UNDERDRAWN?

4 Comments

1. 

   Thanh thanh

   January 3, 2017 at 10:53 am

   Dear Mr Old Man,
   I reaaly need your kind help in L/C,
   The customers want to issue l/c as follows:
   L/c amount: usd 44,000
   Tolerance : not exceeding
   Partial shipment: not allowed.
   45a:
   Quantity: 200 mts
   (10 pct more or 10 pct less in quantity only)
   If origin: honkong, unitprice : usd 100
   If origin: thailand, unit price: usd200.
   .
   Dear Mr Old Man, in my opinion i think the lc terms suitable. However, with my limited knowledges, i am not sure it risky or not. Please kindly help! Thank you so much!

   Reply

• 

  mroldman

  January 4, 2017 at 10:49 am

  Yes, the L/C terms are ok. When L/C states not exceeding amount, the beneficiary can draw any amount not exceeding the L/C amount provided the goods are shipped in accordance with L/C stipulation, i.e., 200 MT +/- 10%. Article 39 is not applicable in this case.

  Reply

2. 

   Danushka

   January 5, 2017 at 11:47 pm

   Dear Mr. Old Man,

   Can the confirming bank negotiate the documents in the event of Draft drawn on them? My understanding is if the draft is drawn on a bank, it can only honour the payment. However, one of my colleagues told me that it is possible for the confirming bank to negotiate the documents as per the UCP 600 Article 8a ii i.e. negotiate, without recourse, if the credit is available by negotiation with the confirming bank.

   Reply

• 

  mroldman

  January 6, 2017 at 9:45 am

  Hi,

  Where the LC is available with the confirming bank by negotiation, the LC should not require drafts to be drawn on the confirming bank. If drafts are drawn the confirming bank, the confirming bank must honour and not negotiate. Please refer to the definition of negotiation in Article 2 UCP 600, which says “Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank)…”

  Notwithstanding the above analysis, in practice some confirming banks would still insist drafts be drawn on it. Whether the confirming bank pays under drafts drawn on itself, or whether it negotiates drafts drawn on the issuing bank; in both cases, payment to the beneficiary is without recourse.

  Kind regards,
  Mr. Old Man

  Reply