Bank A issued an usance L/C asking presentation of beneficiary's draft on the issuing bank.
Exporter made a complying presentation to its Bank X and requested them to discount the export bill before it is send to the issuing bank.
Can beneficiary's bank discount the documents presented by its customer before it is accepted by the issuing.
Will they get any protection under UCP and/or Bill of Exchange Act ?
Shahed
Toronto
Discounting Export Bill
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HOANGTHIANHTHU_invalid
- Posts: 189
- Joined: Fri Apr 05, 2019 5:15 pm
Discounting Export Bill
Hi Shahed,
Under a credit available with the issuing bank by acceptance, the issuing bank does not authorize any bank to negotiate or discount the draft before it is accepted by the issuing bank . Therefore, the bank that has discounted the not yet accepted draft is not protected under the UCP.
Regards,
N.H.Duc
Under a credit available with the issuing bank by acceptance, the issuing bank does not authorize any bank to negotiate or discount the draft before it is accepted by the issuing bank . Therefore, the bank that has discounted the not yet accepted draft is not protected under the UCP.
Regards,
N.H.Duc
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AugustineArulnesan
- Posts: 17
- Joined: Fri Apr 05, 2019 5:16 pm
Discounting Export Bill
Hi N.H.
What would be your reply if the LC us available by Negotiation and not acceptance.
Regards
Rajan
What would be your reply if the LC us available by Negotiation and not acceptance.
Regards
Rajan
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HOANGTHIANHTHU_invalid
- Posts: 189
- Joined: Fri Apr 05, 2019 5:15 pm
Discounting Export Bill
Hi Rajan,
If the credit is available by negotiation with a nominated bank, then that nominated bank is authorized by the issuing bank to negotiate the drafts and/or documents, and therefore, it will be protected under the UCP, i.e., will be reimbursed by the issuing bank (sub-article 7 (c) UCP 600).
I guess you are talking about a usance LC available by negotiation. This is not a common type of LC. However, in practice such strange LCs have been issued by Korean banks
I ‘d like to quote hereunder some swift fields of an LC which my bank as an advising/negotiating bank has received from Bank A in Korea:
= quote =
41D: Available with …. By ……
ANY BANK BY NEGOTIATION
42C: Drafts at ….
BENEFICIARY DRAFTS 90 DAYS AFTER B/L DATE
42A: Drawee
BANK B
53A: Reimbursing bank
BANK B
……..
78: Instructions to the Paying/Accepting/Negotiating Bank
+ BENEFICIARY TIME DRAFT SHALL BE NEGOTIATED ON AT SIGHT BASIS AND SHOULD BE FORWARDED TO THE DRAWEE BANK (BANK B).
+ ALL DOCUMENTS MUST BE FORWARDED DIRECTLY TO US (BANK A) IN ONE LOT BY COURIER SERVICES
= unquote =
By appearance, it looks like an acceptance LC as it requires time drafts (90 days after B/L date). However, it is in fact a sight LC as it allows the beneficiary to negotiate the time drafts on at sight basis. It looks like a UPAS (usance paid at sight) LC.
Best regards,
N.H.Duc
If the credit is available by negotiation with a nominated bank, then that nominated bank is authorized by the issuing bank to negotiate the drafts and/or documents, and therefore, it will be protected under the UCP, i.e., will be reimbursed by the issuing bank (sub-article 7 (c) UCP 600).
I guess you are talking about a usance LC available by negotiation. This is not a common type of LC. However, in practice such strange LCs have been issued by Korean banks
I ‘d like to quote hereunder some swift fields of an LC which my bank as an advising/negotiating bank has received from Bank A in Korea:
= quote =
41D: Available with …. By ……
ANY BANK BY NEGOTIATION
42C: Drafts at ….
BENEFICIARY DRAFTS 90 DAYS AFTER B/L DATE
42A: Drawee
BANK B
53A: Reimbursing bank
BANK B
……..
78: Instructions to the Paying/Accepting/Negotiating Bank
+ BENEFICIARY TIME DRAFT SHALL BE NEGOTIATED ON AT SIGHT BASIS AND SHOULD BE FORWARDED TO THE DRAWEE BANK (BANK B).
+ ALL DOCUMENTS MUST BE FORWARDED DIRECTLY TO US (BANK A) IN ONE LOT BY COURIER SERVICES
= unquote =
By appearance, it looks like an acceptance LC as it requires time drafts (90 days after B/L date). However, it is in fact a sight LC as it allows the beneficiary to negotiate the time drafts on at sight basis. It looks like a UPAS (usance paid at sight) LC.
Best regards,
N.H.Duc
Discounting Export Bill
Hi N.H.Duc,
Even though you said:"the issuing bank does not authorize any bank to negotiate or discount the draft before it is accepted by the issuing bank . Therefore, the bank that has discounted the not yet accepted draft is not protected under the UCP.", I still don't think that any bank, who has prepaid or purchased the draft accepted by the issuing bank may enjoy the protection of UCP600. It is the linkage to the article 12 (b) for that non-nominated bank is given no authorization to prepay or purchased the draft that has been accepted by the issuing bank. In your case i think the discounting of the draft accepted by the issuing bank seems like the avalization but i still not 100% sure.
Thuyptb
Even though you said:"the issuing bank does not authorize any bank to negotiate or discount the draft before it is accepted by the issuing bank . Therefore, the bank that has discounted the not yet accepted draft is not protected under the UCP.", I still don't think that any bank, who has prepaid or purchased the draft accepted by the issuing bank may enjoy the protection of UCP600. It is the linkage to the article 12 (b) for that non-nominated bank is given no authorization to prepay or purchased the draft that has been accepted by the issuing bank. In your case i think the discounting of the draft accepted by the issuing bank seems like the avalization but i still not 100% sure.
Thuyptb
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HOANGTHIANHTHU_invalid
- Posts: 189
- Joined: Fri Apr 05, 2019 5:15 pm
Discounting Export Bill
Hi,
You are correct.
But please note that once the draft has been accepted, it becomes a negotiable instrument that is separate from the credit and may be bought or sold in the marketplace and the holder in due course, i.e., the party that has acquired such a draft in good faith, is protected under the negotiable instrument law, e.g., Bill of Exchange Acts.
Regards,
N.H.Duc
You are correct.
But please note that once the draft has been accepted, it becomes a negotiable instrument that is separate from the credit and may be bought or sold in the marketplace and the holder in due course, i.e., the party that has acquired such a draft in good faith, is protected under the negotiable instrument law, e.g., Bill of Exchange Acts.
Regards,
N.H.Duc
Discounting Export Bill
I agree with the comments above that an non-nominated bank is not entitled to reimbursement under UCP600 (or to honour in its own name).
If nominated to negotiate, then the "discounting" described above should qualify as "negotiation". A nominated bank that negotiates needs to satisfy 7(c), not 12(b).
The above-quoted field 78 instruction is a bit unclear that the discount charges are for the account of the issuing bank and its applicant. Moreover, the beneficiary should want a clearer assurance in the LC that the issuing bank will pay the face value of its accepted draft on the date of acceptance and separate assurance that the nominated bank will act on the authorization to pay face value on the date of issuing bank acceptance if not sooner.
Regards, Jim Barnes
If nominated to negotiate, then the "discounting" described above should qualify as "negotiation". A nominated bank that negotiates needs to satisfy 7(c), not 12(b).
The above-quoted field 78 instruction is a bit unclear that the discount charges are for the account of the issuing bank and its applicant. Moreover, the beneficiary should want a clearer assurance in the LC that the issuing bank will pay the face value of its accepted draft on the date of acceptance and separate assurance that the nominated bank will act on the authorization to pay face value on the date of issuing bank acceptance if not sooner.
Regards, Jim Barnes