Dear Sir,
Finally i have questions on article 39. please help me with the followings -
1. Is a assignment of proceed request by the beneficiary irrevocable?
2. is the issuing bank irrevocably bound by the assignment of proceeds if it agrees to do so?
3. is the confirming bank irrevocably bound by the assignment of proceeds if it agrees to do so?
4. will the acknowledgment of the confirming bank bind the issuing bank to reimburse the assignee and vice versa?
5. can an assignee assign the proceeds to someone else?
6. is it possible to assign proceeds for a credit which is available with any bank?
hope you will help
best regards
Jim
nature of assignment of proceeds
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picant
- Posts: 2026
- Joined: Wed Aug 20, 2008 1:49 pm
Local Laws
Hi Pal,
Interestring question, but it is impossible to give a general answer, due to different Laws in different Countries, included different Laws System; Common Law, Civil Law, Islamic Law etc. I think you have to peruse the wording of this assignment, than compare it with your Law and decide. Here is a wording received by a German Bank:
"Concerning assignment of payment claim for EUR..... against L/C .....
We wish to point out, as a precautionary mesure, that payment can only be effected in accordance with the terms and conditions of the documentary credit.
Please note also that payment claims against the issuing bank can only be validly assigned in accordance with the applicable-possible foreign law, but we neither check not bear liability for validity of the assignment(art 39 UCP 600).
This assignment of proceeds(unfortunately not fully written) has been rejected by beneficiary.
Other comments appreciated
Ciao
Interestring question, but it is impossible to give a general answer, due to different Laws in different Countries, included different Laws System; Common Law, Civil Law, Islamic Law etc. I think you have to peruse the wording of this assignment, than compare it with your Law and decide. Here is a wording received by a German Bank:
"Concerning assignment of payment claim for EUR..... against L/C .....
We wish to point out, as a precautionary mesure, that payment can only be effected in accordance with the terms and conditions of the documentary credit.
Please note also that payment claims against the issuing bank can only be validly assigned in accordance with the applicable-possible foreign law, but we neither check not bear liability for validity of the assignment(art 39 UCP 600).
This assignment of proceeds(unfortunately not fully written) has been rejected by beneficiary.
Other comments appreciated
Ciao
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jmitra
- Posts: 247
- Joined: Tue Sep 02, 2008 10:16 pm
- First Name: jasmit
- Last Name: mitra
- Organization: bank
- Filter: Two Plus Two =: 4
- Location: India
agree with picant
i agree with picant. assignment of proceeds is governed by the national legislation. commentary on UCP 600 says
1. yes, an assignment of proceed is irrevocable
2. yes, the issuing bank is irrevocably bound once it has accepted. u need to understand the underlying transaction here. the beneficiary is actually asking the issuing bank to divert the fund to some third party. this is a instruction and similar to negotiable instrument. once you accept, you must pay. but dont make confusion between assignment of proceeds and negotiable instrument. assignment is not certainly negotiable. not even governed by the same law. in case of negotiation, the transferee can get title better than transferor, which can never happen in assignment/transfer.
3. same as 2
4. no. assignment depends on the acceptance of the paying bank and local law and the governing law may not be same for the issuing bank and the confirming bank.
5. i think yes
6. yes it is possible. but there it will be very complicated. for example say bank x acknowledge a assignment of proceed request. what will be the case if the beneficiary present the document to some other bank or to issuing bank directly. in these case i suggest that assignment should always be from the issuing bank.
hope that will help
so there is no general answer. again is not beyond any answer.Whilst this position may be covered under the applicable law, it was felt by the Drafting Group that this article should remain as a necessary component of the UCP.
1. yes, an assignment of proceed is irrevocable
2. yes, the issuing bank is irrevocably bound once it has accepted. u need to understand the underlying transaction here. the beneficiary is actually asking the issuing bank to divert the fund to some third party. this is a instruction and similar to negotiable instrument. once you accept, you must pay. but dont make confusion between assignment of proceeds and negotiable instrument. assignment is not certainly negotiable. not even governed by the same law. in case of negotiation, the transferee can get title better than transferor, which can never happen in assignment/transfer.
3. same as 2
4. no. assignment depends on the acceptance of the paying bank and local law and the governing law may not be same for the issuing bank and the confirming bank.
5. i think yes
6. yes it is possible. but there it will be very complicated. for example say bank x acknowledge a assignment of proceed request. what will be the case if the beneficiary present the document to some other bank or to issuing bank directly. in these case i suggest that assignment should always be from the issuing bank.
hope that will help
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berry
- Posts: 329
- Joined: Fri Nov 07, 2008 11:36 pm
i found this
dear friends,
i found this on the wachovia website
Unlike a transfer of a letter of credit, which is governed by the desire of the applicant and issuing and advising banks, assignment of proceeds is at the discretion of the beneficiary.
Under Article 39, UCP 600, the beneficiary is entitled to assign any proceeds to which he may be, or may become, entitled under such credit, in accordance with the provisions of the applicable laws.
In order to assign any proceeds from a letter of credit drawing, the beneficiary must apply to the advising bank and agree, among other things, that the assignment is irrevocable. The bank that assigns the proceeds must authenticate the request, acknowledge the assignment to the assignee, mark the assignment on the original credit, and notate their records.
While this document assures that the original beneficiary will not receive more than his share of a drawing, it does not guarantee payment unless documents are presented in accordance with terms and conditions and if the L/C is unconfirmed, funds are received from the issuing bank.
Unless the assignee has absolute confidence in the assignor’s performance, assignment of proceeds is a weak instrument at best.
i found this on the wachovia website
Unlike a transfer of a letter of credit, which is governed by the desire of the applicant and issuing and advising banks, assignment of proceeds is at the discretion of the beneficiary.
Under Article 39, UCP 600, the beneficiary is entitled to assign any proceeds to which he may be, or may become, entitled under such credit, in accordance with the provisions of the applicable laws.
In order to assign any proceeds from a letter of credit drawing, the beneficiary must apply to the advising bank and agree, among other things, that the assignment is irrevocable. The bank that assigns the proceeds must authenticate the request, acknowledge the assignment to the assignee, mark the assignment on the original credit, and notate their records.
While this document assures that the original beneficiary will not receive more than his share of a drawing, it does not guarantee payment unless documents are presented in accordance with terms and conditions and if the L/C is unconfirmed, funds are received from the issuing bank.
Unless the assignee has absolute confidence in the assignor’s performance, assignment of proceeds is a weak instrument at best.