Letter of Credit Forum

we opened an lc in which partial shipment was not allowed and lc was to import 4 cars.  When beneficiary sent us documents they were of 3 cars and lc was a usance lc.  what we did is that we put discrepancy that there was shortshipment whcih was accepted by the importer and the draft amounted for the value of 3 cars.  ultimately we paid the value of 3 cars as per documents and reversed the our banke's liability.  Later on documents arrived for the 4th car. What we can do in this situation.  Lc conditions does not allow partial shipment. Please advise us we can not make payment of 4th car as lc liability has been reveresed.

Dear Neville Dcosta,

As you may know, an LC may be stipulated  available by payment, available by negotiation, available by acceptance or available by deferred payment.

LC available by (sight) payment  does not require sight drafts to be presented and normally the payment is to be effected at the counter of the issuing bank or at its nominated bank upon receipt of the complied documents. The beneficiary under  LC available by payment normally may not obtain the payment in advance by negotiating (selling at a discount) the documents at his bank.

Different from LC available by payment, LC available by negotiation allows the beneficiary to receive the payment by negotiating the sight drafts and documents at a nominated negotiating bank which is normally located in his country. The negotiation may be effected on a with or without recourse basis. However, under a confirmed LC, the confirming bank must negotiate the documents on without recourse basis.

Acceptance LCs and deferred payment LCs are usance LCs. The difference is that the acceptance LC requires a time draft,  whereas the deferred payemt LC does not.

Under acceptance LC, the beneficiary may receive the payment before the  draft is due by discounting the accepted draft  at its bank or discounting it on forfaiting markets (as the accepted draft is a financial instrument which can be transferable). 

Under deferred payment LC,  after his presentation of complied documents,  the beneficiary receives a deferred payment undertaking incurred by the issuing bank or its nominated bank. Deferred payment undertaking is not largely accepted as a financial instrument, therefore, normally the beneficiary may not discount the deferred payment undertaking.  However, in some cases, the beneficiary can use the deferred payment undertaking incurred by the issuing bank or nominated bank as a security for the advance given by his banks. 

UCP 500 was silent on negotiating/discounting deferred payment uindertakings.  The dispute between Banco Santander and Banque Paribas in connection with the discounting of a deferred payment undertaking led to the change in UCP. Under UCP 600 Art. 12 (b), the nominated bank is allowed to purchase (buying at a discount) its own deferred payment undertaking.  

Hoping the matter has been clear.

Best regards,

We have shipped some pipes from Indonesia to Kuwait, the ship owners have refused to include the LC number on the BL as they advise it increases their liability by doing so. Is there any way to sort this problem out - and avoid in future?