LETTERS OF CREDIT V. CONTRACTS

QUESTION

Dear Sir,

As always, your help is really appreciated.

Need your expert opinion on the scenario below:

There is a change in the unit price of a product in the presented original documents which is more/less than the actual price mentioned in the Letter of credit.

However, the Proforma invoice indicates that the rate could change on the basis of the purity level of the product but nothing in this regard has been mentioned in the L/C.

Now the question is, can we treat this difference in rate as a discrepancy or is there any other validation to support the changes as the Proforma invoice does mention about it.

So, should we go with the rate of the L/C and completely deny the information mentioned in the Proforma invoice?

So, need your opinion regarding the same.

Warm Regards

Suraj Shrestha

TOC, Himalayan Bank Ltd.

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ANSWER

Hi,

A letter of credit (LC) can be issued based on contract or based on proforma invoice in the absence of the contract.  However, LC by its nature is a separate transaction from the sale or other contract or the proforma invoice on which it may be based. Banks are in no way concerned with or bound by such contract or proforma invoice, even if any reference whatsoever to it is included in the LC (sub-article 4(a) UCP 600).

In view of the above, the documents are examined to determine if they comply with the LC terms and conditions, not with the contract or the proforma invoice.

So, you can raise the discrepancy if the unit price is lower or higher than the price specified in the LC.

Best regards,

Mr. Old Man