Article 39 of UCP500
Article 39 of UCP500
Under a documentary credit,
description of goods as : Toys
credit amount as : USD100,000.00
partial shipment : not allowed
........................................
Documents presented covering shipment of 100,000 pieces of toys and amount invoiced as USD96,000.00
........................................
Is it valid to point out the discrepancy : partial shipment/drawing ?
description of goods as : Toys
credit amount as : USD100,000.00
partial shipment : not allowed
........................................
Documents presented covering shipment of 100,000 pieces of toys and amount invoiced as USD96,000.00
........................................
Is it valid to point out the discrepancy : partial shipment/drawing ?
Article 39 of UCP500
This is another educational query encountered frequently in our workshops. It also demonstrates that the UCP 500 Articles may not be readily understood by an ordinary practitioner. However, not sufficient data content has been given by the enquirer to warrant a relevant answer.
ASSUMPTIONS NECESSARY DUE TO LACK OF SUFFICIENT DATA CONTENT
Hence, before we respond to this query, we have to make certain assumptions:
(1) Since the goods are toys, which should normally be packed in "stated number of packing units or individual items" as described in sub Article 39 (b) of the UCP 500. Hence the 5% more or less tolerance under this sub Article does not apply in the shipped quantity in this query. This would be a condition precedent to the application of sub Article 39 (c).
(2) As the query has not given the number of toys stipulated in the DC, we can only assume that the DC quantity is also 100,000 pcs.
(3) As the query does not mention the Incoterm used, we can only assume that it is either CFR, CPT, CIF, CIP, DAF, DES, DEQ, DDU or DDP.
5% UNDERDRAWING ALLOWED UNDER SUB ARTICLE 39 (C)
With all these assumptions to be applied, then under sub Article 39 (c), a reasonable underdrawn amount (USD4,000 or 4% here in this query) should not be deemed as a discrepancy, although underdrawing is a discrepancy under other circumstances.
UCP 500 ENCOURAGES GOOD INTENT AND HONEST TRADE PRACTICE
Why? From our experience as an importer and exporter, it is not unusual for a beneficiary to inflate the CIF quotation, say 5%, to cover flunctuations in certain charges, such as sea freight and insurance premium, particularly during the energy crisis and there is political hostility in the importing country.
After the shipment, the beneficiary has savings on sea freight and insurance premium and as a honest merchant he would like to pass on these savings to the applicant as a buyer. The UCP 500 encourages such honest practice and so does not deemded such good intent as a discrepancy.
If any of our assumptions made above does not apply, then it is another ball game and our answer expressed here does not hold.
PLEASE MAKE LIFE EASIER FOR OTHER MEMBERS
We would like to urge again that enquirers should do their home work first before posting their queries here and to provide the necessary data content to make life easier for other members to respond or help. Too many assumptions would make their answers too lengthy and/or irrevelant.
http://www.tolee.com
[edited 9/10/01 5:21:48 PM]
ASSUMPTIONS NECESSARY DUE TO LACK OF SUFFICIENT DATA CONTENT
Hence, before we respond to this query, we have to make certain assumptions:
(1) Since the goods are toys, which should normally be packed in "stated number of packing units or individual items" as described in sub Article 39 (b) of the UCP 500. Hence the 5% more or less tolerance under this sub Article does not apply in the shipped quantity in this query. This would be a condition precedent to the application of sub Article 39 (c).
(2) As the query has not given the number of toys stipulated in the DC, we can only assume that the DC quantity is also 100,000 pcs.
(3) As the query does not mention the Incoterm used, we can only assume that it is either CFR, CPT, CIF, CIP, DAF, DES, DEQ, DDU or DDP.
5% UNDERDRAWING ALLOWED UNDER SUB ARTICLE 39 (C)
With all these assumptions to be applied, then under sub Article 39 (c), a reasonable underdrawn amount (USD4,000 or 4% here in this query) should not be deemed as a discrepancy, although underdrawing is a discrepancy under other circumstances.
UCP 500 ENCOURAGES GOOD INTENT AND HONEST TRADE PRACTICE
Why? From our experience as an importer and exporter, it is not unusual for a beneficiary to inflate the CIF quotation, say 5%, to cover flunctuations in certain charges, such as sea freight and insurance premium, particularly during the energy crisis and there is political hostility in the importing country.
After the shipment, the beneficiary has savings on sea freight and insurance premium and as a honest merchant he would like to pass on these savings to the applicant as a buyer. The UCP 500 encourages such honest practice and so does not deemded such good intent as a discrepancy.
If any of our assumptions made above does not apply, then it is another ball game and our answer expressed here does not hold.
PLEASE MAKE LIFE EASIER FOR OTHER MEMBERS
We would like to urge again that enquirers should do their home work first before posting their queries here and to provide the necessary data content to make life easier for other members to respond or help. Too many assumptions would make their answers too lengthy and/or irrevelant.
http://www.tolee.com
[edited 9/10/01 5:21:48 PM]
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- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Article 39 of UCP500
1. GUESS WHAT I’M THINKING
It is not important that our utterances satisfy the demand of the question but that they satisfy the demand of the audience. It is rare to have some one say “I don’t understand what I would have to do in order to find an answer” or “ I did not understand what this question really mean” because we were not trained in schools to examine the types of questions teachers ask. Such behaviour would invariably result in some form of penalty and is, of course, scrupulously avoided, except by “wise guys” like Mr. Lee.
Now, if you reflect on the fact that queries are put in an ambiguous manner so that every time we have to provide assumptions to the original query, then you may become depressed. Consider where does knowledge come from? Knowledge isn’t just there in a book waiting for someone to come along and “learn” it. Knowledge is produced in response to questions, and new knowledge is the outcome of new questions; quite often new questions about old questions.
The point is that once you have learned to ask questions - relevant, appropriate and substantial - you have learned how to learn and no one can keep you from learning whatever you want or need to know.
Therefore appreciation is due to Mr. Lee for his toil and fortitude to answer this query. Take care of your rice and noodles as well.
2. DESCRIPTION OF GOODS IN L/Cs
It is very important that the description of goods is accurate and precise (where possible). I would prefer to give the description of goods to indicate number of packages, quantities, and goods covered in precise manner. To illustrate, an L/C was opened to cover plastic pipes. The pipes to be used for irrigation and should be in rolls as long as 50-100 meters each roll with certain diameters. The L/C was very “simple”. It stated plastic pipes only and some documents were requested. There was no sales contract. The goods were shipped “plastic pipes” but one meter long, some half-meter long. My point is that let us also do our homework in L/C.
Of course I understand that the letter of credit does not protect an honest buyer” as the late Bernard Wheble has put it, but it also goes without saying that an L/C must have "a built-in, shock –proof crap detector” to quote Hemingway” whenever possible.
[edited 9/11/01 8:40:08 AM]
It is not important that our utterances satisfy the demand of the question but that they satisfy the demand of the audience. It is rare to have some one say “I don’t understand what I would have to do in order to find an answer” or “ I did not understand what this question really mean” because we were not trained in schools to examine the types of questions teachers ask. Such behaviour would invariably result in some form of penalty and is, of course, scrupulously avoided, except by “wise guys” like Mr. Lee.
Now, if you reflect on the fact that queries are put in an ambiguous manner so that every time we have to provide assumptions to the original query, then you may become depressed. Consider where does knowledge come from? Knowledge isn’t just there in a book waiting for someone to come along and “learn” it. Knowledge is produced in response to questions, and new knowledge is the outcome of new questions; quite often new questions about old questions.
The point is that once you have learned to ask questions - relevant, appropriate and substantial - you have learned how to learn and no one can keep you from learning whatever you want or need to know.
Therefore appreciation is due to Mr. Lee for his toil and fortitude to answer this query. Take care of your rice and noodles as well.
2. DESCRIPTION OF GOODS IN L/Cs
It is very important that the description of goods is accurate and precise (where possible). I would prefer to give the description of goods to indicate number of packages, quantities, and goods covered in precise manner. To illustrate, an L/C was opened to cover plastic pipes. The pipes to be used for irrigation and should be in rolls as long as 50-100 meters each roll with certain diameters. The L/C was very “simple”. It stated plastic pipes only and some documents were requested. There was no sales contract. The goods were shipped “plastic pipes” but one meter long, some half-meter long. My point is that let us also do our homework in L/C.
Of course I understand that the letter of credit does not protect an honest buyer” as the late Bernard Wheble has put it, but it also goes without saying that an L/C must have "a built-in, shock –proof crap detector” to quote Hemingway” whenever possible.
[edited 9/11/01 8:40:08 AM]
Article 39 of UCP500
As the demand is formulated I completely agree with T.O. LEE. It has however also to be stressed that such demand arises from a not correctly opened documentary credit. In fact, the invoice could have been issued for l000,10000 or 100000 pieces as well and invoice had to be accepted if issued for US$ 100'000.--.
Therefore, such a documentary credit should have need clarifications before advising the beneficiary.
The first approach to a documentary credit is first of all to check same in a way that problems, if any, arise then and not during it's negotiation.
Therefore, such a documentary credit should have need clarifications before advising the beneficiary.
The first approach to a documentary credit is first of all to check same in a way that problems, if any, arise then and not during it's negotiation.
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- Joined: Fri Apr 05, 2019 5:26 pm
Article 39 of UCP500
Welcome to the discussion forum Roland !
It is refreshing to hear your comment regarding the lack of attention in drafting by the issuing bank and/or checking by the advising bank. I find a great difference between banks and even between branches in their approach to this.
Prevention is always better than cure.
Laurence A. J. Bacon
It is refreshing to hear your comment regarding the lack of attention in drafting by the issuing bank and/or checking by the advising bank. I find a great difference between banks and even between branches in their approach to this.
Prevention is always better than cure.
Laurence A. J. Bacon
Article 39 of UCP500
Many thanks to T.O. Lee since he/she always answers my queries with detailed explanation and also provides additional information so as to make me understand the answer more thoroughfully. However, I would like to say that the information I provided has reflected the whole picture of the LC which the queries related. The LC I mentioned, in my opinion is not issued incorrectly. As per article 5 of UCP500, bank should discourage any attempt to include excessive details in the Credit and the LC I mentioned, just calls for toys without include excess details e.g. contract no., specification, quantity...etc is act accordingly to this article. Moreover, the trade term is an important matter but not the necessary data take into consideration since the unit price for some trade terms other than those T.O. Lee mentioned e.g. FOB is rounded up for some commercial reasons. Therefore, any assumptions, in my opinion is not necessary in this query.
Article 39 of UCP500
Dear Mr./Ms. Qingtang,
Many thanks for your kind words. I am a "Mr". If you are curious how I look like, please click against the cartoon on my homepage.
INCOTERM IS ABSOLUTELY NECESSARY TO DETERMINE DISCREPANCY IN YOUR QUERY
I think the Incoterm is a necessary and important data content in order to determine whether the discrepancy in your query is a valid one or not.
If in your case, the Incoterm used was EXW for example, then there should not be an "valid or reasonable" reason that the EXW price be under-invoiced or under-drawn. Then sub Article 39 (c) could not be applied. As a result, the under-drawing would then be a discrepancy.
That is the reason why we say in our previous response that if ANY of the three assumptions is not true, we have a new ball game.
T. O.
[edited 9/11/01 6:32:19 PM]
Many thanks for your kind words. I am a "Mr". If you are curious how I look like, please click against the cartoon on my homepage.
INCOTERM IS ABSOLUTELY NECESSARY TO DETERMINE DISCREPANCY IN YOUR QUERY
I think the Incoterm is a necessary and important data content in order to determine whether the discrepancy in your query is a valid one or not.
If in your case, the Incoterm used was EXW for example, then there should not be an "valid or reasonable" reason that the EXW price be under-invoiced or under-drawn. Then sub Article 39 (c) could not be applied. As a result, the under-drawing would then be a discrepancy.
That is the reason why we say in our previous response that if ANY of the three assumptions is not true, we have a new ball game.
T. O.
[edited 9/11/01 6:32:19 PM]
Article 39 of UCP500
Mr. Lee,
I would like to visit your homepage.
Where can I find that ?
I would like to visit your homepage.
Where can I find that ?
Article 39 of UCP500
Dear Mr. Qing Tang,
To respond to your specific request, the website you have shown interest to visit should be http://www.tolee.com
FYI some parts are open to the public but some parts need free registration to enter. But as Larry King says: "Don't go away!" until you have finished with the DC Pro.
T. O. Lee
[edited 9/16/01 12:43:00 AM]
To respond to your specific request, the website you have shown interest to visit should be http://www.tolee.com
FYI some parts are open to the public but some parts need free registration to enter. But as Larry King says: "Don't go away!" until you have finished with the DC Pro.
T. O. Lee
[edited 9/16/01 12:43:00 AM]
Article 39 of UCP500
I would not claim a discrepancy in this case as asked and I would not consider a claim on this basis as valid.
The credit does not stipulate the quantity of goods.
The credit does not state any unit prices.
Article 39 (c) permits a tolerance of 5% less in the amount of the drawing even in a credit which prohibits partial shipments.
If (which is not the case) the credit stipulated the quantity of the goods, such quantity of goods would have
to be shipped in full (as part shipment not allowed in Credit), and if the Credit stipulated a unit price (which is not the case) such price could not be reduced.
I can see how it is possible to stretch the logic to claim a discrepancy in this case but as the LC is a method of payment, in fact a definite undertaking I feel any claim of a discrepancy in this respect is stretching the logic in the wrong direction and is at serious conflict with the integrity of LC's.
The credit does not stipulate the quantity of goods.
The credit does not state any unit prices.
Article 39 (c) permits a tolerance of 5% less in the amount of the drawing even in a credit which prohibits partial shipments.
If (which is not the case) the credit stipulated the quantity of the goods, such quantity of goods would have
to be shipped in full (as part shipment not allowed in Credit), and if the Credit stipulated a unit price (which is not the case) such price could not be reduced.
I can see how it is possible to stretch the logic to claim a discrepancy in this case but as the LC is a method of payment, in fact a definite undertaking I feel any claim of a discrepancy in this respect is stretching the logic in the wrong direction and is at serious conflict with the integrity of LC's.