negotiation under a deferred payment undertaking

[shahriar]

dear friends,

i know this issue has been discussed a lot and you are tired of it. but i will ask again as suddenly i am feeling confused enough to do so

LC is available by deferred payment undertaking / negotiation with the nominated bank. The nominated bank does not incur a deferred payment undertaking / negotiate and forward the document to the issuing bank. the issuing bank honors and incurred a deferred payment undertaking. now if the nominated bank purchase the undertaking is it negotiation?

i would also like to know that is it at all necessary for a nominated bank to act on its nomination to be protected under 7c.

is 7c at all affected by the availability (by) of the credit?

[Judith]

These are two separate cases:

Let’s say that Bank I is the issuing bank and Bank N is the nominated bank

1. LC available Bank N by Deferred Payment
If Bank N does not incur a deferred payment undertaking, it is not acting on its nomination. After Bank I incurs the undertaking, it does not matter which bank purchases the undertaking, it is merely “banker’s acceptance discounting” and is outside the purview of UCP. (But Bank N is protected by local laws.)

2. LC available Bank N by Acceptance
If Bank N does not negotiate on receipt of credit compliant documents, i.e.
- it does not pay funds or
- it does not AGREE to pay funds anytime in the future…
it will not be considered as “negotiation” and by purchasing the undertaking, it is merely an act of “banker’s acceptance discounting” and is outside the purview of UCP.

However, in Case 2, if Bank N had clearly agreed to pre-pay on receipt of acceptance from the issuing bank, this would have been deemed to be negotiation. The important bit is the agreement to advance funds in order for it to constitute negotiation.

[SHAMEER]

in this case there is no nominated bank - you just acted as a presenting bank that’s all - coz you didn’t accepted your nomination given by the issuing bank to incur the deferred payment . now it is only the descretion of the Issuing bank to pre pay / purchase their deferred payment under taking for the bill .

article 7 (c ) not applicable here



Thanks & Regards,

[cristiand969]

This seems to me a form af agreement between negotiating bank (who proved to be not) and beneficiary whereby that bank agreed to JUST DISCOUNT proceeds or if you like, offer a short term credit until payment is due to be received (See the difference that nominated bank has a pledge on proceeds on issuing bank undertaking - there is no more docs involved here).
Under no way this will be a negotiation as the same is defined as purchasing of documents and not an undertaking Negotiation also occurs for sight payment. For deferred pymt I guess credit available by acceptance offers nominated bank the possibility of so called ' negotiation' though I consider is not the most appropriate terms

[shahriar]

These are two separate cases:

........
2. LC available Bank N by Acceptance
If Bank N does not negotiate on receipt of credit compliant documents, i.e.
- it does not pay funds or
- it does not AGREE to pay funds anytime in the future…
it will not be considered as “negotiation” and by purchasing the undertaking, it is merely an act of “banker’s acceptance discounting” and is outside the purview of UCP.

However, in Case 2, if Bank N had clearly agreed to pre-pay on receipt of acceptance from the issuing bank, this would have been deemed to be negotiation. The important bit is the agreement to advance funds in order for it to constitute negotiation.

dear Judith,

i fully agree with you. in addition i was thinking about a nominated bank's protection under case 1 as sub article 7c never said "acting on its nomination". but im settling with the decision that a nominated bank that has not acted on its nomination is not protected; the one you mentioned.

Thanks!