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SUB-ARTICLE 18(b)

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QUESTION
I understand that if L/C amount is USD400,000 +/- 5% and the invoice presented shows an amount of USD390, 000, the amount shown on the draft will be USD390,000.
What is the amount to be shown on the draft: USD450,000 or USD400,000 if the invoice presented shows the amount as USD450,000?
Similarly, what is the amount to be shown on the draft: USD350,000 or USD400,000 if the invoice shows the amount as USD350,000?
Thank you
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ANSWER
Hi,
1) It is agreed that the amount shown on the draft will be USD390,000 if the invoice amount is USD390,000. The invoice amount is within the amount permitted by the L/C.

2) The invoice which shows the amount of USD450,000 is not complying as the invoice amount is exceeding the amount permitted by the L/C. Whether the amount to be shown on the draft is USD450,000 or USD400,000 depends on the beneficiary.

The draft may show USD450,000 if the beneficiary has good reason to believe that the issuing bank/applicant will accept to pay the invoice amount notwithstanding the fact that it is exceeding 5% more than the L/C amount.

The draft may show USD400,000 if the beneficiary accepts to receive an amount equal to the L/C amount. Please note that according to sub-article 18(b) a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may accept a commercial invoice issued for an amount in excess of the amount permitted by the L/C, and its decision will be binding upon all parties, provided the bank in question has not honored or negotiated for an amount in excess of that permitted by the L/C. This means that if the nominated has accepted such an invoice but not has not honored or negotiated the the amount in excess of the amount permitted by the L/C, the confirming bank (if any) and the issuing bank must accept the invoice.

3) The invoice which shows the amount of USD350,000 is not complying as the invoice amount is exceeding 5% less than the amount permitted by the L/C. The draft will show the invoice amount, i.e., USD350,000.
The answer is given on the assumption that the L/C does not allow partial shipment/drawing.

Best regards,
Mr. Old Man

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