This chapter showed the mechanics of an international contract between a U.S buy
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Question
This chapter showed the mechanics of an international contract between a U.S buyer and a foreign seller.Describe how the deal would work if the foreign business had bought and the U.S business had sold. Who would arrange for the letter of credit ? Who would draw on the letter of credit ? Who would get the bill of lading? What would this person do with the bill of lading ? This chapter showed the mechanics of an international contract between a U.S buyer and a foreign seller.Describe how the deal would work if the foreign business had bought and the U.S business had sold. Who would arrange for the letter of credit ? Who would draw on the letter of credit ? Who would get the bill of lading? What would this person do with the bill of lading ? 233 CHAPTER 9 Pae BuSINESS DEAUNGS IN INTERNATION Stopping Payment on Letters of Credit: Forgery. Assume that a letter of credit requires the seller to submit a bill of lading to get paid. If the seller submits a forged bill of lading and knows it, the buyer can stop payment on the letter of credit. Stopping Payment on Irrevocable Letters of Credit: Fraud. The buyer can stop the issuer from paying a letter of credit if the beneficiary commits fraud in the underlying contract. Sztejn e. J. Henry Schroder Banking Corp, illustrates the rule. Sztejn v. J. Henry Schroder Banking Corp Supreme Court Special Term, New York County 77 Mic. 719, 31 N.Y.S. 2d 631 (1941) Background and Facts Decision Yes. The leffer of credit ordinarily is independent of the underlying contract. Therefore, if the veller presents docu ments that conform to what the leter of credit requires, a Srein, o U.S. businessman, contracted to buy bristfles from Tronsea Traders Ltd., located in India. Satejn arranged for a eter of credit to pay for the goods Transea fraudulenty sent 50 crates with cow hair and other rubbish insleod of the bris- tes agreed upon. Transea presented to hose that the leter of credit required. The issuing bonk from paying Tronsea's draits drown on the lether of case, credt. Tranueg argued that the lethter of credit was independent of the ying conroct should not be court will not enjoin payment on the letter of credia Here, the documents conforming toseller'sfraud was called to the issuing bank's aftention before buyer tried to stop the presentation of the drafts and documents for payment. In such a the idea that the letter of credit is independent of the under- brisle contract. Therefore, Transea claimed that the buyer could not seller top payment breach of contract (a costly, slow, uncertain process) The court noted thot the seller would have won if the buyer had notified the bank of the seller's froud aher the bank had poid the lt of the leter of credit Instead, it should sue Transea for er of aredia Issue Con a buyer stop payment undler an irevocable latter of crecit when the seller fraudulently ships nonconforming goods but presents doe uments (bills of ladingl conforming to the letter of credift BILL OF LADING A bill of lading is a piece of paper that a transport company gives to someone. It shows three things: 1. A receipt for goods 2. A contract to transport the goods 3· Title to or ownership of the goods ExAMPLE OF AN INTERNATIONAL BUSINESS DEAL THE ART-AI CONTRACT First, Art and Ali entered a contract for the rugs. (Recall Art is an Atlanta buyer Ali is an Ankara, Turkey, seller.) Second, Art arranged with his Atlanta bank to issue a letter of credit to Ali, through which Art pays Ali (see Figure 9.1).Explanation / Answer
1. Who would arrange for the letter of credit ? - Buyer would arrange for the letter of credit
2. Who would draw on the letter of credit ? - Buyer would draw a Letter of credit favouring the seller with the help of his (Buyer's) Bank
3. Who would get the bill of lading - Buyer will get the Bill of ladding
4. What would this person do with the bill of lading ? - Buyer will submit the documents to his bank to facilitate the payment and clear the import procedures.