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TRANSFERRING BANK S LIABILITY UNDER TRANSFERRED LC

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QUERY

Hi Mr. Old man,

Could you give me a word of advice in this case? Details as follows:

A transferable L/C is issued by bank A in favor of Ben 1 and Ben 1 transfer this LC to Ben 2 by MT720 through bank B (the bank is nominated as transfering bank in original LC).

Ben 2 presents docs to bank B. – After checking docs, bank B determines that presentation does not comply with the terms and conditions of LC and advises Ben 1. However, bank B also notifies to Ben 1 that acc to UCP 600 they are not entitled to refuse payment under the credit, even if the docs does not conform to the credit, only the issuing bank has that right.

So, the questions is Whether action of bank B is correct or not ??? Would you do the needful to give me some advice as soon as possible?

Thank you so much
Best regards,

——————————————

MR. OLD MAN’S COMMENT

Hi,

Thanks for asking Mr. Old Man.

You may agree with me that unless the transferring bank is a confirming bank, the transferring bank would normally incorporate the following reimbursement clause in the transferred LC:
“The transferring bank will pay to the second beneficiary only when funds are received from the issuing bank”

It is understood from the above reimbursement clause that whether or not the documents presented by the second beneficiary are complying, the transferring bank is not obligated to pay unless it has received the funds from the issuing bank.

In view of the above reimbursement clause, I think it is not necessary for the transferring bank to give a notice of refusal (of payment) to the second beneficiary when the documents presented to its counter are discrepant. However, if the transferring bank receives the notice of refusal from the issuing bank, I think it should notify the first beneficiary as well as the second beneficiary of the same.
UCP 600 Article 38 (i) states that if the invoices presented by the first beneficiary create discrepancies that did not exist in the presentation made by the second beneficiary and the first beneficiary fails to correct them on first demand, the transferring bank has the right to present the documents as received from the second beneficiary to the issuing bank, without further responsibility to the first beneficiary.

The above provision does not clearly state whether the transferring bank is obligated to notify the first beneficiary of the discrepancies in the documents presented by the second beneficiary. However, at least the provision makes us think that the transferring bank should do so.

Best regards,

Mr. Old Man (Nguyen Huu Duc) …

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60 Comments

  1. anonymous

    January 10, 2011 at 4:01 pm

    Nhu writes:Dear Mr Old Man, Could you give me your advice in this case:The bank of the second ben. has presented docs to the transfering bank without b/l, ben. cert… which were required in the transfered L/C. Then, the first ben. has presented above docs. directly to the transfering bank. Can the transfering bank raise the discrepancy to the bank of second ben.: lack b/l, ben. cert?Thanks for your support.

    Reply

  2. mroldmanvcb

    January 11, 2011 at 9:01 pm

    Yes for the purpose of deduction of discrepancy fee but not for the purpose of refusal of the documents. You may know that under the transferred L/C, the transferring bank would undertake to pay the beneficiary only when funds are received from the issuing bank”

    Reply

  3. anonymous

    January 12, 2011 at 11:01 am

    Nhu writes:Dear Mr Old Man, Thanks for your comment. Is it neccessary to advise dics. to the second bank? Which responsibilities may the transfering bank bear if they do not advice and the issuing bank refuse the payment? can the transfering bank deduct the dics fee if issuing bank settle without deduction? Thanks so much.

    Reply

  4. mroldmanvcb

    January 12, 2011 at 10:01 pm

    In accordance with its payment undertaking, the transferring bank will pay the beneficiary when the funds are received from the issuing bank irrespective of whether it has advised the discrepancies or not. If it has advised the discrepancy it is entitled to discrepancy fee which can be deducted from the proceeds.

    Reply

  5. anonymous

    February 11, 2011 at 12:02 am

    Azenga writes:Dear Mr. Old Man,Thanks for shedding light on alot of LC issues that have previously been unclear to most of us. Here is a case; Ben 2 has approached Bank X to add its confirmation to the transferred LC, a sight LC. The transferring bank sends a SWIFT to Bank X indicating that Bank X may add its confirmation. Meanwhile the transferring bank transferred the LC without any responsibility. After Ben 2 presents documents to Bank X, Bank X makes the payment to Ben 2 and claims that amount from the transferring bank. How does Bank X mitigate the non-payment risk from the transferring bank?

    Reply

  6. mroldmanvcb

    February 12, 2011 at 11:02 pm

    Hi Azenga,Unless the transferring bank is the confirming bank, the transferring bank has no obligation/liability to effect payments. As said in my original post, the transferring bank that does not add its confirmation would normally incorporate into the L/C the conditional payment clause as follows: “We (the transferring bank) will pay to the second beneficiary only when funds are received from the issuing bank”. It means that the transferring is not obliged to pay if it cannot collect funds from the issuing bank.A wise third bank should not add its confirmation to such a transferred L/C. However, it may at its own discretion add its confirmation to the transferred L/C which has been confirmed by the transferring bank or when it is the nominated transferring bank which is authorized by the issuing bank to add the confirmation.Best regards,Mr. Old Man

    Reply

  7. anonymous

    April 23, 2011 at 2:04 am

    devendra kumar,dwarka writes:sir, is it necessary for the negotiating bank to present theexport documents under transferred LC through transferring Bankeven if the credit is available with any bank

    Reply

  8. mroldmanvcb

    April 23, 2011 at 8:04 pm

    If so, you can negotiate the documents with any bank but the documents must be presented to the transferring bank in accordance with sub-article 38(k), which says "Presentation of documents by or on behalf of a second beneficiary must be made to the transferring bank". Example: A Korean bank transferred L/C and advised to the second beneficiary in India through an Indian bank. This Indian bank can negotiate the documents and forward to the Korean transferring bank for reimbursement.

    Reply

  9. anonymous

    June 9, 2011 at 10:06 pm

    Sameh writes:Hi Mr. Old Man ,So what you are saying that unless the transferring bank is not the confirming bank, it is not obliged to pay for the second beneficiary until it received payment from the issuing bank. So what is the benefit now from the L/C to the second beneficiary as a mean of secure payment. It looses its main privilege to be secure means of payment to the second beneficiary.

    Reply

  10. mroldmanvcb

    June 9, 2011 at 11:06 pm

    It is recognized that a transferred LC would bear the following reimbursement clause: “The transferring bank will pay to the second beneficiary only when funds are received from the issuing bank. This type of clause is typically seen on L/Cs for which the transferring bank does not add its confirmation. Transferable LC and transferred LC are in fact one LC. The second beneficiary still has a guarantee of payment from the issuing bank. The issuing bank must honour if the documents (including draft and invoice substituted by the first beneficiary) presented constitutes a complying presentation. The transferring must pay to the second beneficiary upon receipt of payment from the issuing bank.

    Reply

  11. anonymous

    August 6, 2011 at 4:08 pm

    Anonymous writes:DEAR MR. OLD MAN, IF THE TRANSFERRING BANK HAVE SENT DOC. TO ISSUING BANK ON 18/07 AND 19/07 ISSUING BANK GOT DOC. AND RELAY DISCREPANCIES ADVICE FROM ISSUING BANK TO ME 27/07 PLS EXPLAIN ME WHAT IS TIME PERIOD OF RAISING DISCREPANCIES FROM ISSUING BANK

    Reply

  12. mroldmanvcb

    August 6, 2011 at 5:08 pm

    I guess you are the second beneficiary under a transferred L/C. Acording to Article 16 UCP 500, if the issuing bank decides to refuse to honour, it must give a single notice to that effect to the presenter (i.e., the transferring bank in this case) no later than the close of the fifth banking day following the day of presentation. If the issuing bank fails to give the notice of refusal within this stipulated period, it shall be precluded from claiming that the documents do not constitute a complying presentation. I must emphasize that the issuing bank must give the notice of refusal to the presenter who in this case is understood as the transferring bank, and not you – the second beneficiary. So, please check if the issuing bank complied with this stipulated period.

    Reply

  13. anonymous

    August 11, 2011 at 9:08 pm

    Anonymous writes:would you discount a transferable LC after adding confirmation (a) open confirmation (b) silent confirmation.If it is silent confirmation, would advise to the 2nd bene?

    Reply

  14. mroldmanvcb

    August 11, 2011 at 11:08 pm

    Once having added confirmation irrespective of open confirmation or silent confirmation, the confirming bank must negotiate the complying presentation without recourse if the L/C is available by negotiation with the confirming bank. The confirming bank must honour,i.e., accept the draft or incur a deferred payment undertaking and pay at maturity if the L/C is available with the confirming bank by acceptance or by deferred payment. The confirming bank may discount its own deferred payment undertaking before maturity (please refer to sub-article 12.b).Silent confirmation is understood as the confirmation without the issuing bank's authorization. It is based on the agreement between the confirming bank and the benficiary (the first beneficiary in your case). No need to advise to the second beneficiary of the silent confirmation agreed between the confirming bank and the first benficiary.

    Reply

  15. anonymous

    September 13, 2011 at 2:09 pm

    Anonymous writes:dear sir,suppose under l/c required bag packing and we issue all documents in carton packing, but we issue one declaration like as under BENEFICIARY DECLARATION We declared that the goods are Bag Packing so kindly read bag instead of carton in all documents. than also come any descripancy regarding that

    Reply

  16. mroldmanvcb

    September 14, 2011 at 10:09 pm

    Hi,Please note that according to sub-article 14(g) UCP 600, a document presented but not required by L/C will be disregarded. So, The beneficiary's declaration shall be of no use.Assuming that the declaration is acceptable, it is a discrepancy according to sub-artile 14(d)which says: Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit. Regards,Mr. Old Man

    Reply

  17. anonymous

    October 30, 2011 at 2:10 am

    Sharad Khandelwal writes:Dear Mr. Old Man,I am describing a very typical case to you. Issuing Bank opened a transferable letter of credit in favour of Beneficiary 1 for USD 10 Million. Beneficiary 1 transferred a portion (USD 2 Million) of this letter of credit through its bank (Bank 1) in favour of Beneficiary 2. Beneficiary 2 submitted documents under the transferred letter of credit to Bank 1. Beneficiary 1 refused to substitute the invoice and instead negotiated the letter of credit for USD 8.5 Million and got paid. Bank 1 sent the documents of Beneficiary 2 to the issuing bank directly under Section 38 H of UCP. Issuing Bank pointed out the discrepancies and also listed one of the discrepancies as "L/C Overdrawn". Issuing Bank also received instructions from LC Openers accepting all the discrepancies along with instructions to pay the amount of USD 1.5 Million which was the balance amount under the LC. Now, the Issuing Bank is asking the Bank 1 to get a confirmation from the Beneficiary to accept the payment of USD 1.5 Million instead of the USD 2 Million which is the amount of the drawings by the Beneficiary 2 as per the value of the transferred LC. The Bank 1 is now putting pressure on Beneficiary 2 to accept the reduced payment of USD 1.5 Million saying that as per the LC it is responsible to pay only that amount which it receives from the LC opening bank and is not responsible for the difference amount of USD 0.5 Million (which was overdrawn by Beneficiary 1 in connivance with Bank 1). Please advise what action Beneficiary 2 can take to get the full payment under the LC and hold the Bank 1 responsible for the same. Is there any specific section in UCP which can be cited for quick redressal ?Regards,

    Reply

  18. mroldmanvcb

    October 30, 2011 at 7:10 pm

    Dear Sharad Khandelwal,Under the transferred LC the transferring bank would undertake to pay the second beneficiary upon receipt of the proceeds from the issuing bank. I guess that the transferred LC in question could contain the same undertaking. However, I believe the transferring bank in this particular case must pay the second beneficiary notwithstanding such a conditional payment undertaking as the second beneficiary made a complying presentation under the transferred LC.I’m sure the court will be on the side of the second beneficiary if the case is brought to the court.Good luck!Mr. Old ManP/S: I do not find any article of UCP dealing with your case. I attach herewith an an excerpt of Official Opinion R375 – 1998/99 and hope it is useful for your argument with the transferring bank:QUOTESITUATION:Bank B, while transferring the credit, failed to increase sufficient insurance coverage to cover the 110% of the first beneficiary's invoice.Bank C in Country X received the documents and found them to be in order in terms of the transfer credit and negotiated the documents and forwarded them to the transferring bank for payment.Bank B (the transferring bank), while substituting the draft and invoices, received discrepant invoices and draft (merchandise description on invoice did not conform to the credit). Bank B forwarded the documents to the issuing bank for payment and the issuing bank refused payment for the following discrepancies:a) insufficient insurance coverb) description of goods not as per L/C.The issuing bank returned the documents by next mail to the transferring bank.1. What is the liability for the transferring bank in this case? Can the transferring bank be compelled to reimburse the second beneficiary's bank even though it had a conditional payment clause on the credit or has the transferring bank no risk or liability at all as regards the documents?ICC’s ANALYSIS AND CONCLUSION1. The documents, as received by Bank B, would appear to have met the terms of the transferred credit. The presentation of non-conforming invoices and draft in substitution for those of the second beneficiary did not change the acceptability of the initial presentation. The disposal of the documents (including the substituted invoices and draft) should only have occurred with the agreement of the first and second beneficiaries. On the basis that the second beneficiary's documents conformed to the transferred credit, Bank B should have acted in accordance with the provisions of sub-Article 48(i), and, if necessary, utilized the second beneficiary's documents as tender under the credit. 2. The main risk and liability on the part of the transferring bank is the transposing of information from the original credit and transfer application form provided by the first beneficiary into the text of the transferred credit.3. Sub-Article 48(i) refers to the substitution of invoices and draft(s). While a bank may determine under its own internal policies to permit the substitution of further documents, this is at its own risk. It is not a practice supported by UCP.UNQUOTE

    Reply

  19. anonymous

    May 31, 2012 at 7:05 pm

    Young Man Asking writes:Can Usance LC's be transferred to more than one beneficiary and what precaution should the Transferring Bank take ?

    Reply

  20. mroldmanvcb

    June 1, 2012 at 10:06 pm

    A sight L/C or usance L/C may be transferred in part to more than one second beneficiary provided partial drawings or shipments are allowed. Unless the transfering bank is a confirming bank it should undertake under the transferred L/Cs to remit funds to the second beneficiaries upon receipt of the proceeds from the issuing bank.

    Reply

  21. anonymous

    July 28, 2012 at 11:07 am

    unknown writes:dear old man,1st bene recd a transferable lc for a amount of 100. 1st amendment was recd for reduction of 10. the same was intimated to the 2nd bene. the 2nd bene has not yet given the approval for the reduction. post this the nominated bank has recd amendment 3 which is for an increase of 20. can the 1st bene request to transfer the 2nd amendment without approval by the 2nd bene of the 1st amendment.pls answer considering a. the 2nd bene is the same for bothe amendementsb. 2nd bene is different for both amendments

    Reply

  22. mroldmanvcb

    July 28, 2012 at 4:07 pm

    Hi,The question is a bit complicated. I understand that the 1st bene has transfered 100% to the 2nd bene and then In case where the 2nd bene is the same for both amndments, the 1st bene can transfer the 2nd amendment to the 2nd bene notwithstanding whether or not the 2nd bene has accepted the 1st amendment. The fact whether or not the 2nd bene accepts the amendment will be determined when he makes presentation. In case where where the 2nd bene has not yet confirmed his acceptance of the 1st amendment and the 1st bene wishes to transfer the increased amount of the 2nd amendment to another 2nd bene, the 1st bene can only transfer the amount that does not affect the original amount of the transferred LC. For example, where the original transfered amount is 100, the not yet approved 1st amendment for reduction of 10 and the 2nd amendment for increase of 20, the 1st bene can only transfer 10 to another 2nd bene.Not sure you are satisfied with my answer.Regards,Mr. Old Man

    Reply

  23. anonymous

    August 2, 2012 at 3:08 am

    Andy writes:I need to know the followings:- If you kindly help me.1. Drawee Field is X Bank in original LC. What would be the Drawee field (42D) in the transferred LC with substitution ?2. In case of LC is being transferred to other country, then what will be in the field, Date & Place of Expiry ?3. In 41A: Available with..by in original LC is Any Bank in [1st Beneficiary's country] by negotiation, then what will be in that field in transfer LC ?It would help me if you answer my question.Thanks

    Reply

  24. mroldmanvcb

    August 2, 2012 at 10:08 pm

    Hi,1) Drawee in the transferred LC remains unchanged, i.e., X Bank.As you know, under a transferred LC, the transferring bank would undertake only to remit funds upon receipt of the proceeds from the issuing bank. Where the 1st beneficiary fails to substitute the invoice and draft on first demand, the transferring bank may forward to the issuing bank the douments (including the drafts) presented by the 2nd beneficiary.2) The place of expiry must match the place of the nominated bank with which the transferred LC is available. So, if the transferred L/C is available with any bank by negotiation, then the place of expiry will be in the 2nd beneficiary’s country notwithstanding whether it is different from or the same as the transfering bank’s country. The date of expiry may be curtailed.3) Assuming the place of expiry is changed to the country of the 2nd beneficiary, the availability remains the same, i.e., available with any bank by negotiation. The only question is whether or not the nominated bank in the 2nd beneficiary ‘s country is willing to negotiate. Please note again that the transferring bank will remit the funds only after receipt of the proceeds from the issuing bank.Best regards,Mr. Old Man

    Reply

  25. anonymous

    August 16, 2012 at 5:08 pm

    Anonymous writes:mr.old man, could you put your great help in this issueConfirmed or not confirmedWe apologise for asking what appears to be a rather basic question, but even within our bank there are different opinions as to the correct approach to take when upholding the international rules for letters of credit – that is, UCP 600. We issued a letter of credit for a large sum which was available with a nominated bank by deferred payment. The L/C was issued as “irrevocable transferable” and requesting confirmation. The nominated bank effected one transfer of the L/C to one second beneficiary (shipper of goods) at the request of the first beneficiary. However, the nominated and now confirming bank only added its confirmation to the credit as advised to the first beneficiary but did not add its confirmation to the portion transferred in favour of the second beneficiary, who was anxiously awaiting the arrival of a confirmed credit before it would actually ship the goods. The problem is that the second beneficiary (shipper of the goods) refused to ship as it did not receive a confirmed letter of credit as agreed in its contract. Can the bank that was requested to add its confirmation do so only to the credit as advised to the first beneficiary or must the confirmation also extend to the second beneficiary of the credit as transferred?

    Reply

  26. mroldmanvcb

    August 21, 2012 at 1:08 am

    Originally posted by anonymous:

    Anonymous writes:mr.old man, could you put your great help in this issueConfirmed or not confirmedWe apologise for asking what appears to be a rather basic question, but even within our bank there are different opinions as to the correct approach to take when upholding the international rules for letters of credit – that is, UCP 600. We issued a letter of credit for a large sum which was available with a nominated bank by deferred payment. The L/C was issued as “irrevocable transferable” and requesting confirmation. The nominated bank effected one transfer of the L/C to one second beneficiary (shipper of goods) at the request of the first beneficiary. However, the nominated and now confirming bank only added its confirmation to the credit as advised to the first beneficiary but did not add its confirmation to the portion transferred in favour of the second beneficiary, who was anxiously awaiting the arrival of a confirmed credit before it would actually ship the goods. The problem is that the second beneficiary (shipper of the goods) refused to ship as it did not receive a confirmed letter of credit as agreed in its contract. Can the bank that was requested to add its confirmation do so only to the credit as advised to the first beneficiary or must the confirmation also extend to the second beneficiary of the credit as transferred?

    Hi,It’s an interesting question and not a basic question at all.According to sub-article 38 (g), the transferred LC must exactly reflect the terms and conditions of the original LC, including confirmation (if any) with exception of:- the amount of the credit, – any unit price stated therein, – the expiry date, – the period for presentation, or – the latest shipment date or given period for shipment, any or all of which may be reduced or curtailed. So, if the original LC was confirmed by the nominated bank then the transferred LC must be also confirmed.Your question was also forwarded to my fellow editors of Trade Services Update for their comments. The result is as follows:Majority agree that once confirmation is added, it applies to the whole LC. A nominated bank may not agree to transfer and/or add its confirmation to the LC. However, once it has added its confirmation and accept to transfer, it must comply with UCP, i.e., extend its confirmation to the transfered portion.Best regards,Mr. Old Man

    Reply

  27. anonymous

    August 23, 2012 at 4:08 pm

    Mary writes:Dear Mr Old man We issued a letter of credit for a large sum which was available with a nominated bank by deferred payment. The L/C was issued as “irrevocable transferable” and requesting confirmation.The nominated bank effected one transfer of the L/C to one second beneficiary (shipper of goods) at the request of the first beneficiary.However, the nominated and now confirming bank only added its confirmation to the credit as advised to the first beneficiary but did not add its confirmation to the portion transferred in favour of the second beneficiary, who was anxiously awaiting the arrival of a confirmed credit before it would actually ship the goods.The problem is that the second beneficiary (shipper of the goods) refused to ship as it did not receive a confirmed letter of credit as agreed in its contract.Can the bank that was requested to add its confirmation do so only to the credit as advised to the first beneficiary or must the confirmation also extend to the second beneficiary of the credit as transferred?Thanks in advance

    Reply

  28. mroldmanvcb

    August 23, 2012 at 9:08 pm

    Dear Mary,According to sub-article 38 (g), the transferred LC must exactly reflect the terms and conditions of the original LC, including confirmation (if any) with exception of:- the amount of the credit, – any unit price stated therein, – the expiry date, – the period for presentation, or – the latest shipment date or given period for shipment, any or all of which may be reduced or curtailed. So, if the original LC was confirmed by the nominated bank then the transferred LC must be also confirmed.Your question was also forwarded to my fellow editors of Trade Services Update for their comments. The result is as follows:Majority agree that once confirmation is added, it applies to the whole LC. A nominated bank may not agree to transfer and/or add its confirmation to the LC. However, once it has added its confirmation and accept to transfer, it must comply with UCP, i.e., extend its confirmation to the transfered portion.Best regards,Mr. Old Man

    Reply

  29. anonymous

    August 25, 2012 at 11:08 pm

    ahmed writes:dear MR.old manthanks alot for your valuable reply to my post 16/8 concerning confirmation to aransfered crdit, but can i conclude the follwoing:-1-if we want to modify 38g, should the modification with the consent of the issuing bank to only advise 1 st beneficiary with the confirmation but not to do so in the transfered credit by transfering it without transfering bank confirmation2-if the transfering bank refused to add its confirmation to the credit, coudt it adds its silent confirmation to 1st beneficiary, i think in this case it does not need to to transfer its confirmation to the transfered credit as no clear r known confirmation done to the credit and the issuing bank already notified that transfering bank are not will to add its confirmationthanks in advance and best regardsahmed

    Reply

  30. mroldmanvcb

    August 26, 2012 at 10:08 am

    1. UCP rules are binding on all LC parties unless expressly modified or excluded by the LC. So, the answer is YES.2. Agreed.

    Reply

  31. farifire

    September 19, 2012 at 12:09 am

    My Query is:When 2nd Bene brings transferred LC MT720 to the negotiating bank, then how would negotiating bank know, what was the original credit and what clauses were there (the transferring bank may exclude confirmation and how would i counter-confirm if the original credit had that)and also who was the first bene?

    Reply

  32. mroldmanvcb

    September 20, 2012 at 6:09 am

    To tell the true, most of transferred LCs are available with the transferring bank (i.e., documents must be presented to the transferring bank), and the transferred bank will only pay the 2nd beneficiary upon receipt of the proceeds from the issuing bank. This truth does not prevent any bank from negotiating. However, an experienced bank would never accept to negotiate (especially without recourse) the documents presented under a transferred LC.

    Reply

  33. farifire

    September 22, 2012 at 8:09 pm

    plz see my this post as well, i need your valuable commentshttp://my.opera.com/farifire/blog/2012/09/21/airway-bill-shipment-date?firstpost=Yi really dont know, how to ask questions directly from you,plz let me know the procedure,i would be highly obliged

    Reply

  34. mroldmanvcb

    September 23, 2012 at 12:09 pm

    Hi,1) Regarding how to determine the date of shipment on the air transport document, ISBP revision Draft 4 makes a clearer guide as follows:a) An air transport document is to indicate a date of issuance. This date will, for the purpose of UCP 600, be deemed to be the date of shipment unless an air transport document contains a specific notation of the actual date of shipment, in which event the date stated in the notation will be deemed to be the date of shipment, whether or not the date is before or after the issuance date of the document.b) In the absence of a specific notation containing the flight number and date, any other information appearing on an air transport document relative to this information (including, for example, in a box labeled “For Carrier Use Only”, “Required Flight Date” or “Routing and Destination”) is to be disregarded in the determination of the date of shipment.In line with the above guide, where an air transport documents contains both a date of issuance and a specific notation of the actual date of shipment/flight date, the latter will be deemed to be the date of shipment and maturity date will be calculated based on the date of shipment and not the date of issuance.I wonder why an air transport document contains two dates, a date of shipment and a flight date. If the flight date information appears in a box labeled “For Carrier Use Only”, “Required Flight Date” or “Routing and Destination”, this information is disregarded. However, if the actual flight date appears in a separate notation, then it will be used for the purpose of determining the shipment date.2) Regarding posting questions on my Opera blog, you can post your questions into Comment Box under the related Q&A or send your question to me nhduc.dng@vietcombank.com.vn or by send a message via my opera mail box.Best regards,Mr. Old Man

    Reply

  35. anonymous

    October 21, 2012 at 8:10 pm

    nmeshaal writes:Let me ask a Question,If a usance transferable LC is established. the first adviing Bank (a) added confirmation the second advisng Bank (B) is also holding the availability.Can bank (B) transfer the LC to the 2nd Beneficiary at sight?

    Reply

  36. mroldmanvcb

    October 21, 2012 at 9:10 pm

    According to sub-article 38(g), Bank B cannot change the type of L/C from usance to at sight.For your convenience, below is sub-article 38(g): "The transferred L/C must accurately reflect the terms and conditions of the credit, including confirmation, if any, with the exception of: – the amount of the credit, – any unit price stated therein, – the expiry date, – the period for presentation, or – the latest shipment date or given period for shipment, any or all of which may be reduced or curtailed".

    Reply

  37. anonymous

    October 31, 2012 at 2:10 pm

    1stbeneficiary writes:Hello Mr.Old man,1) what If a transferrable LC issuing bank , 1st beneficiary and second beneficiary all are in 3 different countries , how will the payment be process. As per the clause put by issuing bank is credit available with any bank in 1st beneficiary country, what if second beneficiary requests for credit availability with any bank in the their country…how are such situations tackled.2) what to do in case if the second beneficiary is demanding for confirmation of LC from 1st beneficiary as mandatory , how to solve the above to points.Regards, 1stbeneficiary

    Reply

  38. anonymous

    October 31, 2012 at 10:10 pm

    Anonymous writes:Hello Mr. Old man, Kindly you are requested to answer me the following obstacle:we have received an Irrevocable Transferable LC i.e. we are 1st beneficiary. so we asked from our bank i.e. transferring bank to transfer a portion of our LC to a 2nd beneficiary's bank. but the matter is: the bank of 2nd beneficiary that is deemed as advising bank in the form of transferred lc, didn't accept to advise the LC to 2nd beneficiary. can the transferring bank advise this MT720 directly to the 2nd beneficiary or not?i will be so delight if you refer to UCP articles in your response(if any).Your quick and fine reply will be highly appreciated.

    Reply

  39. mroldmanvcb

    November 1, 2012 at 8:11 pm

    Originally posted by anonymous:

    Anonymous writes:Hello Mr. Old man, Kindly you are requested to answer me the following obstacle:we have received an Irrevocable Transferable LC i.e. we are 1st beneficiary. so we asked from our bank i.e. transferring bank to transfer a portion of our LC to a 2nd beneficiary's bank. but the matter is: the bank of 2nd beneficiary that is deemed as advising bank in the form of transferred lc, didn't accept to advise the LC to 2nd beneficiary. can the transferring bank advise this MT720 directly to the 2nd beneficiary or not?i will be so delight if you refer to UCP articles in your response(if any).Your quick and fine reply will be highly appreciated.

    .It is possible for the transferring bank to transfer the credit and advise the same direct to the second beneficiary. However, this would occur when the transferring bank and the second beneficiary are located in the same country. .Where the transferring bank and the second beneficiary are in different countries, the transferred credit would be advised to the second beneficiary through the beneficiary’s bank. By advising the transferred credit, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the transferred credit and that the advice accurately reflects the terms and conditions of the transferred credit received (sub-article 9.b)..The transferring bank may advise the transferred credit in MT720 direct to the second beneficiary but this should be done in paper form with authorized signatures. The second beneficiary must ask his bank to verify the signatures (i.e., authenticate the transferred credit).The beneficiary may face risks (fraud) if the transferred credit is not authenticated..Best regards,Mr. Old Man

    Reply

  40. mroldmanvcb

    November 1, 2012 at 8:11 pm

    Originally posted by anonymous:

    1stbeneficiary writes:Hello Mr.Old man,1) what If a transferrable LC issuing bank , 1st beneficiary and second beneficiary all are in 3 different countries , how will the payment be process. As per the clause put by issuing bank is credit available with any bank in 1st beneficiary country, what if second beneficiary requests for credit availability with any bank in the their country…how are such situations tackled.2) what to do in case if the second beneficiary is demanding for confirmation of LC from 1st beneficiary as mandatory , how to solve the above to points.Regards, 1stbeneficiary

    1. A nominated transferring bank would only agree to transfer if the credit is available with that nominated transferring bank. Presentation of documents by or on behalf of the second beneficiary must be made to the transferring bank (sub-article 38.k). The bank presenting the document on behalf of the second beneficiary only acts as a presenting bank..The transferring bank may accept the transferred credit to be available with any bank in the second beneficiary’s country. However, it can instruct the documents to be forwarded to their counter and would undertake to pay/reimburse only after receipt of the proceeds from the issuing bank..I’m afraid no bank in the second beneficiary’s country accept to negotiate the documents unless such a negotiation is done on a with recourse basis..2. The second beneficiary may insist on a confirmed credit. But the fact whether the credit is confirmed or not depends on whether or not the issuing bank agrees to issue such an L/C and whether or not the advising bank agrees to add confirmation..However, if the original credit is confirmed then the transferred credit must include confirmation (sub-article 38.g)..Best regards,Mr. Old Man

    Reply

  41. mehdi-iust

    November 2, 2012 at 4:11 am

    Originally posted by mroldmanvcb:

    Originally posted by anonymous:

    Anonymous writes:Hello Mr. Old man, Kindly you are requested to answer me the following obstacle:we have received an Irrevocable Transferable LC i.e. we are 1st beneficiary. so we asked from our bank i.e. transferring bank to transfer a portion of our LC to a 2nd beneficiary's bank. but the matter is: the bank of 2nd beneficiary that is deemed as advising bank in the form of transferred lc, didn't accept to advise the LC to 2nd beneficiary. can the transferring bank advise this MT720 directly to the 2nd beneficiary or not?i will be so delight if you refer to UCP articles in your response(if any).Your quick and fine reply will be highly appreciated.

    .It is possible for the transferring bank to transfer the credit and advise the same direct to the second beneficiary. However, this would occur when the transferring bank and the second beneficiary are located in the same country. .Where the transferring bank and the second beneficiary are in different countries, the transferred credit would be advised to the second beneficiary through the beneficiary’s bank. By advising the transferred credit, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the transferred credit and that the advice accurately reflects the terms and conditions of the transferred credit received (sub-article 9.b)..The transferring bank may advise the transferred credit in MT720 direct to the second beneficiary but this should be done in paper form with authorized signatures. The second beneficiary must ask his bank to verify the signatures (i.e., authenticate the transferred credit).The beneficiary may face risks (fraud) if the transferred credit is not authenticated..Best regards,Mr. Old Man

    Hello Mr. Old man

    Thanks a lot for your efficient answer. but would you please say me has this matter that transferring bank can directly advise the transferred LC to 2nd beneficiary, gone some where in UCP articles or not? because my bank after refusal of 2nd beneficiary bank for advising the subjected transferred LC, has told me that because i am authorized by the issuing bank of Master LC for just transferring the transferred LC, so i am only able to transfer this LCs to 2nd beneficiary's bank and in this case because the 2nd beneficiary bank has refused to advise it, so that i can not advise it directly!!!!!!!!

    i am heavily and eagerly waiting for your precise response in this regard because we have been put in very bad situation and need very urgent help ASAP.

    Thanks alot

    Reply

  42. anonymous

    November 2, 2012 at 10:11 am

    Anonymous writes:Dear Mr Old man! The master LC issued in USD, can we transfer this LC to the second beneficiary in VND? If can, which terms and conditions we should add to protect ourselves.

    Reply

  43. mroldmanvcb

    November 3, 2012 at 11:11 am

    Originally posted by anonymous:

    Anonymous writes:Dear Mr Old man! The master LC issued in USD, can we transfer this LC to the second beneficiary in VND? If can, which terms and conditions we should add to protect ourselves.

    No. Sub-article 38(g) allows the L/C amount to be reduced but does not allow to change the currency code.

    Reply

  44. mroldmanvcb

    November 3, 2012 at 12:11 pm

    Originally posted by mehdi-iust:

    Originally posted by mroldmanvcb:

    Originally posted by anonymous:

    Hello Mr. Old man

    Thanks a lot for your efficient answer. but would you please say me has this matter that transferring bank can directly advise the transferred LC to 2nd beneficiary, gone some where in UCP articles or not? because my bank after refusal of 2nd beneficiary bank for advising the subjected transferred LC, has told me that because i am authorized by the issuing bank of Master LC for just transferring the transferred LC, so i am only able to transfer this LCs to 2nd beneficiary's bank and in this case because the 2nd beneficiary bank has refused to advise it, so that i can not advise it directly!!!!!!!!

    i am heavily and eagerly waiting for your precise response in this regard because we have been put in very bad situation and need very urgent help ASAP.

    Thanks alot

    As said it is a common practice that where the transferring bank and the second beneficiary are located in the same country there's no need for the transferred credit to be advised through another bank. In this case the transferring bank is also the advising bank that advises the transferred credit direct to the second beneficiary.

    This practice may also be applied to the situation where the transferring bank and the second beneficiary are not located in the same country provided that the advice of the transferred credit can be authenticated.

    There's no UCP article dealing exactly with this case. It comes from my experience.

    The key issue is how the transferred credit is authenticated

    Reply

  45. senghor007

    February 20, 2013 at 1:02 pm

    Dear Mr. Old Man.I would like to seek for a clarification related to a transferable LC. is Transferring bank oblinged to make the document examination when the 2nd beneficiary present the document at their counter? in case they do the document checking and they found it discrepancy, what is their proper action to 2nd beneficiary? should they advise the discrepancy notice to 2nd beneficiary bank or do they have the right to forward the document without inform the 2nd beneficiary or should they hold the document at the disposal and wait for further instruction from 2nd beneficiary?I have one case happened to me as I am the 2nd beneficiary's bank. we presented the documents to transferring bank but we were inform that the first beneficiary will not subtitute their invoice and draft unless the document presented from 2nd bene is cleaned. and they hold the document and wait for further instruction without advise the description of the discrepancy to me and 2nd bens. based on UCP article 16, they should advise us the discrepancy notice after they judged the presented document is not complying. we would also like to replace any documents that occured the discrepancy but we have no idea what are the discrepany about. please kindly help to clarify for me please. thanks.

    Reply

  46. mroldmanvcb

    February 21, 2013 at 12:02 am

    Hi,As you may know, under the transferred LC the transferring bank undertakes to pay the 2nd beneficiary upon receipt of the proceeds from the issuing bank. So, the transferring would normally check the documents presented by the second beneficiary. However, it is not obliged to do so unless it has added its confirmation to the transferred L/C. It is advisable that if the transferred bank is only willing to substitute the first beneficiary’s invoice and drafts and forward the documents to the issuing bank, it should so state in its advise of the transferred LC.Unless the transferring bank is a confirming bank or a nomiantated bank acting on its nomination, there is no need for the transferring bank to act in accordance with Article 16 when it determines that the presentation is not complying. It may just ask the first beneficiary to substitute the invoice and drafts and forward the documents to the issuing bank. The fact that the transferring bank gives its advice of discrepancies if any to the second beneficiary may be for the following purposes: (i) in order for the second beneficiary to represent corrected documents; and/or (ii) to collect discrepancy fee.If the first beneficiary fails to present his own invoice and drafts on first demand, the transferring bank has the right to present the documents as received from the second beneficiary to the issuing bank without further responsibility to the first beneficiary (sub-article 38.i). The transferring should not hold the documents at their own disposal without referring this to the second beneficiary.Best regards,Mr. Old Man

    Reply

  47. senghor007

    February 21, 2013 at 12:02 pm

    Dear Mr. old Man,Thanks a lot for your detail explaination. thus, in case the transffering bank inform the 2nd Ben about the status of the discrepancy document, they should give the description of those descrepancies in order to allow the 2nd Ben replace the documents based on the discrepancy notice. But in my case, the transferring bank just told me that the doc is discrepancy without any detail of discrepancy points and they just hold the doc at their own disposal. I dont think it is a good bank practic. It took me more time to send the enqiury swift about all the discrepancies point which they found after doc exam because we wanna replace doc. i have other question. Can 2nd Ben (by pass) present the doc to issuing bank's counter without any inform to transferring bank?Thanks.

    Reply

  48. mroldmanvcb

    February 21, 2013 at 9:02 pm

    Yes. The transferring bank does not comply with UCP and international banking practice if it gives a notice of discrepant documents without stating the discrepancy and hold the documents at its disposal. If the first beneficiary fails to substitute the invoice and draft on first demand the transferring bank. According to sub-article 38k, presentation of documents by or on behalf of a second beneficiary must be made to the transferring bank. The second beneficiary can present the documents directly to the issuing bank only when the transferring bank has so stated in its advice of the transferred L/C to the second beneficiary and advived the same to the issuing bank.

    Reply

  49. senghor007

    February 22, 2013 at 8:02 am

    Dear Mr. Old Man,I would like to express my deep thanks for your explaination. in UCP 600, article 38 (i) state that: " If the first beneficiary is to present its own invoice and draft, if any, but fails to do so on first demand, or if the invoices presented by the first beneficiary create discrepancies that did not exist in the presentation made by the second beneficiary and the first beneficiary fails to correct them on first demand, the transferring bank has the right to present the documents as received from the second beneficiary to the issuing bank, without further responsibility to the first beneficiary. " in this case, althought the 2nd Ben presented the discrepancy document to Transferring bank and the 1st Ben failed to subtitute the doc on first demand, Should Transferring bank foward those 2nd Ben's doc to Issuing bank?thanks.

    Reply

  50. mroldmanvcb

    February 22, 2013 at 3:02 pm

    Why not? It SHOULD. Please find attached below ICC Opinions R484 regarding the duty of the transferring bank towards the first and second beneficiaries. QUERY I should be grateful to have your opinion on the following query.The transferring bank transferred the credit to a second beneficiary adding a condition such as 'Payment under this L/C will be made only upon receipt of funds from the issuing bank.'The transferring bank while substituting the draft and invoices, received discrepant invoices and draft. The bank forwarded the documents to the issuing bank and the issuing bank refused payment for the discrepancies.Question: What is the liability of the transferring bank in this case? Has the transferring bank the liability to reimburse the second beneficiary (or his bank) even though there was a conditional payment clause in the credit?It is my understanding that the liability of the transferring bank is only transferring the L/C and they have no liability to reimburse the second beneficiary. ANALYSIS/CONCLUSION AnalysisSub-Article 13(a) requires that banks examine all documents with reasonable care to ascertain whether or not they comply with the terms and conditions of the credit. In addition, sub-Article 13(b) states that a nominated bank shall have a reasonable time not to exceed seven banking days following the day of receipt of the documents to determine whether or not to take them up or refuse them, informing the party from which it received the documents accordingly. Sub-Article 48(c) states that a transferring bank is under no obligation to effect any transfer except to the extent and manner in which it may agree. ConclusionIf a bank issues an advice of transfer and incorporates a condition of reimbursement that any payment will only be made after the receipt of funds from the issuing bank it can be construed that the transfer did not bear the confirmation of the transferring bank.Upon the presentation of documents by the second beneficiary, the transferring bank is required to review those documents to ascertain compliance or not. On the basis that the query suggests the second beneficiary produced conforming documents, but the first beneficiary presented non-complying invoices and draft, the transferring bank was obligated to seek the approval of the second beneficiary prior to sending the documents to the issuing bank. The documents are now discrepant and could jeopardize their payment should the issuing bank reject due to the discrepancy(ies). In a situation such as has been described, the transferring bank should not dispose of the second beneficiary's (conforming) documents without his express approval. The second beneficiary may seek some form of assurance(s) from the transferring bank as to the status of his documents.As the transferring bank has not, apparently, confirmed the credit, it had no obligation towards the second beneficiary with regard to payment of their complying documents. However, it had a duty of care as expressed above.

    Reply

  51. senghor007

    February 28, 2013 at 5:02 pm

    Thank you Mr. Old man. my case has been solved. your comment was very helpful.

    Reply

  52. anonymous

    July 19, 2013 at 5:07 pm

    Anonymous writes:Ben 1 receives transferable Lc. He transfers paartial creidt to second ben. Since ben 1 is going to substitute the docs of ben 2 can the transferring bank send all the docs received from Ben 1 after shipment to the issuing bank prior to receeiving the docs from ben 2.This is just to save time. In case there is discrepancy documents can be represented.

    Reply

  53. mroldmanvcb

    July 20, 2013 at 10:07 am

    If the credit allows partial shipment, then Ben 1 can present the documents for the value that has not been transferred to Ben 2. In this case, the transferring bank can send the documents presented by Ben 1 without waiting for the documents presened from Ben 2.

    Reply

  54. Tra Mi

    August 8, 2014 at 3:59 pm

    Dear Mr. Old Man,
    I’m writing to seek your opinion about confirmation of Transferred L/C
    Master L/C indicated that the field 49 is MAY ADD. The Transferring bank accept to transfer the L/C to second Ben without adding its confirmation to the Master L/C.
    So in this case, must the field 49 of Transferred L/C turn to be ‘WITHOUT’? Is it possible to indicate ‘MAY ADD’?
    My colleague argue that if we indicate MAY ADD in the field 49 of Transferred L/C, it means that Transferring bank agree to let other bank add confirmation to Master L/C, which is not in line with instruction of Master L/C. The reason is that the Master L/C is advised to Transferring bank and only Transferring bank is nominated to add its confirmation to the L/C. Therefore, it’s not a right practice for Transferring bank to indicate field 49 as MAY ADD

    Hope you can help me to clarify if this argument is right or not at soonest. Thanks a lot!

    Reply

    • mroldman

      August 8, 2014 at 10:49 pm

      It is understood from your description that the issuing bank issues a “may – add – confirmation” LC and at the first beneficiary’s request, the transferring bank transfers the “may-add-confirmation” LC to the second beneficiary without adding its confirmation and F 49 still shows “MAY ADD”.

      If the transferring bank undertakes in the LC that it will reimburse the negotiating/confirming bank upon receipt of documents complying with the transferred LC’s terms and conditions, then the second beneficiary’s bank may at its own discretion add its confirmation tothe LC.

      If the transferring bank gives no payment/reimbursement undertaking in the transferred LC but just says that it will pay upon receipt by the first beneficiary of the proceeds under the master LC, then it is clear that the transferring bank does not intend to authorize the second beneficiary’s bank to add its confirmation.

      So, if the second beneficiary’s bank wishes to add its confirmation in this case it should seek clarification from the transferring bank.

      Reply

  55. PRAKASH

    September 18, 2017 at 3:32 am

    Dear Mr.Old Man,

    A very very enriching reading on Transferable LCs. I have a few queries on the Transferable LCs.

    1. On Transfer of LC : Should the liability of the Parent LC be reduced. Say for e.g. the LC Amount is USD 1000 with tolerance of 10% , the Advising & Transfering Bank books a Memo / offbalance booking of USD 1100 in its books for Parent LC 123.

    2. At the request of 1 Ben , it transfers an Amount of USD 400 to Second Ben , so it Reduces the Parent LC liability by USD 440.00 and outtstanding liability under Parent LC is USD 660 and generates a MT720 from Parent LC123 and due to the Transfer creates another LC789 with liability of USD440.00 . My question is. Is this process correct or the Parent LC liability should always remain USD1100.

    3. In case of an Amendment received from the Issuing Bank on the Parent LC of USD 500 increase , Now the LC value increase to 1160. at the request of 1st Bene can the Amendment made on the Transferred LC789 , if it can be done what message type is required to be sent. Will it be another MT720 or a MT799 should be sent.

    4. At the request of 1st Bene can the transferred LC789 be amended for Increase of Amount , or the Increase of Amount can only be received from the Issuing Bank of the LC.

    kindly advise. Really looking forward to your answers.

    Thanks and Warm Regards

    Prakash

    Reply

    • mroldman

      September 20, 2017 at 9:47 am

      Sorry but please allow me not to answer you questions. I’m afraid I cannot give you good answers.

      Reply

    • Prakash

      September 25, 2017 at 1:26 am

      Thank you Sir,

      Warm Regards

      Prakash

      Reply

  56. Allan

    September 20, 2017 at 2:26 pm

    Dear Mr Old Man,

    Please help on this below Issue..

    On or about and On or before is it same terms as per UCP 600 article 3..what is the meaning of similar words…

    Thanking you

    Reply

    • mroldman

      September 21, 2017 at 10:48 am

      Hi,

      According to Article 3, the expression “on or about” or similar will be interpreted as a stipulation that an event is to occur during a period of five calendar days before until five calendar days after the specified date, both start and end dates included.

      The phrase “on or before” usually used in a contract or promissory note signifies that the performance or payment should be done by a particular date. It can also be done anytime prior to that date.
      I don’t think “on or before” is not similar to “on or about”

      Kind regards,
      Mr. Old Man

      Reply

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