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ACCA Applied Skills · Corporate and Business Law (Global) · Transportation documents and means of payment

A buyer in Country A asks its bank to issue a documentary credit in favour of a seller in Country B. Which statement best describes the issuing bank's primary obligation under the credit?

The issuing bank must pay the seller if the documents presented comply on their face with the terms of the credit. Banks deal only in documents, not in goods, so they do not inspect the goods or wait for the buyer's approval before paying.

  1. ATo pay the seller if the documents presented comply on their face with the terms of the creditCorrect
  2. BTo pay the seller only if the goods are inspected and found to match the contract description
  3. CTo pay the seller only if the buyer confirms that it is satisfied with the goods

Explanation

A documentary credit is a bank undertaking to pay against documents that comply on their face with the credit terms. Banks deal in documents, not goods. The second option is wrong because banks do not inspect goods, and the third is wrong because the undertaking is independent of the buyer's satisfaction.

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