DOCUMENTS V. GOODS, SERVICES or PERFORMANCE

QUESTION

Dear Mr. Old Man,

We have a case that needs your advice.

We issued an LC available with our bank by acceptance of drafts at 60 days after BL date. The applicant took up the documents to take delivery of the goods. When the goods were unloaded, the applicant found the goods not of satisfactory quality.

Now the LC has expired but the applicant request us to amend the LC to extend the time of payment.  Can we do amend the LC as per the applicant’s request? If not, can we negotiate with the beneficiary to extend the time of payment?

Thank you in advance.

KN

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ANSWER

Hi,

Please bear in mind that banks deal with documents and not with goods, services or performance to which the documents may relate. The issuing bank bank must honour upon receipt of the documents complying or deemed to be complying with the LC terms and conditions irrespective of  whether the goods received by the applicant are of satisfactory quality or not.

The applicant in your case took up the documents to take delivery of the goods, hence, the documents were deemed to be complying. Your bank must pay when the draft is due unless the beneficiary confirms through his bank that he agrees to extend the time of payment or to reduce the payment amount. The applicant may approach the beneficiary to have such confirmation.

As you may know, an an LC can neither amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.

Your bank may agree but the beneficiary may not, especially when the LC has expired. So, an amendment is not appropriate in this case.

Kind regards,

Mr. Old Man