Doctrine of separability

One of the primary functions of the letter of credit is to create an abstract payment obligation independent of the underlying contract of sale and the contract between applicant and bank; therefore the conditions of the bank’s duty to pay are exclusively to be found in the terms of the letter of credit and the right and the duty to make payment do not in any way depend on the performance of the seller’s obligations under the contract of sale. The reason for this doctrine is that the bank should not become a kind of arbitrator to resolve disputes between seller and buyer which would lead to extensive delays of payment and would make the letter of credit unattractive as service.

It is essential that the doctrine is scrupulously observed; else the continuance of the documentary credit system as the primary means of payment in international trade would be in danger. When examining the documents, the bank does not examine the quality and quantity of goods. To judge what the documents contain or if the documents are economically plausible is not possible for the bank resulting from a lack of knowledge. Article 4 of UCP 600 explicitly forbids the bank to do so.

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