honor with recourse

jim · Post by **jim** » Tue Mar 10, 2009 7:43 pm

dear sir,
is it possible to honor a document with recourse basis if a letter of credit is available with our bank by
1. sight payment
2. deferred payment

Judith · Post by **Judith** » Thu Mar 12, 2009 9:29 am

I presume that you are the nominated bank in a letter of credit. If the LC is available by payment, deferred payment or acceptance and as a nominated bank you decide to act on your nomination and “honour” the credit, your action is without recourse to the beneficiary.

If the LC is available by negotiation and you decide to advance funds, only this action is with recourse to the beneficiary.

In practice, many nominated banks will advance funds under an LC available by payment, deferred payment or acceptance and clearly inform the beneficiary that the funding is with recourse. This, of course, is not “honour”.

cristiand969 · Post by **cristiand969** » Thu Mar 12, 2009 2:21 pm

Well done Judith regarding your explanation of recourse/non-recourse in case of negotiation/honor.
While the honor would mean ending of the 'contract' between nominated bank and beneficiary (always without recourse) negotiation is the opposite, is the beginning of a 'contract' between negotiating bank and beneficiary (unless the nominated bank is not the confirming bank where 'substitution' of issuing bank undertaking takes place ).
regarding your last statement of course this is not 'honour' but merely discounting receivables due to be collected at maturity. Honor as per UCP means also to incur a deffered payment undertaking and to pay at maturity , or to accept draft drawn by beneficiary and pay at maturity.

berry · Post by **berry** » Fri Mar 20, 2009 10:12 pm

i would like to draw your kind attention to CDCS study guide page 361 and 362. the statement there uses two terms; pay or negotiates and in relation to nominated bank it is said that the nominated bank pay or negotiate with recourse.

Navi · Post by **Navi** » Sun Mar 22, 2009 6:32 am

berry wrote:i would like to draw your kind attention to CDCS study guide page 361 and 362. the statement there uses two terms; pay or negotiates and in relation to nominated bank it is said that the nominated bank pay or negotiate with recourse.

Hi friend,

From the comments I also understand that nominated bank pay under a LC without recourse. However, I think the nominated bank considered to be at the same time confirming bank. As far as I know, if Lc not confirmed by nominated bank, that bank may pay to beneficiary with recourse. If I am wrong, please reply...

Regards.

Judith · Post by **Judith** » Mon Mar 23, 2009 9:16 pm

To answer Navi's query:

Mere nomination by the issuing bank does not obligate a nominated bank to act under the nomination.

However, if the nominated bank wanted to, they could CHOOSE to act under the nomination and their action would be WITHOUT recourse to the beneficiary in case of LCs available by Payment (where they utilise the issuing bank to pay the beneficiary), Deferred Payment (where the nominated bank undertakes to pay at maturity) and Acceptance (where the nominated bank accepts the draft).

Only in case of By Negotiation LCs, do they have recourse to the beneficiary.

honor with recourse

honor with recourse

recourse only for negotiation

Some comments

cdcs study guide

nominated bank if not confirming bank...

Nominated Bank's action