Letter of Credit Forum

Please review the following scenario:

L/C calls for shipment of :
1. 100mt ("About") of "X"
2. 200mt ( "About") of "Y"

Total LC value : not to exceed USD1,000,000
Partial shipments allowed

------------------------------------------------------------------------------------------------------------------------------------
Documents presented in one drawing for full LC value of USD1,000,000 but as separate sets of documents relating to each item, represented by invoices as follows :

1. 120mt of "X" at unit price of USD5,000 per mt = USD600,000
2. 160mt of "Y" at unit price of USD2,500 per mt = USD400,000

--------------------------------------------------------------------------------------------------------------------------------
Discrepancies raised by issuing bank :

1. Quantity of product "X" overshipped
2. Quantity of product "Y" undershipped

Beneficiary agrees with discrepancy number 1, but disagrees with discrepancy no. 2, on the basis that since partshipments are allowed, and since the LC value has not been overdrawn, an undershipment should not be viewed as a discrepancy.

My view :

LC value is not subject to a tolerance, and the LC has been fully drawn. Therefore, although partshipments are allowed,since no further drawings relating to item 2 can now take place without exceeding the LC value, it must be viewed that the minimum tolerance under item no. 2 has not, and cannot be met.

Comments appreciated