any bank by negotiation

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jimmy
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Joined: 04/30/2008
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Hi everybody, 

I would like to have your opinions regarding the following issue:

The letter of credit is available with any bank by negotiation without confirmation

and also the letter of credit includes a condition in f?eld 47a as below (to avoid any fraud)

''since this LC is available with any bank, negotiation bank must receive, in any case, the issuing bank's approval regarding the negotiation before negotiation is effected. A copy of issuing bank's approval must be attached to the negotiated documents by the negotiating bank''

Should we think that such a clause is detrimentral to the rights of negotiating bank?

Would you comment on such an issue also keeping in mind the articles 6,7,12 b ?

LC Sam
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Joined: 08/09/2007
I do not like the clause but....

Hi Jimmy,

This is definitely an interesting clause.  I can not understand why the issuing bank would require this clause, but it is permitted. 

There should not be an impact on articles 6 and 12b of the UCP 600, as this clause states the conditions by which negotiation can happen.

Article 7 poses an interesting scenario.

1. If the bank chooses not to negotiate, then the issuing bank must honor the documents (Art 7a v) without the notice.

2. If the bank chooses to negotiate, it must send the copy of the notice as that is the requirement for negotiation, as the issuing bank's undertaking to the negotiating bank is independent of the issuing bank's undertaking to the beneficiary. 

3.It gets tricky when the negotiating bank does not send the notice.  Here is why:

a. If the negotiating bank negotiated without recourse, then the beneficiary is fine and the issuing bank and the negotiating bank would have to work out the issue.

b. If the negotiating bank negotiated with recourse and the issuing bank did not pay, the negotiating bank can get funds back from the beneficiary.

With all that said, I do not like the clause. If I were the beneficiary in this scenario, I would ask for the credit to be amended.

Best regards,

LC Sam

jimmy
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Joined: 04/30/2008
thanks

Dear LC Sam

thanx for yr comments.As per the reason why such a clause is added in the l/c is that banks want to be sure that they are able to avoid even a mere probability of a fraud by the beneficiary or a bank.

Because lc allows negotiation by any bank.Although there is a clause in lc like 'amount negotiated must be endorsed on the reverse of the original credit, I guess such a clause is not enough for them to feel safe.They want to take all necessary precautions beforehand so they will not face any problem, which they were unable to foresee or predict.

awaiting yr comments,if any

regards,Jimmy

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