Best Trade Solution

I got to answer another question of the test under this website and i was told Im wrong.

A LC was available with the nominated bank with 120 days deferred payment undertaking. The document was complying and nominated bank communicated its deferred payment undertaking saying “On maturity we will make payment as per LC terms and conditions of the LC”. On maturity the nominated bank refuse to pay as the issuing bank was in financial crisis. Which of the following is true?

A. The issuing bank is bound to pay the beneficiary as per Article 7.
B. The nominated bank has communicated its deferred payment undertaking and must pay at maturity.
C. The beneficiary need not to present the documents again.
D. All of the above.

My answer was 'C'. Since the nominated bank has expressly consented and communicated to the beneficiary. Im I right?

The forum states im wrong stating "Unless a nominated bank is the confirming bank, an authorization to honor ot negotiate does not impose any obligation on that nominated bank to honor or negotiate, except when expressly to by that nominated bank and so communicated to the beneficiary"

Hi Pal,

IMHO, it depends on the wording that the nominated bank used, firstly in advising the l/c and furtherly in the deferred payment undertaking.
Deferred payment undertaking may be a sort of post-confirmation so I think that the nominated bank had to inform the beneficiary about the extra charges due to this undertaking.
Moreover the nominated bank had to book the issuing bank risk for this undertaking too.
I think you have to examine in full the nominated bank's comunications to evaluate if that bank undertakes itself or just informed the beneficiary that documents were compliant and should be paid on maturity by the issuing bank.
Let us know.
Other comments appreciated
Ciao

sorry my answer was B.The nominated bank has communicated its deferred payment undertaking and must pay at maturity.

The question clearly mentions nominated bank communicated its deferred payment undertaking. And hence i interpret my answer is correct keeping apart the logical reasoning and practical scenarios.

Nominated banks don't undertake an irrevocable payment obligation and there is no any 'must' for them. (except silent confirmation). They do their duties at their will. They're not confirming banks. So my answer would be A.

Deferred payment undertaking falls under the category of honor. Whenever a deferred payment undertaking is given by the NB to the beneficiary it is always without recourse. Whatever happens on due date the NB must make payment to the beneficiary. To minimize the risk of IB financial crisis the NB can request for a confirmed LC or block required amount of issuing bank's NOSTRO account with him at the time of giving DPU. Answer is B.

Ucp 600 article 12(c): Receipt or examination and forwarding of documents by a nominated bank that is not a conforming bank, does not make that nominated bank liable to honour or negotiate, nor does it constitute honour or negotiation.

Art 12c needs to be read in full.

Although a non-confirming nominated bank is under no obligation to honour or negotiate, if it has however communicated its commitment to the beneficiary then it is bound.

In the question the communication has been given so the bank must honour at maturity regardless of the failings of the issuing bank