Question

A buyer entered into a contract to purchase 100 boxes of apples from a seller. The apples arrived at the buyer’s warehouse and after inspection, the buyer found half the apples to be rotten and not of merchantable quality. The buyer calls his bank to stop payment to the seller under a letter of credit that has previously been opened by the buyer to pay the seller for the apples. Discuss if the bank is allowed to follow the buyer’s instructions to stop payment to the seller under the principles governing the letter of credit payment. Your answer must include the relevant Articles in the UCP 600 and the

relevant case laws.                                                                             

Answer 1

Letters of Credit or LC gave by most banks overall are represented by the UCP 600. UCP is the shortening for Uniform Customs and Practice for Documentary Credits. This is an assortment of rules governing letters of credit which was embraced by the International Chambers of Commerce in 1933. As thought about under the UCP 600 there is a severe consistence rule wherein banks giving letters of credit are committed to respect them and make payment as and when given the imperative reports which must adjust to the standards and methods.

Further, under Article 04 of the UCP 600, which is a significant guideline governing letters of credit is that the banks managing the giving and respecting of letters of credit are just worried about and limited by the documentation viewpoint and are not worried about the real products or deal. The letter of credit is a different exchange which is indifferent and not associated with any issues identified with faulty products, inadequacy of merchandise, and so on.

The banks must make payment dependent on check of basic records and have no premium or association with the genuine deal or exchange. Along these lines, in such a situation, the bank is committed under Article 04 of the UCP 600 to make the payment to the introducing party regardless of the issues/protests raised by the recipient of the merchandise relating to the nature of products. The bank can just retain payment in case of any fashioned or inadequacy of archives introduced to it.

The collector of the inadequate merchandise may look for a brief cure under Common Law from the official courtrooms having important ward and acquire a transitory directive or break stay request on the arrival of payment by the bank to the introducing party/dealer of products until issues can be arranged and settled between the contesting parties.