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acceptance concept

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Wed, 09/08/2010 - 09:23
vivek
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Sir ,

      please throw light on some of the following concepts of l/c

1) a lc states - available with : any bank , by : acceptance of drafts . can an lc available by acceptance of drafts be available with any bank ? or it should be available with : issuing bank or nominated bank  , by: acceptance of drafts drafts . if lc is confirmed can  documents, with drafts drawn  on issuing bank be presented to confirming bank .

2) a lc says available with :any bank , by : negotiation , drafts at : 90 days sight .is the condition drafts at 90 days sight same as drafts at : by acceptance 90 days sight or

 both '90 days sight ' and ' by acceptance at 90 days sight ' carry a different meaning .

please elaborate

thanks.

 

 

 

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Sun, 09/12/2010 - 01:21
#1
Abrar
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Acceptance revisited

The only party that can "accept" a (tenor) draft is the drawee, and once accepted, it becomes a binding obligation on the drawee to honour the draft at maturity, distinct and separate from any consideration to the LC. Unless a nominated bank is willing to confirm the LC, it is unlikely to wish to "accept" the draft. If a confirming bank or other nominated bank receives a presentation containing draft drawn on the issuing bank, the draft would still have to be "accepted" by the issuing bank. This would make sense under an unconfirmed LC, but where the LC is to be confirmed, the draft would likely need to be drawn on the confiming bank.

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Sun, 09/12/2010 - 04:51
#2
vivek
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acceptance

hence it implies that a lc , cannot be available with any bank , by acceptance of drafts . it has to be available with :1 issuing bank or confirming bank

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Sun, 09/12/2010 - 07:24
#3
Sheilar T. Shaffer
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available with any bank by acceptance

Dear Vivek,

For your reference, there was an ICC opinion, i.e. TA 661rev (UCP600) particularly concerned your question:

Quote:

question no.1: If a credit is available by acceptance of beneficiary's draft at 90 days sight with any bank or a particular nominated bank, on whom should the drafts be drawn; nominated bank (or any bank, where the credit is available with any bank) or issuing bank?

Analysis :

Question 1: if a credit is available by acceptance with a named nominated bank, then the draft must be drawn on that nominated bank, if they agree to act on their nomination.  

            If the credit is available with any bank by acceptance, the credit should state that the draft is to be drawn on "the nominated bank". The nominated bank will be the bank that agrees to act upon the nomination, at the request of the beneficiary, and on whom the draft is to be drawn and their name is to be specifically stated on the draft as the drawee."

Unquote

So, theoretically,  I would assume that a LC can be available with any bank by acceptance. (as nomination in my view is just the issuing bank's self-propositon.)  When presentation, the draft can be drawn on a nominated bank (e.g. the beneficiary's presenting bank) if that bank agrees to "act on its nomination".

But what intrigues us in your case is:

What if no bank agrees to "act on its nomination" (i.e. to accept the draft which is drawn on a nominated bank)?

In this case, should  the nominated bank merely forward the documents including the draft which is drawn on a nominated bank but is not yet accepted   to the issuing bank?  Would anyone kindly share his view on this question?

Thanks and best regards

Sheilar

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Sun, 09/12/2010 - 09:21
#4
Abrar
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Drafts

In this case, should  the nominated bank merely forward the documents including the draft which is drawn on a nominated bank but is not yet accepted to the issuing bank?  

If the nominated bank does not act on its nomination, its position is that of an agent of the beneficiary, with no authority to negotiate. In this case, the issuing bank's primary obligation would fall within the scope of sub-art 7 (a) (iv) of UCP600, and the issuing bank's obligation to pay under the LC, against compliant documents is not diminished by the absence of the draft. The draft should not be considered to be a "document", a view reinforced by ISBP para. 21 (a) & (c).  

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Sun, 09/12/2010 - 22:50
#5
Sheilar T. Shaffer
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Draft in Acceptance LC

Dear Abrar,

Your comments are always appreciated!

One more question for you: do you think presentation under an acceptance LC could be without drafts? (of cource, I agree with you that drafts are not the "shipping documents" in the ISBP para.21 a & c.)

Alternatively, do you think presentation including a draft which is drawn on the nominated bank but not yet accepted   has complyed with the LC requirements? (perhaps it is a bit odd that we send such a draft to the issuing bank.)

Thanks

Sheilar

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Mon, 09/13/2010 - 00:52
#6
Abrar
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Drafts

I would venture to suggest that since the credit is available by acceptance, the beneficiary in this case would be entitled to draw the draft on the issuing bank. If the documents are presented via the bank which is not willing to act on its nomination, the bank, in forwarding the documents should explicitly state that it is unwilling to act on its nomination, hence the absence of a draft drawn on, and accepted by the nominated bank.

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Mon, 09/13/2010 - 08:31
#7
Sheilar T. Shaffer
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How about this drawee

Hi Abrar,

I understand your suggestion.  This could be a good resolution  if  the nominated bank "strongly protest" a draft which is drawn on it.

But when we refer to UNCITRAL Convention on International Bill of Exchange and International Promissory Notes (1988),  art.40 states that "the drawee is not liable on a bill until he accepts it".  If I do not misunderstand this,   I think the nominated bank need not be so scared just because of the fact that the draft is drawn on it.    If it has no intention to accept it, then just not accept it; but it could forward those documents (including such a draft )to the issuing bank for acceptance,  because UNCITRAL Convention art.51 b also states that "presentment for acceptance may be made to a person or authority other than the drawee if that person or authority is entitled under the applicable law to accept the bill".   Of course, I think the issuing bank is fully entitled to accept the bill if the documents are all complying. 

Thanks again

Sheilar

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Mon, 09/13/2010 - 16:42
#8
Abrar
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Bills of Exchange

Hi Sheilar

Yes, interesting point, but (subject to ratification of the UNCITRAL convention (incorporating the 1882 Bills of Exchange Act) in the drawer/drawee/issuing bank country) would depend on the recognition of the issuing bank's status as an authority entitled under applicable law to accept the draft as proxy of the nominated bank. At least, three questions arise in my view:

1. If the nominated bank and issuing bank reside in different jurisdictions, which applicable law should prevail?

2.   Does the connection between the issuing bank and the nominated bank fall wthin the scope of principal and agent relationship, especially if the nominated bank does not act on its nomination, thereby acting in the capacity of an agent of the beneficiary, rather than in the capacity of an agent of the issuing bank?

3. Should the fact that the nominated bank refuses to act on its nomination be viewed as a dishonour of the draft?  

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Tue, 09/14/2010 - 09:05
#9
Sheilar T. Shaffer
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drafts in acceptance LC

Thank you, Abrar.  Nice question! Our discussion seems to move to a new level.

Your three questions, if compound, focus on the core issue that "whether the issuing bank is entitled to accept a draft which is drawn on a nominated bank but not yet accepted by the nominated bank?" (suppose this is a foreign nominated bank).  Perhaps we now need a lawyer to help us out...

From another perspective:According to Art.7a iv,  complying presentation to the issuing bank  binds the issuingbank  to honour when the credit is available by acceptance with a nominated bank and that nominated bank does not accept a draft drawn on it … This wording, in my view, has allowed the possibility that beneficiary can make presentation to  the issuing bank which includes a  draft drawn on a nominated bank   but not yet accepted by the nominated bank.  

Of course, I just try to prove the assumption that presentation including such a draft (drawee:nominated bank, but not yet accepted) is also workable under UCP600.  But, if we can also explain why from the legislation perspective, it would surely make the discussion more significant.

Thank you for your points, I need some time for this one.

Sheilar

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Sun, 09/12/2010 - 23:00
#10
Abrar
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Drafts

I would venture to suggest that since the credit is available by acceptance, the beneficiary in this case would be entitled to draw the draft on the issuing bank. If the documents are presented via the bank which is not willing to act on its nomination, the bank, in forwarding the documents should explicitly state that it is unwilling to act on its nomination, hence the absence of a draft drawn on, and accepted by the nominated bank.

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