Deferred Payment in Letters of Credit (L/C)

Bank A issued a deferred payment L/C in favor of Martin Co. with a promise to pay sixty days from the bill of lading (BL). It also undertook to cover the confirming bank at maturity. Martin Co. presented complying documents to the confirming bank, after which the latter made a discounted payment. The beneficiary (Martin Co.) then assigned the L/C to the confirming bank. Bank A was not notified of the assignment.

Bank A gave notice to the confirming bank that the L/C was forged and refused payment. It also stated in its response that the confirming bank should have delayed payment till the maturity date, before which the fraud would have been discovered. Bank A claims that it did not ask the confirming bank to discount or give value to the documents before the maturity date. The L/C was subject to UCP 600.

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.

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