Article 39(c)-underdrawn LC

[stevensim]

Much mention is made to permissible tolerances of quantity under A39(b) but my scenario is as follows :

Amount : USD130,000
Quantity : 139 pc
Partial Shipments are Allowed

No mention of tolerances are made as to amount or quantity.

I have shipped 139 pc in 1 shipment but have drawn a Bill for only USD129,700. I am now protesting to applicant's bank that although A.39(c) draws reference to DC issued which prohibits partial shipments, the essence of this must also be made available to DC issued with partial shipments

Have a good day all

Steven Sim
Malaysia
[edited 9/11/01 11:21:17 AM]

[hatemshehab]

Although the L/C did not expressly state any tolerances with regards to quantity of goods or the amount, we still assume that the L/C amount was not exceeding.

Therefore:

1. You may ship 139 pcs and draw USD 123,500 (under draw USD6500) in case partial shipment is not allowed. Art. 39c

2. You may ship 132.05 pcs and draw USD 130,000 (under draw from quantity of goods 6.95) in case partial shipment is not allowed and the quantity of goods are not specified in pcs. Art. 39b (which is not your case)

3. In your case you shipped 139 pcs but could draw USD 123,500 (under draw USD6500).

Therefore your drawing is within the permissible tolerance of art. 39c. Why? Because Art 39b is applicable to the quantity of goods you should have shipped as it is stated in pcs which is “individual items” and that you have already done. However, the amount of drawing can accommodate a tolerance of 5% to the original amount Art 39c, which is less by USD 6500.

Your drawing is not discrepant.


[edited 9/11/01 1:12:47 PM]

[larryBacon]

Welcome to the discussion forum Steven.

It would help if you could provide us with some extra information pertinent to this such as the terms of shipment & whether a unit price was quoted in the L/C. Article 39 c deals with charges in an invoice not directly related to the goods such as freight, insurance etc. These charges are acceptable if reduced from the L/C value by upto 5%.

I must disagree with Hatem, however, when he says that 39 b allows a percentage reduction in no. of pieces for an L/C governed by no part shipments allowed. This does not apply to individual pieces such as in this case. However part shipment is allowed in this case.

[T.O.Lee]

We have studied Article 39 of the UCP 500 with a magnifying glass since this Article is always a hot item in the Q&A sessions in our workshops around the world.

SITUATIONS WHERE ARTICLE 39 DOES NOT APPLY

(AA) 39 (b) DOES NOT APPLY if

(i) DC does ask for exact quantity to be shipped;

(ii) there is over-drawing if quantity shipped is up to 5% more than DC quantity; AND/OR

(iii) quantity is counted by PACKAGES, UNITS OR ITEMS, such as boxes, drums, cartons, pcs, bags, bundles, or even in containers, or pallets & ignoos in air freight, OTHER THAN COUNTED IN UNITS OF VOLUME OR WIEGHTS.

(BB) sub Article 39 (c) DOES NOT APPLY if

(i) a DC that prohibits partial shipment states otherwise (e.g. that this sub Article does not apply);

(ii) sub Article 39 (b) applies; (e.g. up to 5% more or less than DC quantity has been shipped);

(iii) over-drawing on DC amount;

(iv) if sub Article 39 (a) applies (e.g. using words such as "about"., "approximately" etc. to describe quantity to allow up to 10% more or less tolerance on shipped quantity); AND/OR

(v) full DC quantity and/or DC unit price has been reduced.

We often remind participants in our workshops that in order to enjoy the up to 5% under-drawing (NOT OVER-DRAWING) flexibility offered by sub Article 39 (c), quantity in a DC must be counted in either volume or weight, BUT NOT IN packages, units or items, including containers or pallets & ignoos in air freight.

If it were not due to heated arguments and confusions encountered here, even after our previous clarification, we would not need to disclose that our above interpretations had been verified with Mr. Charles del Busto, our mentor.

http://www.tolee.com

[edited 9/12/01 7:48:48 PM]

[hatemshehab]

Dear Mr. Bacon

Just clarification. I agree with you that Art. 39b does not apply when the quantity of goods are counted in pcs. In my example I assumed that there is no mention in the L/C of such pcs, may be I did not make myself clear enough on this issue.

Thanks

[stevensim]

Many thanks to your responses. Just to add to my initial posting :-

a. There is no mention of any additional charges eg. freight or handling within the description of the goods. Only the quantity in pcs. and the size of the goods in question is stated in description of commodity.

b. No unit price is indicated in LC.

As additional clarification from the negotiation bank here, they have quoted text from a UCP guidelines written by a local author - let me quote the relevant para :-

"When the credit states the amount as $100,000, and when the credit prohibits partial shipments, the drawing under this credit can be less by up to 5%. This is subject to the condition that when the credit stipulates a quantity of goods, such quantity of goods is shipped in full and if the credit stipulates a unit price, such price is not reduced"

It goes on to say _

"it should be noted that Sub-Article 39(c) will only apply where the credit prohibits partial shipment and when Sub-Articles 39(a) and (b) are not applicable to the credit"

This would seem to be in agreement with Mr. Lee's comments and would effectively require the beneficiary to draw the exact amount of the LC (where no tolerances allowed) if goods are shipped in full (where qty is defined in units) in cases where partial shipments are allowed.

[larryBacon]

Perhaps I am making a wrong assumption, but if the value of the full (139 pcs) consignment was known at the time of opening the L/C to be $129700, why was it opened for $130000, and why was no amendment made when the beneficiary received the L/C and saw that it did not match the actual value ?

If it was considered that the price of the consignment was variable, it would have been a simple matter to insert a clause allowing a variation in quantity and/or value of the goods, but apparently this was not done. Why not ?

[hatemshehab]

1. Since the credit stipulated the quantity of goods in pcs "individual items" then the whole quantity must be shipped, in conformity with art. 39b

2. Since the requirement 1. is observed a partial drawing is permissible for 5% to the L/C amount as per Art. 39c

So, I believe the case is a combination of the two sub articles. However, I still wonder if this is permissible to combine b&c especially looking at the phrase "or unless sub Article B above is applicable" which may be interpreted as that Art. B should be applied as a whole. In this case Mr. lee's interpretation should be considered.

[T.O.Lee]

Dear Mr. Sim,

The "local expert" whom you have referred to for opinions should be Mr. Abdul Latiff Abdul Rahim and your quotation is in fact from his publication "Guide to Documentary Credit Rules UCP 500". We met him when he came to Hong Kong for the ICC Banking Commission meeting. Please convey our best regards to him.

http://www.tolee.com