Letter OF Credit:
Case: Beyene sells to Mohammed Sofan. Sofan financed purchase from YBRD (Irvene Trust)
The documents for LC that is the bill of lading listed the party for shipping company to notify upon arrival of the houses as Mohammad and not Mohammed Sofan. Irvene refused to pay stating that there was discrepancy between the bill of lading and letter of credit.
Judgement: Court ruled in favor of Irevene .Does misspelling in case give right to Irevene to refuse to pay the LOC (Yes)
Reason supporting judgement: The issuing bank that acts as the confirming bank for the issuer takes on absolute duty to pay the amount of the credit to the beneficiary, so as long and the beneficiary ...view middle of the document...
The issuing bank is only concerned with the presentation of documents. UCP 600, Article 5, states, “Banks deal with documents and not with goods, services or performance to which the documents may relate.” The banks are not concerned with the quality or condition of the goods. They have no obligation to inspect goods or to investigate rumors about them.
Examination of Documents for Discrepancies (page 240)
If the seller’s presentation is complying, the nominating bank will purchase the seller’s documents and honor the draft. If the credit calls for payment on sight, the nominated bank will honor and pay the seller’s draft on sight. If the credit calls for the draft to be paid at some other time, the nominated bank will honor the draft by acceptance. However, if the seller’s documents do not comply with the terms of the letter of credit or if they contain irregularities or discrepancies, the documents will be held pending instructions from the buyer or rejected by the banks. If the banks purchase noncomplying documents, they cannot seek reimbursement from the buyer.
UCP 600 gives banks up to five banking days to inspect the seller’s documents for discrepancies or irregularities. A discrepancy exists if the seller’s documents, on their face, do not conform to the terms of the letter of credit. The discrepancy may be caused by some wording or data in a document that is not exactly what was required in the credit.
The seller’s documents and letter of credit are literally put side by side and compared by a bank’s professional document checker. Each term in the documents is matched to the requirement of the letter of credit. For instance, a discrepancy exists if the quantity or description of the goods in the invoice does not match that in the credit, if the bill of lading is dated later than required, if any documents are missing, or if they show signs of fraud, forgery, tampering, or missing signatures.
A presentation is the delivery of the seller’s documents and draft to the nominated bank or directly to the issuing bank. A complying presentation is one in which
1. The seller delivers all of the required documents,
2. Within the time allowed for presentation and prior to the expiry date of the credit,
3. containing no discrepancies, and
4. Which complies with all other terms of the letter of credit, the provisions of the UCP, and standard banking practices.
The Commercial Invoice: (page 242)
The commercial invoice must be made out by the seller and addressed to the buyer and be in the same currency as the letter of credit. Sellers are encouraged to use the same descriptions in the invoice as the issuing bank used...