G ) Assignment of Proceeds (Article 49 UCP 500)

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G ) Assignment of
Proceeds (Article 49 UCP 500)

ASSIGNMENT OF PROCEEDS

ARTICLE 49 Assignment
of Proceeds

The fact that a Credit is not
stated to be transferable shall not affect the Beneficiary's right to assign
any proceeds to which he may be, or may become, entitled under such Credit, in
accordance with the provisions of the applicable law. This Article relates only
to the assignment of proceeds and not to the assignment of the right to perform
under the Credit itself.

Article 49 UCP 500 – Assignment of the claim for payment

Genesis of the provision: According to the lawyerly consensus in most
legal systems, the beneficiary can assign the proceeds under credit even if the
credit itself is not transferable. Article 49 UCP 500 had been introduced due
to a request from the German delegation, after the German supreme
court in civil matters had questioned the admissibility of an assignment
of proceeds (footnote1). The assignment of proceeds only covers the claim for
payment, which is conditioned on presentation of compliant documents; the
assignment of proceeds does not alter the beneficiary’s position who remains
the only one authorized to utilize the credit.

Applicable law: The question whether an assignment is
valid depends according to Article 49 UCP 500 on the applicable law. The
applicable law has to be determined according to international private law.
According to German IPL the question is determined according to the performance
characterizing the contract (footnote2). If German law applies, the assignment
need not be disclosed. Other legal systems impose stricter formal requirements
as e.g. the serving by sheriff or at least a written notification of the debtor
as required by English law (footnote3).

Addressee of the notification of assignment: Independent
of legal requirements of the applicable law, the addressee of the notification
of assignment is interested in having the bank notified in order to avoid a
payment to the original beneficiary. It is unclear who is to be notified under
an unconfirmed credit: the issuing bank as debtor of the obligation or the
nominated bank as the representative of the issuing bank, which processes the
credit. As a preventive measure, the author recommends to notify both banks of
the assignment, since the nominated bank might be changed subsequently.

Partial assignment: The beneficiary might assign his
claims under the credit to several of his suppliers (footnote4). In this case
the assignment depends on whether the individual claims are determinable
(footnote5). It is possible to assign claims for payment under a credit for
non-recourse financing (footnote6).