ICC Digital Library Forum

We are now in some troubles and questions about transferable L/C. It has raised the disputes because of different and controversial opinions. Therefore, we have posted these issues on this discussion forum in the wish of receiving opinions from all of you in order to make these issues clearer. Your attention would be highly appreciated.

The first one:
According to sub-Article 48(i), the first beneficiary has the right to substitute the invoice and draft, but if he does not present the invoice and draft the transferring bank can send the documents with the original invoice and draft to the issuing bank.
However, while other docs is in full compliance with the original L/C, some information on the invoice and draft does not correspondent with the original L/C due to the failure in substituting Invoice and draft from the first beneficiary (For example: in the SWIFT MT720 which is used for the transfer of a credit, the applicant of the credit does not appear. Therefore, the second beneficiary can only make out the invoice with the first beneficiary as the consignee; The drawn amount and the unit price on invoice differ from that on original L/C… ).
Question: In this case, can the issuing bank point out those as discrepancies?

The second one
The transferring bank transferred the credit to a second beneficiary adding a condition such as 'Payment under this L/C will be made only upon receipt of funds from the issuing bank.'
The second beneficiary present the conforming docs to the transferring bank but the transferring bank, while substituting the draft and invoices, received discrepant invoices and draft.
Question: In this case, Is the transferring bank required to seek the approval of the 2nd beneficiary prior to sending the docs to the issuing bank?

PTN,

1. If the second beneficiary’s documents comply with the transfer there cannot be any ‘discrepancies’ to point out. Non-substitution by the first beneficiary does not change this. Of course, when forwarding the documents to the issuing bank one should explain what has happened to avoid confusion.

2. Yes, in my opinion.

Regards, Jeremy

[edited 3/20/2007 4:39:19 PM]

PTN,
I agree with Jeremy on both counts. When a bank issues a transferable credit it must prepare itself to the fact that some of the information that appear on certain documents may not agree with that shown on the invoices due to the substitution of the invoices. There is also a possibility that the substitution may not take place, in which case again certain information for instance unit price, amount etc on the documents may differ from the original credit owing to the changes incorporated by the transferring bank at the time of transfer.
As for the disposal of documents, as rightly pointed out by Jeremy it requires 2nd beneficiary’s approval. However considering that the second beneficiary's documents conform to the transferred credit, the transferring bank may choose to act in accordance with the provisions of sub-Article 48(i), and utilize the second beneficiary's documents as tender under the credit.
Regards, Khalid

PTN,
These issues and others appear in a document: "Transferable credits and the UCP 500, Commission on Banking Technique and Practice, 30 October 2002, Document no 470/977 available I think in DC-Pro.--. Your second question (solved in UCP600) is addressed in issue 5. The conclusions of Jeremy and Khalid are, of course, correct.
Daniel

The document Daniel mentioned, Transferable Credits and UCP 500, is available in the ICC Policy Statements section.

Search for "transferable credits" in the site search and it is the first result.