CASE

In October, a French company (seller) and a Shanghai company (buyer) have set up a contract of selling 200 sets of electronic computers (1000 USD each), and the payment shall be made according to the irrecoverable letter of credit. And the delivery should be made on December at Port de Marseille. On November 15, Bank of China Shanghai Branch (issuing bank) made a $ 200,000 irrevocable letter of credit according to the instruction of the buyer and commissioned a French bank in Marseille to notify and negotiate this letter of credit. On December 20, the seller loaded the 200 computers on board and got the bill of lading, insurance policies, invoices and other documents as required by the letter of credit. And then it went to the Marseille bank for negotiation. Upon review, the documents are consistent; therefore the bank had paid $ 200,000 immediately to the seller. At the same time, 10 days the cargo ship left the harbour of Marseilles, the cargo, along with all the goods, sank into the sea in a heavy storm. By that time the issuing bank had received the whole set of the documents and the buyer had already known the total loss of the goods. Bank of China Shanghai Branch intends to reimburse the negotiating bank to pay the purchase price of $ 200,000 on the grounds that its customers can not expect the goods. In accordance with international trade practices, the following questions are asked:

Questions
1. 2.
When would the risk of the consignment be transferred from the seller to the buyer ? Whether Issuing bank would exempted from the payment obligations due to the total loss of the goods, If so, on what basis?

3.

How to compensate the loss of the buyer?

Case Study
1. The Risk shall be transferred from the seller to the buyer since the goods were loaded on board at the port of shipment. 2. The issuing bank has no right to refuse payment. According to the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits, the letter of credit transactions are independent from the sales contract. And the Bank is only responsible for document examination. As long as the documents are in line with the terms of the credit, the banks are required to assume its payment obligations. 3. The buyer could claim compensation from the Sellers insurance company with other relevant insurance documents and proof of the sinkage of the cargo ship.

Hailey College Of Banking & Finance Lahore