Case 1
The bank "A" opened irrevocable and freely negotiable credit and there were 3 conditions to the terms of credit. First, it is available by payment of the beneficiary's draft on X Bank. Second, the negotiating bank should notify the actual NEGO on the NEGO date by cable or swift to the opening bank. Third, the credit's expiration of validity will be expired on May 28th. The Seller prepared the shipping documents based on the terms of credit, NEGO with a "D" bank on May 27th, and re-submitted to the "X" bank on May 28th. And the "X" bank again re-submitted this documents to the opening bank on May 30th.
However, the opening bank notified rejecting to meet payment declaring delay in submission. For this, the "D" bank which is negotiating bank insisted that the documents were submitted within the validity time to the "X" bank which is paying bank.
Case study
1. Usage method according to the types of credit
Based on the U.C.P, there must be a nominated bank that can be used per the types of credit but for the freely negotiable credit, all the banks can be the negotiable bank. (The Sub-Article 10(b) of U.C.P. 500)
So for this case, a negotiable bank was selected as a freely negotiable credit, and the bank also acted as a reimbursing bank.
2. The expiration date of the validity time with credit
For this particular case, since the paying bank is additionally appointed, the validity period should be expired at the nominated bank although the credit is a freely negotiable credit (I.C.C. pub 459. case No.34).
3. Presenting documents to a different bank other than the nominated bank
The "X" bank which is the nominated bank and the paying bank should make immediate payment and since the documents were submitted within the validity period, it is reasonable to demand compensation to the "A" bank which is the opening bank.
Case 2
Both opening bank and advising bank for the restricted credit was "CMB". The seller received release letter from the "CMB" which is the advising bank. Then the seller NEGO through a "J' bank and submitted the release letter to the opening bank. However, the opening bank rejected to meet payment declaring delay in document submitting.
Case study
1. The definition of restricted credit
A restricted credit restricts NEGO only to a advising bank or other certain banks. The illustrates for such restricted credit is as following. "The negotiation of this credit is restricted to CMB Seoul"
2. Process of restricted credit
(1) Re-NEGO process
When a seller is making payment for NEGO through the seller's bank, he first NEGO through he's own bank and this 1st negotiating bank usually request re-NEGO to a restricted nominated bank. This re-NEGO process is generally processed based on the re-NEGO contract drew up between the banks.
(2) Direct NEGO process
Go to a restricted nominated bank, get release letter, attached it with re-NEGO credit and NEGO at one's bank directly and submit documents at a opening bank.
3. View of I.C.C.
I.C.C made following authoritative interpretation to a direct NEGO that is attached with a release letter. With a restricted credit, a NEGO based on a release letter through a non-nominated 3rd bank, it is consider as a NEGO without authorization of a opening bank therefore, exempt from a compensation per the Sub-Article 10(d) of U.C.P. In order to receive compensation from a opening bank, there must be prior approve from a opening bank. However, if the documents submitted by a non-nominated 3rd bank are consistent to the credit's validity period and submit was directly made to a opening bank within the submission validity period per the 43 of U.C.P., the opening bank is responsible to make payment.(I.C.C. pub 489. case No.196).
4. Caution
The opening bank's payment rejection in this case is reasonable. Because the submission validity period has to be the base on the standard of the opening bank.
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