Articles Q&A CAN A NOMINATED BANK HONOUR A DRAFT DRAWN ON A BANK OTHER THAN ITSELF? By Mr Old Man Posted on February 3, 2016 4 min read 9 0 3,551 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr QUESTION Hi Mr. Old Man: Thanks for your reply. Can an issuing bank actually issue a LC available with nominated bank by acceptance with draft drawn on reimbursing/confirming/issuing bank/other named banks? I am asking this question because I understand the term “acceptance” as to mean the issuing bank authorizes the nominated bank to accept draft. If a draft is drawn on the nominated bank, then naturally no authorization is needed for nominated bank to accept the draft which is drawn on itself. So the ‘authority” granted by issuing bank to nominated bank is for nominated bank (1) to accept only draft drawn on itself? Or (2) to accept all draft regardless of who the drawee is (i.e. reimbursing/confirming/issuing bank/other named banks)? Thanks A.S ———- ANSWER Hi, It is agreed that by issuing LC available with a nominated bank by acceptance, the issuing bank is deemed to have authorized that nominated bank to honour the draft and be entitled to the reimbursement from the issuing bank, and that where LC is available with a nominated bank by acceptance, drafts must be drawn on that nominated bank and not on a bank other than than that nominated bank., e.g. the issuing bank. A nominated bank is not in position to honour (i.e. not accept and pay at maturity) a draft drawn on a bank other than itself. It is practice that where LC is available with a nominated bank by acceptance without a pre-arrangement between the issuing bank and the nominated bank, the latter would not agree to act on its nomination even when the draft is drawn on the nominated bank. This practice also complies with UCP 600 sub-article 12 (a), which says “Unless a nominated bank is the confirming bank, an authorization to honour or negotiate does not impose any obligation on that nominated bank to honour or negotiate, except when expressly agreed to by that nominated bank and so communicated to the beneficiary”. Last but not least, where a draft is drawn on a bank other than the nominated bank, the term “negotiation” is more appropriate than “acceptance”. I see that some banks would issue LC available with any bank by negotiation of draft at xxx days after BL date (draft drawn on issuing bank). The purpose of this practice is to allow the LC to stipulate the date and place of expiry in the beneficiary’s country. Kind regards, Mr. Old Man
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?