Mr Old Man Payment Q&A Obligations and Liabilities of the Transferring Bank in a Transferred Credit By Mr Old Man Posted on August 6, 2025 7 min read 0 0 111 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr Introduction: In the context of transferable letters of credit, the role and liability of the transferring bank are often misunderstood — particularly when the issuing bank fails to honour or delays payment. Is the transferring bank obligated to pay the second beneficiary? Does the answer change if the bank confirms the transferred credit or undertakes to pay at maturity? To clarify these issues, this Q&A draws upon ICC Opinion R.482, published in Document No. 470/977 Rev. 3, which, although issued under UCP 500, continues to provide authoritative guidance for practice under UCP 600 Article 38. ________ QUESTION Dear Mr. Old Man, I have a question that needs your expert opinion: Under a transferable letter of credit subject to UCP 600, a transferring bank transfers the credit to a second beneficiary. The second beneficiary presents documents which the transferring bank forwards to the issuing bank. However, the issuing bank fails to honour or delays payment, alleging discrepancies. Is the transferring bank obligated to pay the second beneficiary? Would the answer differ if the transferring bank had added its confirmation or agreed to pay at maturity? Your soon answer is highly appreciated. Best regards, Michael _________ ANSWER Hi Michael, Thank you for your question. Here is my answer: The obligations and liabilities of a transferring bank under a transferred credit depend significantly on whether it has added its confirmation or has undertaken an independent promise to pay (e.g., at maturity). This issue was addressed in ICC Opinion R.482, included in Document No. 470/977 Rev. 3 (Questions and Answers on Transferable Credits and the UCP 500). While the opinion was issued under UCP 500, its conclusions remain highly relevant under UCP 600 Article 38. Key principles from Opinion R.482: No confirmation → No obligation to pay If the transferring bank has not added its confirmation, it acts merely as an intermediary. It has no obligation to pay the second beneficiary unless and until it receives payment or reimbursement from the issuing bank. Example clause: “The transferring bank will pay the second beneficiary only when funds are received from the issuing bank.” Status: Acceptable for unconfirmed transferred credits. Confirmation → Obligation to honour If the transferring bank has added its confirmation, it assumes the same liability as a confirming bank under UCP 600 Article 8. It is independently obligated to honour a complying presentation made by the second beneficiary, regardless of whether the issuing bank reimburses it. Even if the issuing bank alleges discrepancies or becomes insolvent, the confirming transferring bank must pay. Undertaking to pay at maturity → Deemed confirmation Where the transferring bank agrees to pay at a future date (e.g., a deferred payment or acceptance), even without using the word “confirmation,” this may amount to a de facto confirmation. Such an undertaking binds the transferring bank to pay the second beneficiary at maturity, even if the issuing bank later refuses payment. In such cases, any dispute about document compliance should be resolved between the issuing bank and the transferring bank. The second beneficiary is not a party to that dispute and remains entitled to payment. Conclusion: The transferring bank’s obligation to the second beneficiary under a transferred credit depends on its role and any commitment made: If the transferring bank does not add confirmation, it has no obligation to pay the second beneficiary unless it receives reimbursement from the issuing bank. If the transferring bank adds its confirmation, it assumes an independent obligation and must pay the second beneficiary upon a complying presentation, regardless of whether the issuing bank pays. If the transferring bank gives an undertaking to pay at maturity (such as under a usance credit), this is treated as a de facto confirmation. In that case, the bank is obligated to pay at maturity, even if the issuing bank refuses or delays reimbursement. These principles are clearly outlined in ICC Opinion R.482, published in Document 470/977 Rev. 3, and remain applicable under UCP 600 Article 38. I hope my answer clarifies your concerns. Best regards, Mr. Old Man