【正文】 listing buyer as beneficiary 2. to guarantee performance (a lot like a performance bond) 3. often used in service contracts (eg. construction) 4. documents have no independent probative value (unlike mercial l/c) 5. Potential for abuse: one 。 thus refusal was unjustified 2. cif is a banking term。 no bank should second guess customer c. Custom of banking industry, however, is province where bank’s discretion is allowable 1. Dixon, Irmaos v. Chase National Bank (1945 NY): custom among NY banks was that missing documents from bill of lading would be acceptable to honor draft。 else bank bees involved in k interpretation and enforcement c. reconciled broad and narrow views 1. require specificity in documents presented for payment 2. make fraud in contract inevitably incident to fraud on bank h. Buyer’s self protection 1. require inspection certificate to be among docs presented for payment 2. injunction 3. sue seller on underlying k to recover the money buyer paid to bank (and was paid to seller by bank, b/c it couldn’t refuse draft) L/C Doctrine of Facial Conformity 16 6. Doctrine of Facial Conformity a. Documents must strictly conform to requirements。 letter of credit breached when bank refused to pay invoices that conformed to l/c, even tho’ k said that invoices should not include cost increases 2. bank involved only minimally in interpretation of k 3. protections a. buyer can always make letter permitting price increase among those docs req’d to be handed over for payment b. there is always underlying suit c. EXCEPT WHEN THERE HAS BEEN FRAUD IN TRANSACTION AND BANK HAS BEEN MADE AWARE OF THE FRAUD, COURT MAY ENJOIN PAYMENT BY BANK (UCC 2514(2)(b)) 1. Maurice O’Meara v. National Park Bank (1925 NY) (Cardozo, dissenting): bank can dishonor draft if it investigates and discovers fraud a. why should it have to make payment if it can sue to recover payment immediately? b. the documents are false (a misrepresentation of goods) c. distinguish seller know knew of fraudulent docs and a holding in due course who takes for value 2. Dominant approach: Sztejn v. J. Henry Schroder (1941 NY): seller has intentionally failed to honor obligation (more than a breach of warranty)=bank can be enjoined from paying or from presenting docs to confirming bank d. UNLESS (exception to the fraud exception) L/C IS PRESENTED BY A HOLDER IN DUE COURSE, IN WHICH CASE BANK MAY NOT DISHONOR DRAFT (EVEN IF IT KNOWS OF FRAUD) 1. Holder in due course (took w/out knowledge, in good faith, and for value) must prove status (3302, 3307) 2. United Bank v. Cambridge Sporting Goods (1976 NY): bank (buyer’s assignees) cannot prove status as holder in good course。 only information b. paying bank: advising bank responsibility plus... 1. bank will pay only when it has been paid by issuing bank。 2. no reasonable alternative means of performance b. public policy: customers had received benefit of low cost nuclear energy, no problem passing on costs of disposal to them c. Unforeseen event must be occurrence of event the nonoccurrence of which was a basic assumption upon which the k was made (Restatement) 5. CISG Approach: Article 79 6. INQUIRY/ANALYSIS a. Is there a K? b. What are respective rights and obligations 1. Is time of the essence? 2. Mode of performance specified? A basic assumption? 3. Unforeseeable? 4. Force majeure clause: how does it allocate? 5. Other assumptions? c. Other legal theories 1. contract law: material breach? 2. mon law negligence? 7. Other practical issues a. Linked contracts: it may not be very helpful for one of a series of interlinked contracts to be declared impossible, when you still have the others b. What is purpose of doctrine? 1. if to excuse frustrated party, other linked k’s may still be enforced Excuses for NonPerformance (Imposs/Impract) 12 2. if to leave parties where they were prek, linked k’s may all be set aside together c. Protecting yourself 1. force majeure clause 2. insurance 3. resale: tie price of resale to price in back up market (where you would have to cover) d. doctrine as sword and shield 1. breaching seller claims performance excused 2. breaching buyer claims performance excused b/c k has (ie. on time delivery) bee impossible e. late partial performance acceptable: time of the essence? f. negligence theory: self induced impossibility Letters of Credit Definitions 13 f. Letters of Credit 1. 3 types of payments a. advance payment: seller ships upon receipt (most risk to buyer) b. l/c: an undertaking by bank to pay beneficiary on behalf of bank customer a specific sum upon receipt of documents (buyer and seller share risks with banks) c. open account: buyer pays upon receipt of goods (most risk to seller) 2. l/c: breaks down risks and assigns them a. buyer’s bank assumes risk of buyer non payment b. seller’s bank assumes risk that buyer’s bank dn pay and risk of nonconforming goods 3. Mechanics buyer’s bank issues l/c seller’s bank issuing (2) (confirming) (advising) (1) applies for l/c (5)pays $/ on behalf of (4)present docs seller buyer (0)k for sale of goods seller (acct party) (3)ships goods (benefic.) 4. Role of intermediary banks a. advising banks: simply to notify seller that l/c has been issued。 parties did not obviously assume for only route to be though Suez canal b. Event was not a basic assumption upon which k was premised c. cif contract: risks of more expensive shipment fall on carrier d. obligations were not