Interpreation Of UCP 600 - Article 7

koon · Post by **koon** » Sun Sep 14, 2014 9:46 pm

Hi,

i was new to UCP and will take the CDCS exam soon. had gone through the UCP 600 and i had a lots of question and wish if someone could help me out. would appreciate if the answer may come with some examples for better understanding of the rules and application

Q1. I often see the words , "a credit is available by negotiation" ... from my own understanding, that would mean that the nominated bank can advance (loan) funds before the reimbursement from issuing bank (as per article 2) .. but on article 8 (a)(ii) state "negotiate , without rescourse, if the credit is available by NEGOTIATION with the conforming bank . so i am confused.. does it means the confirming bank has to advance the funds to nominated bank without resource when they want to add confirmation ?

Q2.Article 7(a)(ii) .. sight payment with a nominated bank and that nominated bank does not pay.
can i know the meaning of nominated bank does not pay ? does it means issuing bank are undertake to pay nominated bank while the nominated bank does not have obligation to pay beneficiary until it received funds from issuing bank ? or it means issuing bank are undertake to pay nominated bank even nominated bank DOES NOT PAY beneficiary ?

dinesh2476 · Post by **dinesh2476** » Thu Sep 18, 2014 4:27 pm

Dear Koon,

Query 1:
negotiation available in 2 terms-sight/usance.

Article 12(a). unless a nominated bank is the confirming bank,an authorization to honour or negotiation does not impose any obligation.

Without recourse meaning:confirming bank cannot go back to presenter and ask for return of funds in case of issuing bank fails to pay.(no point in adding confirming if the confirming bank are in position to request for return of funds)

From the confirmed letter of credit point of view all payment terms are available in without recourse basis only-(Sight,Negotiation,deferred payment, acceptance). so in case of confirmed letter of credit, available by negotiation(draft drawn on IB), the payment available to the presenter at sight and confirming bank cannot go back to presenter and ask for return of funds in case of issuing bank fails to pay on maturity.

Query 2:

simple, the confirming bank responsibility to pay the presenter/beneficiary immediately incase of sight( payment,negotiation) or at maturity in case of negotiation,acceptance, deferred payment)

consider the article 12(A) for the term ''nominated'' mentioned in article 7(a)

Please let us know incase of any clarification. There are lot of experts available in this forum who perhaps assist on this.

Thanks & Regards
Dinesh

shahriar · Post by **shahriar** » Sun Sep 21, 2014 9:26 am

koon wrote:Q1. I often see the words , "a credit is available by negotiation" ... from my own understanding, that would mean that the nominated bank can advance (loan) funds before the reimbursement from issuing bank (as per article 2) .. but on article 8 (a)(ii) state "negotiate , without recourse, if the credit is available by NEGOTIATION with the conforming bank . so i am confused.. does it means the confirming bank has to advance the funds to nominated bank without resource when they want to add confirmation ?

I think you got the idea slightly wrong. If the LC is available by negotiation with a nominated bank and of the nominated bank does negotiation, then the confirming bank will Reimburse that nominated bank under article 8(c).

koon wrote:Q2.Article 7(a)(ii) .. sight payment with a nominated bank and that nominated bank does not pay.
can i know the meaning of nominated bank does not pay ? does it means issuing bank are undertake to pay nominated bank while the nominated bank does not have obligation to pay beneficiary until it received funds from issuing bank ? or it means issuing bank are undertake to pay nominated bank even nominated bank DOES NOT PAY beneficiary ?

Let me give you an example. A Bank is the issuing bank and B bank is the Nominated bank. If the nominated bank make sight payment, the issuing bank will reimburse the nominate bank. If the nominated bank does not make sight payment, for whatever reason, the issuing bank as the primary undertaker, make sight payment to the beneficiary.