Usance letter of credit and shipping documents

[uletayka]

Dear experts and practitioners,

I would be grateful if anyone could help me on this:

1. Is a buyer able to take possession of the commodity purchased under usance letter of credit before repayment of the LC value? Say,it is a usance L/C (360 days), buyer fulfilled its obligations on opening

2. Does the buyer have the right to take the goods (not the shipping documents) before the expiry of these 360 days? something like under trust receipts?

3. OR Is it an unequivocal/definite obligation of a bank to provide the buyer with the shipping documents under usance L/C if the buyer fulfilled its obligations on opening?

thank you all in advance,

Diane

[abrar]

The arrangement on relase of the documents representing the goods (without prior payment) would be dependant on a private arrangement between the issuing bank and the applicant. A Trust Receipt is a common example of such an arrangement. Under an Usance LC, the seller is effectively extending credit terms to the buyer, so it is unlikely that the issuing bank would be able to draw on the applicant's funds (notwithstanding that the funds may be held in an escrow account). Whereas the Trust Receipt enables release of the goods to the applicant the goods remain at the disposal of the bank until the applicant has liquidated the bank's outstandings under the LC drawing. It is therefore doubtful that the applicant has fulfilled his obligations on LC opening, and therefore entitled to the goods at that point.

Release of the documents is therefore contingent on the issuing bank being paid, or being in a position to liquidate its position at maturity, through either full right of set-off to the applicant's funds, or from cash cover/escrow account.

[cristiand969]

Diane,
In usance letter of credit the payment normally occurs at xxx days after an event - generally after shipment date. During this time, as in your example, the buyer takes possesion of goods before making payment . However beneficiary will have the confirmation of maturity from issuing bank at the time documents are released to applicant which means the issuing bank is committed to pay at maturity. This is the standard case when all going well.
As there are many options based on type of transactions, yes, there are situations when buyer takes possesions of goods before obtaining documents from issuing bank. This mostly happens in road transportation where CMR is not a title of property and goods are even received before documents arrival at issuing bank. There are ocassions where such mode of transportation is chosen when the seller insert in its own invoice some commercial terms : 'the goods remain in property of seller untill payment has been effected' or the like. Just to make you aware of.
Also there are situations when goods being shipped by sea are also taken over by beneficiary before shipping docs to be released (we are talking about shipping docs required under the credit):
- either original non-negotiatble seaway bill is required when goods are released to consignee based on proof of identity of the same
- an original B/L (out of the full set) to order and blank endorsed /or to the order of applicant, has been required to be sent to the applicant directly. In this second case the issuing bank is not obligated to make payment if buyer takes the goods in exchange of surender the original of BL to the carrier.
To sum up all above, yes and no! All depends on each particular case!
Hope it helps you!

[uletayka]

Thank you, abrar and cristiand969 for your helpful insights!