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CONFIRMED TRANSFERRED LETTER OF CREDIT

By Mr Old Man
Posted on January 31, 2021
3 min read
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QUESTION

Dear Mr Old Man,

I read your blogs and find them really interesting and helpful. I have a query regarding transfer LC

1. Can a confirmed LC be transferred?

2. If yes, is it mandatory that confirmation is carried forward in MT720?

There is confusion regarding the same since as per UCP only 5 things can be reduced and all other terms must accurately reflect MT700 and the fact that 2nd beneficiary has the right to present directly to issuing bank. So, does the 2nd beneficiary get the confirmation benefit?

Would be really grateful if you could clear the doubt.

Regards,

Alok Pathak
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ANSWER

Dear Alok,

Thanks for your question. I would like to answer as follows:

1/ Yes. A confirmed LC can be transferred if the LC is transferable.

According to sub-article 38 (g) UCP 600, the transferred LC must accurately reflect the terms and conditions of the LC, INCLUDING CONFIRMATION, if any, with the exception of LC amount, unit price, expiry date, presentation period, latest shipment date, any of which may be reduced or curtailed.

2/ According to sub-article 38 (k) UCP 600, the 2nd beneficiary must present the documents to the transferring bank which is normally also the confirming bank under a confirmed LC. This is to facilitate the substitution of documents by the 1st beneficiary and it does not prevent the 2nd beneficiary from presenting the documents directly to the issuing bank as per article 6 UCP 600.

The beneficiary would insist on a confirmed LC when he is not satisfied with the creditworthiness of the issuing bank. The 2nd beneficiary should not present the documents directly to the issuing bank but the confirming bank to get a better payment and comply with LC terms and conditions and sub-article 38 (k) UCP 600 (in order for the 1st beneficiary to substitute the invoice and draft).

Payment under transferred LC may be delayed or even not made for various reasons if the documents are presented directly to the issuing bank bypassing the confirming/transferring bank.

Kind regards,
Mr. Old Man
————

Dear Mr. Old Man,

Thanks a lot for your prompt reply and clearing the doubt.
‘
Regards,
Alok

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9 Comments

9 Comments

  1. Татьяна

    April 30, 2021 at 12:59 pm

    Hi, Good question! It is agreed that unless the transferring bank is the confirming bank, it would undertake to pay the second beneficiary only after receipt of the payment from the issuing bank. With regard to the case where the first beneficiary is to present its own invoice and draft (if any), UCP 600 sub-article 38 (i) just says 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. Neither UCP nor ICC gives a firm answer that the transferring bank must pay the second beneficiary if it fails to act in accordance with sub-article 38 (i). It just says that the transferring bank should act in accordance with sub-article 38 (i) and, if necessary, utilise the second beneficiary s documents as good tender under the credit.

    Reply

  2. Alicja

    January 5, 2022 at 1:25 am

    Hi, another question. DC is issued and transfered by bank ABC. Second beneficiary’s bank is DEF. Can DEF confirm the dc? I think not, but can you please look at this example.

    Reply

    • Mr Old Man

      January 5, 2022 at 3:08 pm

      If it is authorized by ABC Bank, DEF can confirm LC. If not, silent confirmation (only based on agreemment between DEF and secondbeneficiary) can be done.

      Reply

      • Alicja

        January 9, 2022 at 3:24 am

        But this LC has to be available with ABC bank, so how DEF can confirm credit not available with them?

        Reply

        • Mr Old Man

          January 9, 2022 at 6:43 am

          As said, this will be a type of silent confirmation, hence, DEF may have a side agreement with the second beneficiary that the beneficiary must present the documents to DEF for payment and forwarding the documents to ABC Bank for reimbursement. Just a technical matter!

          Reply

  3. Lamprini

    September 3, 2022 at 10:38 pm

    Thank you Mr Oldman for your useful help!

    Just another similar situation that needs further clarification.Can you please help?

    We are the transferring bank and we received LC from IB stating confirmation “may add”.

    Upon 1st beneficiary’s consent we agreed to add confirmation. We have now an issue:
    we assume that ‘MAY ADD’ is directed only to ourselves by the issuing bank. Do you agree?
    1. Should ‘MAY ADD’ instruction be transferred to the 2nd beneficiary’s bank and mentioned in the MT720?
    2. Upon issuing swift Mt720 do we have to clarify that we have added our confirmation to this l/c and make it clear to 2nd beneficiary’s bank that by adding our confirmation, we undertake to honour a complying presentation made only by 1st beneficiary and our confirmation obligations do not extend to a complying presentation made by the 2nd beneficiary? Do you agree with the above? Is it necessary to mention in the Mt720 all the above and also that we will pay 2nd beneficiary only upon receipt of funds from issuing bank?

    Any help appreciated
    Thank you in advance.
    Lamprini

    Reply

    • Mr Old Man

      September 4, 2022 at 4:40 am

      The transferred LC must accurately reflect the terms and conditions of the original LC, including confirmation. So, if the original LC was confirmed, the transferred LC must be confirmed.
      So,
      1/ If you add your confirmation to the original LC, confirmation instructions in MT 720 should be CONFIRM, and not MAY ADD
      2/ Such clause will conflict with sub-article 38 (g) UCP 600. So, if you wish to add such clause in MT 720, you must exclude sub-article 38 (g) with regard to confirmation. However, I am not sure if it is possible and if the 2nd beneficiary will accept.

      Reply

  4. joanna

    May 17, 2023 at 3:50 pm

    Hi good day.

    I have some question regarding transferrable LC (TLC)

    We are 2nd beneficiary.

    Advising bank is transferring bank.

    Our bank will need the LC to be confirmed however they insisted for advising bank/transferring bank to be the party to confirm the LC

    Can Master LC indicate below?
    – CONFIRMATION INSTRUCTIONS: MAY ADD
    – REQUESTED CONFIRMATION PARTY: ANY BANKS IN SINGAPORE

    Can Master LC indicate above and then get other banks in singapore to confirm the transferable LC or have to be the advising bank that’s confirming the LC?

    thanks!

    Reply

    • Mr Old Man

      May 24, 2023 at 4:26 pm

      If the issuing bank wants the advising bank to confirm the LC and knows for sure that the advising bank will confirm, then in Field 49 it instructs CONFIRM instead of MAY ADD.
      If the issuing bank wants the LC to be confirmed by a bank other than the advising bank, the issuing bank must send the LC to that bank which adds its confirmation to the LC and advise it to the beneficiary through the advising bank.

      Reply

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