ICC Digital Library Forum

A letter of credit is issued by bank A and duly confirmed by bank B. As designated in the credit it is subsequently advised through bank C with a special condition that the advising bank C can discount the bill of exchange. The letter of credit is available by acceptance of a draft drawn on the confirming bank B. I would like to know if, once dicounted, Bank C would enjoy any protection under the UCP 600 and specifically under Article 12b, given that it is authoried to discount the bill of exchange.

Regards. Joe Esposito Malta

Dear Joe,

Based on Art2 (who is considered as nominated bank), I would say that 12b does not give any protection to an advising bank.

Regards,
Sergey

The LC should be amended to be available with Bank C by negotiation of drafts drawn on Bank B.

Regards, Gabriel

This financial instrument i.e., bill of exchange drives through a law commonly known as Negotiable Instrument Act / Bill of Exchange Act as well as some other names like Uniform Commercial Code in USA and Commercial Code in UAE. Accordingly, the governing law codify the rules of the game for managing negotiable instruments such as Cheques, Promissory Notes including Bills of Exchange / Drafts. The law also provide protection if a legitimate instrument is being discounted especially against value consideration by a party against the drawee / endorser and hence party C is legally enjoying a protection by virtue of the governing law prevailing in any specific jurisdictions where the transactions are taking place.

Regards,
Sohail

Sohail,

These laws are of little use if the confirming bank has not already accepted the bill. As Gabriel says, the credit needs to be available with the second advising bank by nego in order to protect it prior to acceptance by the confirming bank.

Smith,

Considering the title of the discussion and the mail from the Joee, it seems we are discussing ‘discounting’ and not ‘negotiation/purchase’ with recourse.
Any ways, thanks for adding here.

Sohail

Joe's question is whether the "discounting bank" would enjoy protection under the UCP 600 and specifically under article 12b.

As per UCP article 7, an issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation. As per article 8, a confirming bank undertakes to reimburse another nominated bank that has honoured or negotiated a complying presentation. Thus it is clear that the reimbursement right applies to a nominated bank only, provided the nominated bank has negotiated or honoured a complying presentation.

"Discounting" is not a term defined in the UCP.

We must not discount the definitions given in the Art 2 of UCP 600 viz a viz Art 12 (b), Art 7 (c), 8 (c) & 12 (b), which technically covers the discounting element as well.

What’s your thoughts? Appreciate, if you may please comment.

Thanks,
Sohail

Sohail, I am not sure what you are asking. Part of the problem may be that you are using a term that does not have any fixed meaning in the world of documentary credits, e.g. it cannot be assumed only an accepted bill (as opposed to an unaccepted bill) can be 'discounted'.
[edited 11/23/2011 9:11:53 AM]