Notification Of Acceptance Of Amendment In Transfer LC

[nesarul]

Dear all,
Pls comment
a transferable credit issued available with a nominated bank [also advising bank].
At the request of first beneficiary, the nominated bank transfer this credit to two susequent second beneficiaries.
after that an amendment issued and duly transfer it to two beneficiaries.
just after receiving of amendment,
one 2nd beneficiary accept and the remaining one reject it by notification of acceptance and rejection respectively.

now the first beneficiary wants to inform issuing bank rgarding status of amendment.

what should be the first beneficiary's course of action-notification of acceptance or rejection of amendment?
regards
nesar

[Armagedo]

Hi!

It seems that here is logical trap

But it seems for me that such a situation is hypotetical.

When transferable credit may be transferred to more than one second beneficiaries?

Only when "partial drawings or shipments are allowed" (Article 38(d))

And first beneficiary should be carefull in asking amendments and, what is more important, transferring bank should take the same care while advising amendments to second beneficiaries and to predict such a situations.

I mean that beneficiary should ask for the amendment which will cover that or another part of goods and so will suit only that or another second beneficiary.

And transferring bank should check for non-possibility of such intersections. And only after this to transfer amendments.

If someone has "live" examples of nesarul question, please, advise.

Good luck

[hassan]

I think the UCP itself has already given appropriate answer to this question in Art. 38 (f) and Art. 10 (c) where it says:
Art. 38 (f) -If a credit is transferred to more than one second beneficiary, rejection of an amendment by one or more second beneficiary does not invalidate the acceptance by any other second beneficiary, with respect to which the transferred credit will be amended accordingly. For any second beneficiary that rejected the amendment, the transferred credit will remain unamended.

Article 10 (c)-" The terms and conditions of the original credit (or a credit incorporating previously accepted amendments) will remain in force for the beneficiary until the beneficiary communicates its acceptance of the amendment to the bank that advised such amendment. The beneficiary should give notification of acceptance or rejection of an amendment. If the beneficiary fails to give such notification, a presentation that complies with the credit and to any not yet accepted amendment will be deemed to be notification of acceptance by the beneficiary of such amendment. As of that moment the credit will be amended."
cosidering above items the first beneficiary is not obliged to advise it,s acceptance or rejection of amendments. but it can prepare each set of documents according to relative transfered l/c

[Armagedo]

2 hassan

Unfortunately, it seems that You didn't read nesarul's question with care.

Please, read it and analyze once again and you'll see this trap.

Good luck

[iLC]

dear nesarul and armegado,

personally i do not understand why the first beneficiary would like to communicate his or her acceptances or rejection while the amendment is already advised to the second beneficiary. the question is more relevant when first beneficiary preserves the rights on amendment.

once the amendment is advised, there is no requirement for notification of acceptance. the advising bank of the 2nd beneficiary's may communicate this to the transferring bank which will eventually communicate the issuing bank.

while issuing a transferable Letter of credit with partial shipments allowed, the issuing bank should be ready for such situation.

as far as presentation is concern, there will be two sets of documents; one for each 2nd beneficiary.

iLC

[Armagedo]

Hi!

Dear iLC...

I'm still insisting You to read and analize initial nesarul's request.
I'm just want to strengthen it - let's talk about 'silent' confirmation of acceptance. It's more interesting and indicative

What we have:
.....................................issuing bank
...........................................|
...................................transferring bank
...........................................|
.................................first beneficiary (FB)
......................................../ .......................... \
.......1st second beneficiary(SB1) .........2nd second beneficiary(SB2)

Let's assume that FB has got amendment FOR THE WHOLE LC and transferring bank has passed it to both SB1 and SB2 without taking big care.

SB1 was in position to comply with amended LC.
SB2 was not in position to comply with amended LC and proceeded with initial LC.

They (SB1 and SB2) are presenting docs.

SB1, SB2 have presented docs.

They've found by transferring as credit conform
a/ for SB1 according to accepted amendment (amended LC)
b/ for SB2 according to initial LC

Transferring bank can't do nothing with SB1 and SB2 since there is Art. 38 (f) as You correctly stated.

But what about first beneficiary FB.

Those partial presentations will be further passed to the issuing bank (of course, with substituted invoices, drafts by FB).

If presentation of SB1 docs will reach first then such a presentation will confirm that FB has accepted amendment.
You agree?
So, presentation of SB2 docs will then be discrepant - since it is prepared to meet initial LC and not amended.

And vice-versa.
If presentation of SB2 docs will reach first then such a presentation will confirm that FB has NOT accepted amendment.
So, presentation of SB1 docs will then be discrepant - since it is prepared to meet amended LC and not initial.

That's what we're talking about.

So at least one presentation will be discrepant.

And, as I said, it's rather hypotetical situation.

But...

Who knows.

Good luck

[iLC]

dear armegado,

if my understanding is correct, the nesarul is trying to say

Transferring bank transfer this credit to two second beneficiaries. Issuing bank issued an amendment. the transferring bank advised them to two 2nd beneficiaries.

one 2nd beneficiary accepted and other rejected the amendment.

Now first beneficiary wants to inform issuing bank regarding status of amendment. what should he say? accepted or rejected?

i believe you are understating the same thing. you said that presentation by any one of the beneficiary will make the other discrepant!!
when u r planning to use

f. If a credit is transferred to more than one second beneficiary, rejection of an amendment by one or more second beneficiary does not invalidate the acceptance by any other second beneficiary, with respect to which the transferred credit will be amended accordingly. For any second beneficiary that rejected the amendment, the transferred credit will remain unamended.

further commentary on UCP 600 says

Needless to say a part of a documentary credit remaining available to the first beneficiary will also be treated as a separate documentary credit as far as amendments are concerned and will be amended in accordance with the provisions of article 10.

that means each part of the transferred letter of credit is separate LC.

that takes me to a simple conclusion. the first beneficiary may only communicate acceptance for his own part. if he at all wants to say about 2nd beneficiary, he has to say "hey! one has accepted and one has rejected!!"

further u said

But what about first beneficiary FB.

Those partial presentations will be further passed to the issuing bank (of course, with substituted invoices, drafts by FB).

my standing is very clear here. 1st whenever a LC is transferred, the transferring bank should inform the issuing bank about the transfer.

2nd, the issuing bank should be ready for such situation.

the first beneficiary should only be concern with the things he can control, the price etc.

i also question the importance of such notification from the first beneficiary. as i have said earlier, its the transferring bank who is suppose to inform the issuing bank on the standing of the 2nd beneficiaries.

hope that clears the water now

iLC

[hassan]

Armagedo

I completely agree with " ilc",s comment . in my first comment i supposed it is clear and need not be explained all details .now I thank "ilc" that explaind it very good and by details.

[nesarul]

Dear all,
Thanks for valuable comments.
I am not sure whether i am right or wrong, if i understood wrongly, pls correct me.
Here my thinking:

All of your priceless comments tell me one lesson that article 38 should read in conjunction with other article rather than in isolation.
there are some evidence in article 38 regarding above: such as:
sub article 38(b) definition of transferring bank:
"a issuing bank may be a transferring bank"

the above line is nothing but upheld the position mentioned in sub article 6(a).

Now we can consider sub article 10(c) and its application on article 38
According to sub article 10(c) we can say that:

The beneficiary can prove its acceptance or rejection of amendment on a particular credit transaction by two way:
1. through communication of acceptance or rejection.[our considering element] or
2. through presentation of documents.
.
In a transferable credit, the beneficiary should also perform the above two function [according to sub article 10(c)] on amendment:

Our considering point:

Where the first beneficiary retains its right to substitutes and retains right on amendment:

Since the first beneficiary has the interest on this transaction, UCP should allow its to perform any one of the above two functions mentioned in sub article 10(c) of UCP 600.
.

Unfortunately in my case, i think the first beneficiary can not able to communicate its own acceptance or rejection because of vice versa activities of the two second beneficiaries before presentation of documents. the first beneficiary has got only option 2 of above.

which armagando terms as "LOGICAL TRAP"

Again I must say, if i go wrong way, pls correct me.
regards
nesar

[iLC]

dear nesarul,

i just dont understand where you are finding a "logical gap". once i made it clear that those transferred LCs are fully different, there should be no question.

lets take a simple letter of credit. it is amended. the beneficiary communicated his or her acceptance to the advising bank which eventually tells the issuing bank. now if you go to the advising bank or issuing bank and say "hey! the beneficiary has accepted the amendment!" will it carry any value? NO!! why? cause you are not a party or your decision is not important. same is for your case. infact you are merely communicating a information to the issuing bank. not even deciding something. can u say that the beneficiary has accepted? No. rejected? No. you have only option to say that one has accepted and one has rejected. OR you can say that you have accepted or rejected but thats not important since you have no significant control over the LC.

please also try to understand that authority to substitute invoice and draft doesnt mean that you have every authority over the 2nd beneficiary.

let the LC calls for Canada Origin. later the issuing bank amended it for Germany Origin. the 2nd beneficiaries rejected and presented the document for Canada origin. for the sake of argument lets take "your acceptance or rejection" is important and you have communicated a acceptance. now can you change all the document for germany origin? No. can the issuing bank say that canada origin is a discrepancy? no. i even think that the transferring bank wont allow you to replace the document with those one showing germany origin.

i hope all your confusion is clear now.

iLC

[nesarul]

Dear ILC,
Thanks for ur comments. May be my posting give you a bit more pain. Pls perdon me.
would u pls explain a bit more ur statement:
quote:
those transferred LCs are fully different, there should be no question.
.
unquote:
If i understood clearly, you want to mean that those transferred L/C are fully different from transferable L/C. am i right?
.
But both of the credit has got same issuing bank undertaking.
.
So, there are three basic parties in this transaction:
1. issuing Bank
2. first beneficiary and
3. second beneficiaries.
.
If we termed first and second beneficiary as a beneficiary, then both party should have the same right to apply sub article 10(c).
.
But Second beneficiaries can utilize two options mentioned in sub article 10(c) whatever they do like,
Whereas first beneficiary can perform only one option.
pls comments
nesar