Hello,
Our organization recently received a request for transfer of a standby LC under ISP98. The LC allowed for transfers. The request stated in relevant part
THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK YOU TO ENDORSE THE TRANSFER ON THE REVERSE THEREOF, AND FORWARD IT DIRECTLY TO THE TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF TRANSFER.
Since we are an infrequent issuer of anything transferable and have never had this arise, I would ask the following:
1) Is there standard endorsement language that is used in this situation? If so, what is it? If not, any suggestions would be helpful.
2) We have no customary notice of transfer, can anyone provide a form?
3) Are there any other steps to take other than forwarding the endorsed LC and notice of transfer to the new beneficiary?
Thank you in advance for any insight you may share.
a little strange
Hi !
I have never seen such steps of Transferring a L/C.
First, in case of partial transfer, the original L/C will be held by the transferring bank and wait for the transferee to submit their documents for substitution. In case of fully transfer, normally the original L/C may be physically passed to the transferee after the endorsement of transferring bank, instead of transferor. The transferred L/C is rarely returned to transferor for endorsement, and pass to transferee themselves.
Second, "YOUR CUSTOMARY NOTICE OF TRANSFER" is also rarely used. Normally transferring bank would have their own letter of transfer attached with the transferred L/C.
Third, the request of transfer is normally performed by the transferor, original L/C's beneficiary, actively, instead of passively.
If you you any doubt, please clarify with your banker or contact your client, if they are well-known by yourselves, immediately.
You may provide more details there for further studying.
Hope it may help!
V.V.
More facts for clarity
My apologies.
We are the issuing bank and have been requested to make a full transfer of the LC.
We need to know what our endorsement on the LC should look like and also what the form of transfer notice or as you have said letter of transfer is to say.
Thank you.
Sorry for the late comment
I do not quite agree with was has been written so far, as it is a standby letter of credit that is suggested to be endorsed and as you are not beneficiary's bank but as you are issuing bank.
I'ld like to know whether
a) you issued a written standby (like a guarantee deed) or did you make use of a SWIFT format?
b) Under which Rules did you issue the standby?
c) The Standby is governed by which law, respectively - if such clause is missing, which is the country of issuance?
d) Which bank did you authorize to effect the transfer?
e) Is it payable with you?
Usually it's not issuing bank's task to make such transfer but first beneficiary's bank's!
As from the point of view of the applicant, such transfer is not favourable as the standby only covers the contractual obligations between applicant and first beneficiary and no third party can possibly judge whether the obligations of the first beneficiary have been complied with or not.
An assignment of proceeds would be alright but the right to make claims (as included in such a transfer) should not be passed on to third parties, especially not to banks which are in most cases not familiar with the underlying transaction.
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Under doc. credits a transfer can be made by endorsing the master credit, but I can't imagine this will be done too often as this would then reveal the profit of first beneficiary to the second beneficiary.
The way I always met is that the transferring bank issues something which looks like the original L/C adopted to the purchase contract between the first and the second beneficiary and clearly points out that this is not a credit but only a tranfer of a credit of bankxy in Town A, country A under their number ..... for which the transferring bank doesn't bear any credit obligation. Some Points as prices and delivery periods might be altered (please see also art. 38 of UCP 600 even if not the correct rules for you standby case).
-Each long journey starts with a small step-
Best regards
Frammi
Endorsement on LC
Hi Fred,
The endorsement usually includes the following:
1. The letter of credit number
2. Any new Reference number
3. The party the letter of credit was transferred to
4. The amount of the transfer
5. The date of the transfer
6. Your bank's name as the transferring bank
8. An authorized signature of your bank
The transfer notice is pretty much up to your bank. To the transferee you could create a new letter of credit showing them as the beneficiary or if the letter of credit is a standby letter you could just put a cover letter on the letter of credit stating that the letter of credithas been transferred to the transferee (This works well where the letter of credit backs a lease agreement). To the original beneficiary, you need only to send a letter stating it was transferred.
In the future, if it is only a partial transfer, you will have to issue a transfer of a letter of credit and return the original letter of credit to the beneficiary with the endorsement.
I hope this helps you out.
Best regards,
LC Sam