Business Law Final Exam. Kellogg Business School

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Law and Corporate Managers – Prof. Larry Franklin

Question Two
A. (i) For refusal
In order to honor the LC, the Seller has to comply exactly with the terms of the letter of credit. There are numerous typo errors in the LC and misspellings of the destination port and the Seller name, hence only a waiver of the discrepancies from JFTC will enable Bank of China to pay the Seller. As long as the waiver is not received, the BOC cannot make any payments. BOC has to state why it is not going to pay. The seller reviewed the LC before the shipment of goods, so it is his mistake that he didn’t point out the discrepancies.

(ii) Against refusal
Since the LC is irrevocable, then JFTC can't make any modifications or cancellation without the consent of Voest-Alpine. The LC is a binding document and any change should be subject to the consent of the seller. Although there are typo errors in the LC, the negotiating bank should convince the BOC that these errors are not material, and therefore they should prevent the payment. In addition, JFTC objection for the waiver is not in good faith.

(iii) My conclusion
BOC refusal is justifiable; it can't take the responsibility for inconsistency between the LC and the payment terms. However, Voest-Alpine has the right to sue JFTC in ICC arbitration committee, according to the UCP rules that applies on the LC.

B. (i) For
JFTC has sent the seller the LC before the shipment. It was the seller mistake not to point out the discrepancies. On the contrary, the seller didn’t act in bona fide, and therefore JFTC decision is ethically right.

(ii) Against
JFTC is aware of the fact that the discrepancies in the LC are technical, and its real intention behind the insistence not to provide the waiver is its will to reduce the agreed price of the goods in a non-ethical way.

(iii) My conclusion
It is unequivocal that pacta sunt servanda, and if the seller doesn’t agree to amend the contract, the buyer can use any legal instrument to convince the seller to amend the contract. JFTC cannot rely on technical errors in the LC in order to avoid his commitments under the LC. This is an non-ethical behavior.

C. (i) For
It will be easier and more efficient to accept JFTC request to reduce the price. This way the seller will avoid legal disputes, and will not lose time in waiting for a result.

(ii) Against
Accepting the JFTC to reduce the price is considered underrating of the pacta sunt servanda doctrine, and this will allow JFTC and other futuristic customers in China to feel free in asking Voest-Alpine to change any terms of contracts that were previously agreed. This could be a bad precedent.

(iii) My conclusion
A smart manager of Voest-Alpine would have checked the LC before declining the JFTC request to reduce the price in light of the market conditions. While doing so, he will be aware of the fact that a problem might arise when the BOC will be asked to transfer the payment due to the errors in the LC. In order to save money and prolonged disputes, he will negotiate the reduction of the price with JFTC and try to reach a settlement.

Question Three
A.
(i) Jameson
If the business will be established as a limited partnership, then Jameson will probably be a general partner, since he is not willing to invest any amount of money. Only investors could act as a limited partner. Therefore, his liability will be unlimited, and in the following two years the business will be exposed to a big risk since it is a development period, and there is no income. If the business will be incorporated as a corporate then Jameson could be a shareholder, with a limited liability, even though he didn’t invest any amount of money in the corporation. His ownership of the shares could be Inter Alia in consideration of the IP of the ECHO that he designed. However, the IP rights will be owned by the corporation and not by Jameson anymore. The corporation will also enable him to...
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