ACCA Applied Skills · Corporate and Business Law (Global) · Transportation documents and means of payment
A credit requires a bill of lading showing shipment of 'new machine tools' by 30 June. Seller Dax Co presents a bill of lading dated 28 June describing the goods as 'machine tools', with all other documents conforming. The issuing bank refuses payment solely on this ground. Under the strict compliance rule, what is the likely position?
The bank may lawfully refuse payment. Under the strict compliance rule, presented documents must conform to the credit terms, and a bill of lading omitting the required word 'new' does not match, even though shipment was on time.
- AThe bank may lawfully refuse because the documents do not strictly conform to the creditCorrect
- BThe bank must pay because the goods were shipped before 30 June
- CThe bank must pay because the omission of 'new' is trivial
- DThe bank must first obtain the buyer's inspection report before deciding
Explanation
The strict compliance doctrine requires documents to match the credit terms exactly. The bill of lading omits the required description 'new', so the documents are discrepant. Shipping on time does not cure a description discrepancy, and banks do not rely on inspection reports.
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