Copenhagen produced what they entitled the Joint Regulations Governing the Handling of Documentary Credits Opened with the Principal Copenhagen Banks. These “regulations” were similar to those produced in the United States. They were published in January 1928 by the banks listed at the end of the document, and, like the US “Regulations”, were distributed to their correspondent banks.

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Regulations Affecting Export Commercial Credits

Adopted by the New York Bankers Commercial Credit Conference of 1920

To Correspondents:

Payments under Export Commercial Credits advised to the undersigned are made in conformity with the following regulations, which are in accord with the standard practice adopted by the New York Bankers Commercial Credit Conference of 1920:

1. We assume no liability or responsibility for the form, sufficiency, correctness, genuineness or legal effect of any documents, or for the description, quantity, quality, condition, delivery or value of the merchandise represented thereby, or for the good faith or acts of the shipper or any other person whomsoever; but documents will be examined with care sufficient to ascertain whether on their face they appear to be regular in general form.
2. We will interpret the terms “documents,” “shipping documents” and words of similar import, as comprehending only ocean bills of lading (sailer bill of lading included) and marine and war risk insurance, in negotiable form, with invoices.
3. Unless specifically otherwise instructed, we will accept “received for transportation” bills of lading in the form customarily issued in New York. (The steamship lines constituting the Transatlantic Conference state that the customary procedure necessitated by American port conditions, is to issue bills of lading against the receipt of goods into the custody of the steamship owners or agents, for transportation by a named steamer, and failing shipment by said steamer, with liberty to ship in and upon a prior or following steamer. They state that it is not possible here to issue “on board” bills of lading, but have agreed, after the goods are loaded, so far as reasonably practicable, to endorse on the bills of lading, if returned for the purpose by the shippers, a dated clause to the effect that the within goods have been loaded on board, specifying any portion that has been “short shipped.” They represent, however, that such procedure will not be reasonably practicable in all trades, nor in any trade at all times, and where used, on account of the delay involved, may result in the merchandise arriving at destination in advance of the bills of lading). When specifically requested by a correspondent, we will request the “on board” endorsement, and obtain it, where practicable.

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4. When the “on board” endorsement is not specifically requested by a correspondent, or it is impracticable to obtain it, the date of the bill of lading will be taken to be the date upon which shipment has been effected. When the “on board” endorsement is obtained, the date of such endorsement will be taken to be the date upon which shipment has been effected.
5. Instructions shall be interpreted according to our law and customs, but in any event, in accordance with the following general rules:
1. Forwarders bills of lading will not be accepted, unless specially authorized. Railroad through bills of lading will not be accepted, except on exportations to the Far East via Pacific ports, unless expressly stipulated.
2. Bills of lading shall contain no words qualifying the acceptance of the merchandise in apparent good order and condition. If “on board” bills of lading are stipulated, they shall acknowledge receipt of the goods on board a named vessel. Otherwise, “received for transportation” bills of lading, which acknowledge the receipt of the goods into the custody of the steamship owners or agents for transportation by a named steamer, and failing shipment by said steamer with liberty to ship in and upon a prior or following steamer, will be accepted; and insurance cer tificates, if required, shall cover shipment correspondingly.
3. Documents for partial shipments will be accepted, even if the pro rata value cannot be verified, unless expressly prohibited.
4. The use of “to,” “until,” “on,” and words of similar import, in indicating expiration, is interpreted to include the date mentioned.
5. When the indicated expiration date for payment falls upon a Sunday or legal holiday here, the expiration is extended to the next succeeding business day.
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6. The terms “prompt shipment,” “immediate shipment,” “shipment as soon as possible” and words of similar import, shall be interpreted as requiring shipment to be effected and (if the credit advice is without expressed duration) the stipulated documents presented for payment within thirty days from the date of our credit advice.
7. Our credit advice if without expressed duration, shall not continue in force longer than one year from its date.
8. The stipulated documents must all be presented not later than 3 p. m. (or twelve o’clock, noon, if Saturday), on the indicated expiration date.
9. The terms “approximately,” “about,” or words of similar import, shall be construed to permit a variation of not to exceed ten per centum.
10. Definitions of Export Quotations will be those adopted by The National Foreign Trade Council, Chamber of Commerce of the U. S. A., National Association of Manufacturers, American Manufacturers’ Export Association, Philadelphia Commercial Museum, American Exporters’ and Importers’ Association, Chamber of Commerce of the State of New York, N. Y. Produce Exchange, and New York Merchants’ Association, at a conference held in India House, N. Y., on December 16, 1919.
6. Correspondents will understand that the above regulations shall govern in all credit transactions in the absence of other specific agreements. If the beneficiary shall make representations, or shall offer security, satisfactory to the bank, that no loss shall result to its correspondent or client by the waiver of any of such regulations or any instruction, the bank reserves the right to make such waiver, and shall recognize no claim in the premises unless substantial direct damage shall be shown to have resulted.

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The original cover of the 1920 Regulations Affecting Export Commercial Credits

Courtesy of the International Financial Services Association, from their original files.

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Regulations Affecting Export Commercial Credits

Adopted by the New York Bankers Commercial Credit Conference of 1920 Amended to June 1, 1926

To our Correspondents:

Export Commercial Credits opened through us are treated in conformity with the following regulations:

1. We assume no liability or responsibility for the form, sufficiency, correctness, genuineness or legal effect of any documents or papers, or for the description, quantity, quality, condition, packing, delivery or value of the merchandise represented thereby, or for the good faith or acts of the shipper or any other person whomsoever, or for the solvency, standing, etc., of the carriers or insurers of the merchandise; but documents and papers will be examined with care sufficient to ascertain that on their face they appear to be regular in general form.
2. We assume no responsibility for consequences arising out of delay or loss in transit of letters and/or documents, or for delay, mutilation or other errors in the transmission of telegrams or cables.
3. We will interpret the terms “DOCUMENTS,” “SHIPPING DOCUMENTS” and words of similar import, as comprehending only full set of ocean bills of lading (sailer bill of lading included) and marine insurance (but not war risk) in negotiable form, with invoices.
4. Instructions shall be interpreted according to our law and customs, but, in any event, in accordance with the following general rules:
1. Forwarders’ bills of lading will not be accepted, unless specifically authorized. Railroad through bills of lading will not be accepted, except on exportations to the Far East via Pacific ports, unless expressly stipulated.
2. Bills of lading indicating transshipment will be accepted unless direct shipment is specified.
3. Bills of lading shall contain no notations qualifying the acceptance of merchandise in apparent good order and condition.
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4. When ocean bills of lading are required, unless otherwise stipulated, we will accept “RECEIVED FOR SHIPMENT” or “ALONGSIDE” or “PORT” or “CUSTODY” bills of lading. The date of the bill of lading in each case will be taken to be the date of shipment and the insurance, if called for, shall cover from such date of shipment and on whatever vessels carried.
5. When “ON BOARD” shipment is required and such shipment is represented by an “ON BOARD” bill of lading, the bill of lading date will be taken as the date when such shipment was effected; if evidenced by “ON BOARD” endorsement, the endorsement date will be so taken.
6. Documents for partial shipments may be accepted unless expressly prohibited.
7. If shipment in instalments within stated periods is specified, each instalment will be treated as a separate transaction, and if there is a failure to ship in any designated period, shipments of subsequent instalments, made in their respective designated periods, may be drawn against
8. The use of “TO,” “UNTIL,” “ON,” and words of similar import, in indicating expiration, is interpreted to include the date mentioned.
9. Any extension of the date of shipment shall extend for an equal length of time the date for presentation or negotiation of draft and documents.
10. When the indicated expiration date for presentation or negotiation falls upon a Sunday or legal holiday, the expiration is extended to the next succeeding business day. (This rule, however, does not apply to date of shipment.)
11. The stipulated documents must all be presented not later than 3 P. M. (or twelve o’clock noon, if Saturday) on the indicated expiration date. We reserve the right to refuse to take up documents if they are not presented within reasonable time after date of shipment.
12. The terms “PROMPT SHIPMENT,” “IMMEDIATE SHIPMENT,” “SHIPMENT AS SOON AS POSSIBLE,” and words of similar import, shall be interpreted as requiring shipment to be effected and (if the credit advice is without expressed duration) the stipulated documents presented for payment within thirty days from the date of our credit advice.
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13. Our credit advice if without expressed duration shall not continue in force longer than one year from its date.
14. The terms “APPROXIMATELY,” “ABOUT,” or words of similar import, shall be construed to permit a variation of not to exceed ten per centum. When the merchandise, by its nature, does not allow the delivery of the exact quantity indicated, as, for instance, metal bars, oil in barrels, etc., a leeway of 3% more or less will be allowed, even if the terms of the credit call for a fixed weight or measurement.
15. The term “INSURANCE” shall be construed as either policy of insurance or underwriters’ certificate of insurance. Brokers’ Cover Notes will not be accepted unless specifically stipulated.
16. Definitions of Export Quotations will be those adopted by the National Foreign Trade Council, Chamber of Commerce of the U. S. A., National Association of Manufacturers, American Manufacturers’ Export Association, Philadelphia Commercial Museum, American Exporters’ and Importers’ Association, Chamber of Commerce of the State of New York, N. Y. Produce Exchange, and New York Merchants’ Association, at a conference held in India House, N. Y., on December 16, 1919.
5. Correspondents will understand that the above regulations shall govern in all credit transactions in the absence of other specific agreements. If the beneficiary shall make representations, or shall offer security satisfactory to the bank that no loss shall result to its correspondent or client by the waiver of any of such regulations, or any instruction, the bank reserves the right to make such waiver, and shall recognize no claim in the premises unless substantial direct damage shall be shown to have resulted. Early History of Letter of Credit Rules

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Joint Regulations Governing the Handling of Documentary Credits

Opened with the Principal Copenhagen Banks – 1928

DOCUMENTARY credits opened with us will as a rule be advised to the beneficiaries, but it will be stated in such advices that they are nonbinding to us. However, we assume no obligation to advise the beneficiaries unless the credit contains a request to this effect. A binding confirmation will not be given by us unless expressly stipulated. In this connection it is pointed out that a documentary credit opened with us as ‘irrevocable’ will be confirmed by us to the beneficiary, even if we are not expressly requested to do so.

A confirmed credit must contain a definite time limit within which the credit shall be in force. Unconfirmed credits, for which no time limit for the honouring of the documents has been fixed, shall be considered valid until revoked, but not for more than 6 months from the date of the opening of the credit, unless it should appear from the stipulations of the credit that shipment or dispatch of the relative goods may take place at a later date. If a time limit has been fixed for shipment or dispatch of the goods, but not for payment of the documents, the Bank shall be entitled – but not bound – to refuse documents presented later than 14 days after the time limit given for shipment.

Unconfirmed credits may be revoked without reason being given and the Bank shall be entitled at any time to refuse the documents as well as payment, if, at the Bank’s discretion, circumstances might warrant such action.

Expressions as ‘to’, ‘until’, ‘on’, and words of similar import, when used in connection with a time limit, will be interpreted to include the date mentioned. Should the time limit for payment be a Sunday or a legal or bank-holiday the Bank will consider the credit expired at the end of the preceding week-day.

The Bank shall be entitled to transfer a credit to a third party, but will only do so in case the credit has been opened ‘in favour of ….. or order’; however, the Bank shall not be bound to do so, even if the credit has been opened ‘in favour of ….. or order’. The Bank will claim invoice issued by the original beneficiary, but shall be entitled to deviate from this practice in case the credit has been opened as above mentioned.

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Should it be desired to have a credit opened with one of our correspondents or another bank, through our intermediary, we reserve ourselves the right to transfer, if required, the entire amount of the credit to the bank in question immediately when opening the credit; and to charge the amount to the account of our principals, without any responsibility on our part for possible refund of the amount. We assume no responsibility for possible errors made by our correspondents.

If no instructions to the contrary be given in the credit, we will accept the following:

1. Documents for partial shipment, provided a price has been stated in the credit, or the correctness of the amount may otherwise be verified;
2. Bills of Lading reading ‘Received for shipment’, or words of similar import; (if shipment by a named vessel has been stipulated, or if a time limit for shipment has been fixed, we will always require a bill of lading showing that the goods have been received ‘on board’);
3. Bills of lading showing that the goods, or part of same, have been loaded on deck; in such cases, however, we will require delivery of a policy covering deck cargo;
4. Bills of lading permitting transhipment;
5. Bills of lading indicating shipment by other parties than the beneficiaries;
6. Bills of lading bearing the impression of a facsimile stamp instead of signature;
7. Insurance certificate in lieu of insurance policy;
8. Insurance covering the goods on f. p. a. conditions;
9. Waybill (Railroad B/L) showing that the goods have been dispatched to the address of the purchaser (or the party, for whose account the credit has been ‘opened’) provided the credit calls for waybill without stating to whom this should be issued.

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Should the credit call for bill of lading we will – unless otherwise instructed – require full set issued to order and endorsed in blank, but we reserve ourselves the right to accept bills of lading issued to our principals or to the purchaser. Should the credit not state the destination of the goods, the Bank reserves its right – but will not be bound – to accept documents showing that the goods have been dispatched to a place other than the domicile of our principals or of the purchaser.

The Bank will not undertake the perusal of the printed wording of bills of lading, insurance policies and/or certificates, etc. but will pay attention only to the particulars filled in and to additional clauses added in writing or type or by stamp impression etc. As a rule such clauses will not be accepted until the authority of our principals has been obtained, but the Bank considers itself entitled to deviate from this practice in case the clause added is considered of minor importance. The Bank will assume no responsibility whatsoever for its judgment in this connection.

In all cases when a time limit for shipment or dispatch of the goods has been fixed, the date of the bill of lading or waybill shall be considered to be the date of shipment or dispatch. Should a bill of lading read: ‘received for shipment’, or words of similar import, and bear a subsequent ‘on board’ endorsement, the date of this endorsement shall he considered to be the date of shipment.

Generally a bill of lading covering a larger quantity than stipulated in the credit will not be honoured even if the beneficiary does not claim payment for more than that part of the quantity for which the credit has been opened; but the right to deviate from this practice is reserved by us.

Should the credit call for ‘insurance policy’ the Bank will interpret this to mean marine insurance policy. If it is required that other risks should be covered, say war, mines, fire, theft etc., this must be expressly stated. Should a credit call for a policy covering ‘all risks’ the Bank will accept only a policy purporting to cover ‘all risks’, but the Bank cannot undertake to define the scope of such general terms.

Should the credit call for warehouse certificate, without specific instructions as to the issue of same, we will require it to be issued by a public institution and in favour of our principals or the purchaser. Insurance documents will not be required by us unless expressly called for by the credit. Should a delivery order be called for, we shall require same to be issued by a bank or banker, or by the shipowners inquestion, or their agents.

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Should the credit specify certain descriptions of goods, brands, qualities etc. without special certificates being called for, the Bank will consider it sufficient that such descriptions appear on the invoice bearing the beneficiary’s receipt.

Should the credit stipulate ‘shipping documents’ and a f. o. b. or c. & f. price be given, the Bank will require only invoice and a full set of bills of lading, while, if a c. i. f. price be indicated, a marine insurance policy will be required in addition. Should no price be stated the Bank will generally ask for further instructions from its principals before opening the credit.

Should the credit cover periodical deliveries and should one or more of same not have taken place, the Bank will consider itself entitled to honour documents for subsequent periods only.

The expressions below will be construed as follows:

• about, approximately etc.: 10 % more or less (in amount as well as in quantity);
• prompt shipment, immediate shipment etc.: not later than 14 days after opening of the credit;
• primo: from 1st to 10th of the month, both dates included;
• medio: – 11th – 20th of the month, both dates included;
• ultimo: – 21st – the end of the month;
• first half of a month: from 1st to 16th incl. for any month of 31 days; from 1st to 15th incl. for all other months (including February);
• second half of a month: the remaining days;
• shipment between two specified dates, say 1st and 10th March: both dates included.

The documents to be taken up under the credit will be honoured entirely for account of and at the risk of our principals, and the Bank will not assume any responsibility whatsoever for the genuineness, validity or possible irregularities of the documents. Neither will the Bank be responsible for the description, quantity, quality or condition of the goods, for strikes, lock-outs or force-majeure of any description, nor for the beneficiaries’ fulfilment of their obligations of any kind whatsoever.

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Further, the Bank will not assume any responsibility for the transmission of the documents honoured. Should the documents be delayed or lost in transit the amount will still have to be paid by our principals in accordance with our statement.

Telegrams dispatched by the Bank, at the request of our principals or in their interest, will be dispatched for their account and risk and the Bank will not be responsible for possible consequences of a telegram not reaching its destination, being delayed in transit or arriving in a mutilated condition, or for wrong interpretation etc.

The Bank reserves its right to communicate with its principals before opening the credit, in case the instructions are deemed insufficient or for any other reason. The Bank will not be responsible for possible consequences of delay in opening the credit, arising therefrom.

Copenhagen, January 1928.

PRIVATBANKEN I KJØBENHAVN
AKTIESELSKAB

DEN DANSKE LANDMANDSBANK
HYPOTHEK- OG VEKSELBANK
AKTIESELSKAB

AKTIESELSKABET
KJØBENHAVNS HANDELSBANK

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