Revolving Credit and Article 32

[JudithAutié]

Hi

Speaking about revolving credits, here's one that I'm debating :

A revolving credit is opened for say $100 covering 20 pieces of pie.
The credit states:
This credit is automatically revolving six times, non-cumulative, every month for shipment of 20 pieces of pie per month.

Now supposing on the third month, no shipment takes place.

Referring to Article 32, can we consider that the balance of the credit (i.e. all further revolvings) are no longer available?

I certainly would like to say "yes".

Best regards
Judith

[NigelHolt]

Judith,
It all depends -as I am sure you appreciate- on whether the credit requires drawing or shipment by instalments within given periods. I cannot see that the credit expressly requires that either drawings or shipments of 20 pies must be made each month. Whether one can infer this I leave lawyers to decide.
Although this is not possibly relevant to the question, to me if one requires drawing or shipment by instalments within given periods a revolving credit is inappropriate. Instead the credit amount should be stated to be the total value of the required drawing / shipment instalments and expressly set out what are the required drawing / shipment instalments and the periods within which they should be made.

Regards, Jeremy

[AsifMahmoodButt]

Judith,
I agree with Jeremy, to me the word non-cumulative does not convey that the credit requires drawing or shipment by instalments. The inference I draw is that the credit is available for subsequent shipments & the only restriction is on the utilization of the unshipped portion.
Regards Khalid

[DanielD]

Judith,
See "Collected Opinions 1995-2001" p. 457,458 for guidance. In my opinion, the credit is still available in absence of specific instructions. Actually, the credit would remain available if 5 pieces had been shipped within a month. So, why not if 0 piece are shipped?
Daniel

[DanielD]

Judith,

You remember maybe M. Boudinot and his book "Pratique du crédit documentaire". He wrote (more or less) that a revolving credit was useful only when there was uncertainty with regard to the total quantity of the goods shipped and the rate of delivery. So a revolving credit would exclude art. 32. The problem is now that according to art. 1 UCP 600, an article has to be expressly excluded. So now, I am not so sure about my previous answer. Daniel

[JudithAutié]

thanks for your various respective opinions.

I suspect that the reason the credit was opened that way was so that the bank could only book each month's outstanding liability, and that if a month was missed then they considered the credit as no longer available.

However I agree that absent any stipulation saying that, the subsequent months revolvings should remain available.

Thanks again for helping me argue my case

Judith

[DonSmith]

The accounting should not be impacted - the issuing bank should book the liability for the entire amount available under the LC, not just the amount available each month, unless the LC expressly permits the issuer to cancel it at the end of each month.

[RolfFelber]

I fully agree with the views stating that para 32 is not applicable in a case like the one referred to. I'm also in line with Donald in respect of the accounting.
A nice weekend to all of you
Rolf