Contract of Documents between Macbeth and Noddy Bank

Topics: Contract law, Legal documents, Trade finance Pages: 4 (1396 words) Published: December 5, 2013
-1Question 6 of Examination paper 2007

(a) The contract for sale which Macbeth had entered with Weetocrunch Ltd is a separate contract with that of the contract entered with the banks with regards to the documentary credits. For the purposes of this question, we are only dealing with the contract of the documents between Macbeth and the confirming bank, Noddy Bank. Noddy bank had been authorized in this case by the issuing bank, Toytown Bank to pay the beneficiary, also known as the seller, Macbeth for the goods he had shipped to Weetocrunch. It is only upon presentation by Macbeth of valid documents that complies with the terms and requirements stated in the Letter of credit that had been opened by Toytown Bank on behalf of Weetocrunch, that he can receive his payment. As it is the letter of credit acts as some form of safeguard for seller that he will receive his payment as once the bank opens the letter of credit, they are under a contractual obligation to pay the seller upon presentation of complying documents. In this case, it can be seen that the documents presented by Macbeth had been rejected twice by the bank, first on the grounds that the documents are not original and secondly where the description of the goods in the bill of lading differs. For that we refer to the body known as Uniform Customs and Practice for Documentary Credits (UCP) which governs the practice of documentary credit.

It should be noted that the law construed by UCP must be incorporated into the contract by the parties for it to have legal effect. However, even if it is not incorporated, the courts are likely to view it as impliedly incorporated as it has gained high level of acceptance among international bankers. Therefore, assuming that UCP applies in this case, the documents involved are bound by the UCP articles.

Under UCP 600, article 15, the bank that is presented with documents have to ensure that they comply with the terms of the credit and if the document...
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