ICC Digital Library Forum

X Bank establishes an LC for USD 100,000.00 with tenor 90 days from date of B/L.Merchandise is General Merchandise. No quantity or Unit price.Beneficiary presents Invoice for USD 100,000.00 which gives a break up of cif value 98,000.00 + Usance Interest of USD 2,000.00 Totalling USD 100,000.00

Are the documents discrepant or is it permitted and if so pls substantiate by which article of UCPDC


[edited 5/1/01 6:10:41 PM: REmove the E mail address]

Although the credit is vague as to description and price unless it specifically allows for interest to be claimed (and I've seen plenty that do) I would reject an invoice including an interest element.
If there is a view that it is acceptable then what would happen if the interest element represents 50 pct of invoice amount.

Whether or not interest should be allowed depends on the precise wording used in the L/C & the invoice for description, terms of shipment & terms of payment. For example, if the interest shown on the invoice is shown to be part of the cif breakdown, it should be permissible, but not if it is added to the cif (assuming that the L/C calls for cif).
This L/C is very unsatisfactory in its vagueness & would permit payment in full against shipment of one item or one kilogram of any product. Therefore, quibbling over whether or not to pay where 2% of the value of the L/C is in question for interest is 50 times less important than the potential for 100% fraud or money laundering.

There are not enough data to warrant a reliable answer for this query.

Although the LC is not overdrawn, there is no specific provision of interest in the LC but a period of 90 days from date of BL is allowed for payment. From the face of the LC I would opine that the LC allows deferred payment but since no interest is mentioned, it would imply that the deferred payment is in fact a form of discount.

Even if interest is specifically allowed in the LC, then the rate of interest is another dispute area, according to what rate? LIBOR? HIBOR? or "X"IBOR? computed based on 360 days or 365 days in a year?

URC 522 has already given a hint to such problem. If these data are not given, then the bank has no responsibility to receive interest.

The famous case of Equitable Trust v. Dawson Partners has given us a hint:

If you do as the LC says, you are safe; if you decline to do anything else, you are still safe, but if you depart from what is specified in the LC, you are acting on your own. (from my memory rather than quoting the exact dictum of Viscount Sumner).

If the LC has not mentioned interest, interest rate, interest computation method, and you charge for interest nevertheless, then according to Viscountg Sumner...

As an LC consultant, I would suggest that my clients charge for the interest separately, by debit note or otherwise, so that he can be sure that the amount of the invoice (which is huge compared to the related interest) can be received without any doubt. It is not worth taking such a risk for so little amount. This is only common sense, which LC operation is about.

I am from www.tolee.com

[edited 11/22/01 10:27:57 PM]