Case Number 1 The Case of the Contingent Irrevocability of the CreditUCP500 Article 4 and sub-article 8(a)BackgroundType of Credit: IrrevocableApplication:UCP500Issuing Bank: Bank IAdvising Bank: Bank AAvailability: At sight with the Issuing BankExpiry: At the counters of the Issuing BankCircumstancesIssuing Bank:Bank I issued its irrevocable Credit and advised it to the Beneficiary through Bank A.Advising Bank: Bank A advised the Credit to the BeneficiaryCredit: Among the terms and conditions, the Credit asked for:1. Sight draft on the issuing bank2. Bills of lading issued to order of Bank I for account of the Applicant3. Special Conditions:(a) Payment of drafts drawn hereunder will be made only after therealization of the re-export proceeds program.Beneficiary: The Beneficiary shipped the goods and presented the documents required by the Credit to Bank A.Advising Bank: Bank A informed the Beneficiary that in view of the special conditions related to payment and because the Credit expired at the counters of theIssuing Bank, Bank A would only forward the documents to Bank I for theiraction.Beneficiary: After determining that Bank A had no obligation to negotiate, relying upon the standing of the Issuing Bank as a premier financial institution, and beingcomfortable that the Credit was subject to UCP500, the Beneficiaryinstructed Bank A to forward the documents to Bank I.Issuing Bank: Informed Bank A that while the documents presented under the Credit were compliant, they were not in a position to honor the drawing, as thenecessary funds had not been made available to them from the “re-exportproceeds program”. If and when such proceeds were made available, theywould pay the drawing under their credit.Beneficiary: The Beneficiary never received payment for the goods shipped, even though the documents presented under the Credit complied fully with the terms andconditions of the Credit. Bank I stated that while their Credit was irrevocable,it contained special conditions stating that irrevocability was subject toreceipt of the necessary funds from the “re-export proceeds program”. Sincesuch proceeds were not received, Bank I had no obligation to honor thedrawing. Bank I suggested that the Beneficiary try to recover directly fromthe Applicant.Queries:Please review, analyze the queries, give your opinion and be prepared to answer each query(1) Would your Bank have issued or confirmed such an Irrevocable Credit?(2) If your bank advised such a Credit to the Beneficiary, would it have warned theBeneficiary about its special conditions?Is it correct for Bank I to have issued this Credit subject to UCP500?Case Number 2 The Case of Payment Against Copies of the Transport Documents UCP500 Article 14BackgroundType of Credit: Irrevocable NegotiableApplication: UCP500Issuing Bank: Bank IAdvising Bank: Bank ANegotiating Bank: Freely NegotiableAvailability: at sightExpiry: At the counters of Negotiating BankCircumstancesIssuing Bank: Bank I issued its irrevocable freely negotiable Credit in favor of the Beneficiary and advised it through Bank A.Advising Bank: Bank A advised the Credit to the BeneficiaryBeneficiary: Upon shipment, the Beneficiary presented the documents to Bank A for negotiation, informing Bank A that the full set of the original bills of lading,endorsed in blank, had been forwarded directly to the Applicant due to theshort transit time and normal delays of document processing. TheBeneficiary requested Bank A to telex Bank I for authority to pay despite thefact that copies of the bills of lading were presented and not the originals asrequired by the Credit.Negotiating Bank: Bank A, after examining the documents and determining that the only discrepancy was that copies instead of the originals of the bills of ladingwere presented, telexed Bank I for permission to negotiate despite thenoted discrepancy.Issuing Bank: Upon receipt of the telex from Bank A, Bank I notified the Applicant of the presentation of the documents to Bank A by the Beneficiary and therequest to pay against copies of the bills of lading instead of the originalsas required by the Credit. The Applicant authorized the payment againstthe documents presented. Bank I telexed Bank A accordingly. Negotiating Bank: Bank A, after receipt of such payment authorization, paid the Beneficiary and forwarded the documents to Bank I requestingreimbursement.Issuing Bank: Two days after authorizing payment, Bank I received the documents from Bank A and determined that all other terms and conditions of the Credit,except for the requirement for presentation of the original bills of lading,were complied with. Accordingly, Bank I credited the account of Bank Aand debited the account of the Applicant.Issuing Bank: The day after the debit to their account, and lacking receipt of the full set oforiginal bills of lading, the Applicant requested Bank I to issue a“steamship indemnity” to enable him to obtain the merchandise from thecarrier, as the goods had already arrived. Bank I, acknowledging thatpayment had already been made to Bank A and that the Applicant’saccount had been charged in reimbursement, issued the “steamshipindemnity” as requested by the Applicant.Issuing Bank: One week after payment under the Credit and subsequent issuance of the “steamship indemnity” and rel ease of the goods by the carrier to theApplicant, Bank I received a “Collection Instruction Letter” from RemittingBank X on behalf of a Principal/Shipper (a party other than the Beneficiaryof the Credit), enclosing a sight draft, a commercial invoice and theoriginal bills of lading that were to have been presented under theDocumentary Credit. Bank I tried communicate with the Drawee (the samecompany as the Applicant for the Credit) but was unable to make contactsince the company had gone out of business and the principals could notbe found. Bank I informed Remitting Bank X of their inability to contact theDrawee for collection of the item and requested instructions as to thedisposition of the documents.Remitting Bank: Remitting Bank X notified its client of Bank I’s message and requested instructions.Principal: The Drawer of the Draft for collection informed Remitting Bank X that they determined that Bank A had issued a “steamship indemnity” in favor of thecarrier, enabling the importer to take title to the goods, despite their inability toproduce the original bills of lading. Since the Drawer of the collection Draftwas the holder of the full set of original bills of lading, the Drawer claimed thattitle to the goods was with them and Bank A had no authority to dispose oftheir property without its corresponding payment. Accordingly, the Drawer, inabsence of immediate payment of the collection by Bank A, would be makinga formal demand on the carrier for payment of the value of the goods releasedagainst the steamship indemnity, plus related expenses.Remitting Bank: Remitting Bank X informed Bank A accordingly.Issuing/Collecting Bank: Bank I realized that it had been duped by the Applicant anddecided that since it had already paid for the merchandise onbehalf of the Applicant, they were not obligated to pay for thesame goods twice, especially in view of the potential fraud thatwas committed to induce the banks to enter into such atransaction. Bank I informed Remitting Bank X of its position. Queries:Please review, analyze the queries, give your opinion and be prepared to answer each query.What is (are) your opinion(s) and the reason(s) for it (them)? For example, what kind of fraud is it ？How many payments for goods have they defrauded the Issuing Bank of ?。
