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27 Cards in this Set

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Who are the 5 typical parties in a documentary sales transaction?
1) Buyer
2) Buyer's Bank
3) Seller
4) Seller's Bank
5) Carrier
What are the three typical contracts in a documentary sales transaction?
1) sale of goods contract
2) bill of lading
3) letter of credit
Negotiable Bill of Lading
Issued by carrier. Carrier promises to deliver goods to physical holder of BOL in exchange for freight charge.
Letter of credit
Promise by a bank (usually Buyer's Bank) that it will pay seller the contract price on condition of seller presenting evidence that goods have shipped to buyer.
Confirmed Letter of Credit
Seller has promise from a local bank, before shipment of the goods, of payment if the goods are shipped.
Which type of letter of credit is customary in a documentary sales transaction?
Confirmed, Irrevocable Letter of Credit
Who is the first party to initiate a Letter of Credit?
Buyer will contract with Buyer's Bank to issue a Letter of Credit.
Irrevocable Letter of Credit
Bank is bound to terms of Letter of Credit after issuance.
Who is the first party to initiate a Bill of Lading?
Carrier issues Bill of Lading to the Seller upon receipt of goods to be shipped.
UCC Article 5
UCC rules for Letters of Credit
ICC
International Chamber of Commerce
UCP
Uniform Customs and Practices for Documentary Credits. (incorporated by reference in most international letters of credit)
Is the UCP law?
No. It is more of a manual of operations for banks that restates "custom" in the industry.
Is UCP binding?
Only if "incorporated into the text of the Credit" as a contract term.
Do UCP provisions prevail over "gap-filler" provisions of UCC Article 5?
Yes, because most of UCC Article 5 is not mandatory law.
What are the two primary differences between the UCC provisions and the UCP?
UCC has provisions on fraud and on enjoining payment against documents where fraud or forgery exist. UCP does not.
What are the 2 basic principles of the letter of credit rules promulgated by the UCP?
1) Banks' obligations under the LOC are independent of the buyer's and seller's obligations under the sales contract.
2) Banks deal only with documents, not with goods or any issues conerning performance of the sales contract.
What is the primary document for describing goods in a documentary sales transaction?
Commercial Invoice: Description in invoice must be specific and must "correspond with the description in the credit." (Rayner v. Hambros Bank)
Hanil Bank v. PBN (Indonesian bank)
Bank allowed to refuse payment because of a typo on the letter of credit which made it not match other documents exactly.
Wrongful dishonor of a credit
When either the issuing or confirming bank refuses to pay when proper documents are presented.
Wrongful honor of the credit
When the issuing bank honors the beneficiary's presentation when the documents has discrepancies or are fraudulent.
UCP Article 14(a)
Allows, but doesn't require a bank to consult the buyer for a waiver of discrepancies it has discovered in the LOC.
What is the "reasonable time" that the UCP gives banks to take up or refurse documents?
7 banking days or less depending on nature of transaction. This includes petitioning for waiver from buyer and notifying party presenting documents.
What is the rule for a bank stating discrepancies to the party that presents documents to it?
When stating discrepancies to the party presenting documents, bank must state all that it will rely upon. Failure to state all "precludes" bank from claiming non-compliance due to any unstated discrepancies later on. (only ONE chance to reject documents)
What is the most important document required by a letter of credit?
transportation document (could be bill of lading, air transport documents, etc.)
UCC §5-116(2)
Provides that issuing banks and confirming banks are each governed by the law of the jurisdiction in which they are located, thus providing different rules for different parties to the same transaction.
SWIFT
Society for Worldwide Interstate Financial Telecommunications: dedicated lines for bank-to-bank communication often used for letters of credit