ACCA Applied Skills · Corporate and Business Law (Global) · Transportation documents and means of payment
Verda Exports holds a letter of credit requiring presentation of a bill of lading showing 'clean on board' shipment of 500 cartons. The bill of lading presented carries a notation that 20 cartons were damaged when loaded. What is the likely effect on the bank's obligation?
The bank may reject the presentation. The credit demands a clean bill of lading, and a notation that 20 cartons were damaged makes it unclean. Because documents must strictly comply with the credit, the bank is not obliged to pay, and it cannot simply deduct for the damaged goods.
- AThe bank must pay, because the notation concerns the goods and not the documents
- BThe bank may reject the bill of lading as unclean, so the presentation does not complyCorrect
- CThe bank must pay but may deduct the value of the 20 cartons
Explanation
A clean bill of lading has no notation declaring defective goods or packaging. A bill noting damaged cartons is a claused (unclean) bill, which fails the credit's requirement. The bank therefore need not pay. The bank has no power to part-pay by deducting value, so the third option is wrong.
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