Hypothecation of a SLC under ISP 98

ManishKhullar · Post by **ManishKhullar** » Mon Apr 23, 2001 1:00 am

The benefiaciary's bank in a side letter states that a SLC (which is a purely financial credit enhancement instrument and is fully transferrable and callable against demand) would be held in safe custody and can only be hypothecated. Could such an SLC be encashed / called upon even if such undertaking is there by the bank under ISP 98

Would be glad if anyone can help me on this

T.O.Lee · Post by **T.O.Lee** » Tue May 22, 2001 1:00 am

Please give more data. If the SBLC (assuming subject to UCP 500) has been transferred to the Beneficiary's banker that has extended a loan and use the SBLC for hypothecation purpose, then the SBLC is no more the property of the Beneficiary. It follows that the Beneficiary cannot draw on it. Transfer of SBLC works differently than commercial LC. For commercial LC, the first beneficiary may replace the drafts and invoices from the second beneficiary and can make a new drawing according to Article 48 of the UCP 500.

A SBLC, if used for guarantee purpose, should use "assignment of proceeds" rather than "transfer" which may be misleading.

As I have not seen the terms and conditions of the SBLC, the above general comments may not be applicable to this specific case.

For safety, the enquirer should have either sent me the actual SBLC or to seek the opinions of his legal counsel or an SBLC expert before he acts or relies on my generalised comments made above. I do not assume any liabilities or responsibilities whatsoever for any damages, losses or other consequences directly or indirectly related to my general comments which are given just for educational purpose.

I am from www.tolee.com

[edited 12/2/01 10:25:34 PM]