ACCA Applied Skills · Corporate and Business Law (Global) · Transportation documents and means of payment
Zentra Ltd (buyer) arranges for its bank to issue a documentary credit in favour of Oryx Co (seller). Oryx Co ships the goods and presents conforming documents to the nominated bank. Which statement best describes the issuing bank's primary obligation under the credit?
The issuing bank must pay against documents that comply on their face with the credit terms. The credit is independent of the sale contract, and banks deal in documents rather than goods, so disputes about the goods do not justify refusal.
- ATo pay against documents that comply on their face with the credit terms, regardless of any dispute about the goodsCorrect
- BTo inspect the goods physically and pay only if they match the contract description
- CTo pay only if Zentra Ltd confirms it is satisfied with the goods
- DTo guarantee the seller's performance of the sale contract and compensate the buyer for any breach
Explanation
A documentary credit is a separate undertaking from the sale contract. Banks deal with documents, not goods, so they pay if the documents appear on their face to comply. Option B and C wrongly tie payment to the goods or buyer's satisfaction.
Did you get it right without looking?
One question tells you little. A timed set on Transportation documents and means of payment shows your real accuracy, how long you take and where you lose marks.
More Transportation documents and means of payment questions
- Orrin Co ships goods under a bill of lading made out 'to the order of Pelham Bank'. Pelham Bank wants to pass the right to collect the goods…
- Dara in Country A draws a written, signed, unconditional order addressed to Bexo Ltd in Country B, telling Bexo to pay 50,000 to Calum or to…
- Orlo Ltd sells goods to Pravin Co on CIF Rotterdam terms (Incoterms 2020). The goods are loaded on board at the port of shipment on 3 May an…
- A seller holds a bill of exchange accepted by a buyer, payable in 60 days. The seller needs cash now and sells the bill to its bank for less…
- Kestrel Ltd, an exporter, is concerned about the credit risk of the foreign issuing bank. It asks for a confirmed irrevocable credit. What d…
- Westra Ltd opens an irrevocable documentary credit for its supplier, Norvik Co. Which statement best describes the issuing bank's obligation…