Maximum amount payable under an LC is $100. No tolerance is allowed. Invoice amount is $101. In line with article 18b, beneficiary decides to draw on the LC for $100 only. If the LC calls for a draft drawn for 100% of the invoice value, in this case should the draft be drawn for $100 or $101? Appreciate your advice.
Regards, Gabriel
Article 18b - invoice in excess of LC amount
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Article 18b - invoice in excess of LC amount
Hi,
This situation falls into sub-article 18(b) which allows a nominated bank, a confirming bank or the issuing bank to accept an invoice with an amount in excess of the L/C amount provided the bank in question has not honoured or negotiated for an amount in excess of the L/C amount.
It is advisable that the bank in question should not pay the L/C amount without the presenter’s agreement which can be shown in the covering schedule as well as in the draft if any. So, the draft in this case should be drawn for an amount equal to the L/C amount only notwithstanding that the L/C calls for a draft drawn for 100% of invoice value.
Best regards,
N.H.Duc
This situation falls into sub-article 18(b) which allows a nominated bank, a confirming bank or the issuing bank to accept an invoice with an amount in excess of the L/C amount provided the bank in question has not honoured or negotiated for an amount in excess of the L/C amount.
It is advisable that the bank in question should not pay the L/C amount without the presenter’s agreement which can be shown in the covering schedule as well as in the draft if any. So, the draft in this case should be drawn for an amount equal to the L/C amount only notwithstanding that the L/C calls for a draft drawn for 100% of invoice value.
Best regards,
N.H.Duc
Article 18b - invoice in excess of LC amount
Thanks, N.H. Duc, I agree with you that the draft should be drawn for the amount of the L/C in this case.
Regards, Gabriel
Regards, Gabriel
Article 18b - invoice in excess of LC amount
Hello;
The amount of draft should be USD 100.- based on the para 51 of ISBP 681:
"The amount must agree with that of the invoice, unless as a result of UCP 600 sub-article 18(b)".
Regards.
Zeynep
[edited 9/15/2011 7:59:49 AM]
[edited 9/15/2011 8:00:03 AM]
The amount of draft should be USD 100.- based on the para 51 of ISBP 681:
"The amount must agree with that of the invoice, unless as a result of UCP 600 sub-article 18(b)".
Regards.
Zeynep
[edited 9/15/2011 7:59:49 AM]
[edited 9/15/2011 8:00:03 AM]
Article 18b - invoice in excess of LC amount
Many thanks, Zeynep, for pointing it out.
Article 18b - invoice in excess of LC amount
I am not saying that the views expressed above are necessarily wrong, but as the requirement that the draft must be drawn for 100% of the invoice value is an express term of the credit (and Article 1 rightly recognises UCP600 articles may be modified or excluded by the credit, as of course may isbp as referred to in Article 2) I would sympathise with any bank that raised this as a discrepancy.
Article 18b - invoice in excess of LC amount
Jeremy,
The credit may, as is often the case, call for drafts drawn for 100% of the invoice value. That is because in all but exceptional cases the beneficiary draws the credit for 100% of the invoice value. However, when the beneficiary's decision is to draw for, say, 98% of the invoice value, it logically follows that the draft will be for 98% of the invoice value. It would appear to me that the difference between the invoice value and draft amount cannot be raised as a discrepancy by operation of sub-article 18b and paragraph 51.
Regards, Gabriel
[edited 9/16/2011 5:44:10 AM]
The credit may, as is often the case, call for drafts drawn for 100% of the invoice value. That is because in all but exceptional cases the beneficiary draws the credit for 100% of the invoice value. However, when the beneficiary's decision is to draw for, say, 98% of the invoice value, it logically follows that the draft will be for 98% of the invoice value. It would appear to me that the difference between the invoice value and draft amount cannot be raised as a discrepancy by operation of sub-article 18b and paragraph 51.
Regards, Gabriel
[edited 9/16/2011 5:44:10 AM]
Article 18b - invoice in excess of LC amount
Gabriel,
I struggle to follow your reasoning as the express terms of the credit concerned simply do not permit the beneficiary to draw for 98% of the invoice value.
Regards, Jeremy
I struggle to follow your reasoning as the express terms of the credit concerned simply do not permit the beneficiary to draw for 98% of the invoice value.
Regards, Jeremy
Article 18b - invoice in excess of LC amount
Hi Jeremy, since the LC is issued subject to UCP 600 without excluding sub-article 18(b), the beneficiary is allowed to draw for less than the invoice amount (98% for instance) in order not to exceed the amount payable under the LC. The draft is an order to the drawee to pay the amount of money due. In this case the amount due is 98% of the invoice value. That is my reasoning.
Regards, Gabriel
Regards, Gabriel
Article 18b - invoice in excess of LC amount
Gabriel,
I think you are missing my point.
As a general principle the express terms of a credit that ‘contradict’ UCP600 override UCP600. Thus, if it is an express term of the credit that drafts must be drawn for 100% of the invoice amount, and IF one is of the view that that term must be read literally (as I imagine many would), drafts simply cannot be drawn for any other figure than 100% of the invoice value, irrespective of what UCP600 says . Thus, drafts for 98% of the invoice value would be discrepant.
Regards, Jeremy
I think you are missing my point.
As a general principle the express terms of a credit that ‘contradict’ UCP600 override UCP600. Thus, if it is an express term of the credit that drafts must be drawn for 100% of the invoice amount, and IF one is of the view that that term must be read literally (as I imagine many would), drafts simply cannot be drawn for any other figure than 100% of the invoice value, irrespective of what UCP600 says . Thus, drafts for 98% of the invoice value would be discrepant.
Regards, Jeremy