Clause:
Assignment of Proceeds
Explanation:
This clause in UCP600 Article 39 specifies that even if a credit (Letter of Credit or LC) is not stated to be transferable, it does not prevent the beneficiary from assigning the proceeds of the credit. The beneficiary has the right to assign any proceeds they are entitled to or may become entitled to under the credit, following the applicable laws. It’s important to note that this article deals solely with the assignment of proceeds and not with the assignment of the rights to perform under the credit.
Example:
Consider a scenario where a company, Company A, is the beneficiary of a Letter of Credit issued by Bank X. The LC specifies that Company A will receive payment upon fulfilling certain conditions. Company A needs immediate funds to purchase raw materials and decides to assign the proceeds of the LC to its supplier, Supplier B.
Even though the LC is not stated to be transferable, Company A can still assign the proceeds (the funds it will receive under the LC) to Supplier B, in accordance with applicable laws. This means that once Company A fulfills the conditions of the LC, the payment will be made directly to Supplier B, as per the assignment agreement.
Detailed Clause-by-Clause Explanation:
Clause: The fact that a credit is not stated to be transferable shall not affect the right of the beneficiary to assign any proceeds to which it may be or may become entitled under the credit, in accordance with the provisions of applicable law.
Explanation: This clause clarifies that the non-transferable status of a credit does not impede the beneficiary’s right to assign the proceeds. The beneficiary can assign the funds they are or will be entitled to receive, as long as they comply with the relevant legal provisions.
Example: A beneficiary, Company C, is expecting $100,000 under a non-transferable Letter of Credit issued by Bank Y. Company C assigns this $100,000 to Lender D as part of a loan agreement. Despite the LC being non-transferable, Company C can legally assign the proceeds to Lender D, ensuring that Lender D receives the funds once Company C meets the LC conditions.
Clause: This article relates only to the assignment of proceeds and not to the assignment of the right to perform under the credit.
Explanation: This clause emphasizes the distinction between assigning proceeds and assigning the performance rights under the credit. While the proceeds (the funds payable) can be assigned, the beneficiary cannot assign their responsibility or rights to perform the tasks required to fulfill the credit conditions.
Example: In a different scenario, Beneficiary E is required to deliver goods to Buyer F under an LC issued by Bank Z. Beneficiary E can assign the payment proceeds from the LC to Finance Company G. However, Beneficiary E cannot assign the obligation to deliver goods to Buyer F to another party; Beneficiary E must still fulfill the delivery requirements to satisfy the LC terms.
By understanding UCP600 Article 39, businesses involved in international trade can effectively manage their financial transactions, ensuring flexibility in funding and cash flow management through the assignment of proceeds.