Re: Questions

In a message dated 8/11/99 7:23:37 AM, jsamton@hotmail.com writes:

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While reading about the letter of credit, I had a question. Let's say the
order is received and the supplier gets paid. When I receive the goods, I
notice that a few are defective or the quality just doesn't cut it (doesn't
match the sample). What recourse do I have? Is it entirely based on my
relationship with the supplier?

Thanks.

***Szammy,

a letter of credit is an irrevocably documentary item...it just assures the
paperwork is in order. the letter of credit is a separate contract, that
merely refers to the shipment.

Here is the legal theory: Two people decide to do a trade. They both want
to, but of course, being international there is no legal recourse if one does
not perform. So, they ask a third party, a bank, to help out by holding the
money until the deal is done between the two. This holding of the money is
documented and executed by the letter of credit process.

In this situation, it would not be right, if the deal went bad, to make a
bank pay. They hae been asked to handle money, not guarantee fairness.

Turn it a round: if it were possible for teo people to get together, agree
on a deal, and have a bank have to pay if one side got burned, then every
every criminal would join another in burning banks with this method.

So yes, if the merchandise is bad, you have no recourse with the bank. Even
if you have a time draft, that is you dont actually pay for 90 days after you
receive the goods, and you see the merchandise is bad, and so can everyone
else...the bank still must pay your supplier, the one who burned you. There
is no way to stop that. Your recourse is with your supplier, not the bank.

So again, your relationship is everything.

John

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