1
Case Number 1
The Case of the Contingent Irrevocability of the Credit
UCP500 Article 4 and sub-article 8(a)
Background
Type of Credit:
Irrevocable
Application:
UCP500
Issuing Bank:
Bank I
Advising Bank:
Bank A
Availability:
At sight with the Issuing Bank
Expiry:
At the counters of the Issuing Bank
Circumstances
Issuing
Bank:
Bank
I
issued
its
irrevocable
Credit
and
advised
it
to
the
Beneficiary
through Bank A.
Advising Bank:
Bank A advised the Credit to the Beneficiary
Credit:
Among the terms and conditions, the Credit asked for:
1.
Sight draft on the issuing bank
2.
Bills of lading issued to order of Bank I for account of the Applicant
3.
Special Conditions:
(a)
Payment of drafts drawn hereunder will be made only after the
realization of the re-export proceeds program.
Beneficiary:
The Beneficiary shipped the goods and presented the documents required
by the Credit to Bank A.
Advising Bank:
Bank A informed the Beneficiary that in view of the special conditions
related to payment and because the Credit expired at the counters of the
Issuing Bank, Bank A would only forward the documents to Bank I for their
action.
Beneficiary:
After determining that Bank A had no obligation to negotiate, relying upon
the standing of the Issuing Bank as a premier financial institution, and being
comfortable
that
the
Credit
was
subject
to
UCP500,
the
Beneficiary
instructed Bank A to forward the documents to Bank I.
Issuing
Bank:
Informed
Bank
A
that
while
the
documents
presented
under
the
Credit
were
compliant,
they
were
not
in
a
position
to
honor
the
drawing,
as
the
necessary funds had not been
made available to them from the 鈥渞e
-export
proceeds program鈥? If and when such proceeds were made available, they
would pay the drawing under their credit.
Beneficiary:
The Beneficiary never received payment for the goods shipped, even though
the documents presented under the Credit complied fully with the terms and
conditions of the Credit. Bank I stated that while their Credit was irrevocable,
it
contained
special
conditions
stating
that
irrevocability
was
subject
to
receipt of the necessary funds from the 鈥渞e
-
export proceeds program鈥? Since
such
proceeds
were
not
received,
Bank
I
had
no
obligation
to
honor
the
drawing. Bank I suggested that the Beneficiary try to recover directly from
the Applicant.
Queries:
Please
review,
analyze
the
queries,
give
your
opinion
and
be
prepared
to
answer each query