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

Kessler Ltd sells goods CIF under a contract requiring payment by documentary letter of credit. Kessler presents to the bank a full set of documents including a bill of lading showing goods loaded on 28 June, but the credit required shipment by 25 June. Kessler argues the goods were in fact in good condition. What is the likely outcome?

The bank may reject the documents. Banks deal in documents, not goods, and require strict compliance with the credit. The bill of lading shows shipment on 28 June, after the 25 June deadline, so the documents do not comply, whatever the goods' actual condition.

  1. AThe bank must pay, because the goods conform to the contract description
  2. BThe bank must pay but may claim a reduction for late shipment
  3. CThe bank may reject the documents, because banks deal with documents and not goods and the documents do not comply with the creditCorrect
  4. DThe bank must pay if the buyer agrees to accept the goods on arrival

Explanation

Under the doctrine of strict compliance, banks examine documents only and must pay only if they conform exactly to the credit. The bill shows shipment after the latest date, so the documents are non-compliant and the bank may refuse. The actual condition of the goods is irrelevant to the bank's duty, and a price reduction is not part of the bank's role.

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