What if L/C has been Issued by Importer Himself

Your bank issued an irrevocable LC favoring a Australian Exporter through your Brisbane Branch which confirmed it for one Million Australian Dollars . L/C covered shipment of computers to you for your own use. The beneficiary  has refused to accept it, arguing that—(1) LC has been Issued by importer himself. (2) LC is not confirmed by another bank but by a branch of the issuing bank. Please support your bank’s action quoting relevant articles of UCP 500.

Article 2 of UCP defines a letter of credit as to mean “any arrangement, however named or described, whereby a bank (the issuing bank), acting at the request and on the instructions of a customer (the applicant) or on its own behalf, is to make payment to or to the order of a third party….”

The above portion of Article 2 clearly permits the bank to open a letter on its own behalf. All that is required is that it should be opened by a bank. Therefore the contention of the beneficiary that the letter of credit has been opened by the im-porter himself and hence not acceptable is not correct.

Article 2 of UCP also states that for the purpose of the Articles of UCP, branches of a bank in different countries are considered another bank. Hence a letter of credit opened by a bank can be confirmed by its own branch in the exporter’s country. The second contention of the beneficiary is also not correct. Thus the bank’s action is justified on both the counts.

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