A Few Questions and Answers on UCP - Part 1

Question : Who is a Buyer?

Answer: Buyer is the drawee to whom presentation is to be made in accordance with the collection instructions. His role is to accept B/E facilitating release of documents if the terms are documents against acceptance (D/A) or to pay on presentation of documents if the terms agreed are documents against payment (D/P).

Question : Define the term ‘Presenting Bank’.

Answer : The presenting bank is the one which makes presentation of documents to the drawee for payment, if the terms are documents against payment (D/P), or for acceptance, if the terms are documents against acceptance (D/A). The presenting bank is also known as the collecting bank and it is the one which comes in direct contact with the drawee. This bank’s role is to present Bill of Exchange (B/E) and other documents for payment under D/P terms or release documents after securing acceptance of B/E in case of D/A terms, and present B/E on due date for payment. This bank must act according to the collection instructions and get the noting and protesting of a dishonoured B/E if so instructed by the remitting bank and so willing.

Question : In relation to a case of fraud, wherein the injunction forbids the Issuing Bank to effect payment under its credit to the negotiating bank, whether
• the Negotiating Bank has a recourse against the beneficiary,
• the Negotiating Bank has recourse against the beneficiary even if the Negotiating Bank has confirmed the credit, and
• whether the Issuing Bank is still responsible to make payment to the Negotiating Bank because the Negotiating Bank negotiated the documents in good faith.

Answer : Article 3 emphasizes that credits are separate transactions from underlying contracts, and Article 4 stresses that in credit transactions all parties deal with documents and not with goods, and Article 10(b) and Article 14(a) state that nominated banks are entitled to be reimbursed if they have complied with the terms and conditions of the credit. However, there is an exception to these provisions in many jurisdictions, namely related to abuse of rights and frauds. It is upto the courts in various jurisdictions to fairly protect the interest of all bona fide parties concerned.

Question : Whether an expired L/C can be transferred by a Bank?

Answer : An expired L/C cannot be transferred by the Transferring bank for there is no L/C to Transfer.

Question : When an L/C is transferred for a value less than the original credit, does the second beneficiary to whom the L/C is not transferred to, get the right to negotiate the documents with the first applicant directly, bypassing the first beneficiary?

Answer: Unless the L/C provides otherwise a second beneficiary does not get the right to negotiate documents with the first applicant directly bypassing the first beneficiary.