THE TERMS PREPAY AND PURCHASE

QUERY FROM MEHDIK ON THE TERMS “PREPAY” AND “PURCHASE”

Dear all

What are differences between prepay and purchase of a accepted draft or a deferred payment undertaking under sub-article 12 b of UCP 600 ?
I would be highly appreciated if you give a good example in this regrds.
Regards

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ANSWER FROM MR. OLD MAN

Prepay and purchase

Hi,

It is understood from the wording of UCP 600 Article 12(b) that the terms “prepay” and “purchase” both refer to an action of paying in advance by the nominated bank for the draft accepted by itself or for the deferred payment undertaking incurred by itself.

Making comments on UCP 600, Mr. T.O Lee – a well-known LC expert – suggests to use the term “prepay” in paying for one’s own payment obligation and to use the term “purchase” in paying for the other’s payment obligation. I would like to add some examples hereunder to clarify his suggestion/explanation:

(1) The nominated bank agrees to prepay the draft accepted by itself.
(2) The nominated bank agrees to prepay the deferred payment undertaking incurred by itself.
(3) Bank A agrees to purchase the draft accepted by Bank B.

In the context other than that of Article 12(b) I totally agree with Mr. T.O Lee’s suggestion.

Best regards,
Nguyen Huu Duc …