Shandong Win & Win Law Firm 24 Hour Emergency Response   + 86 13854219295

Letter of credit dispute in international goods sales

In international goods sales, there are three used payment methods: direct payment by the buyer, bank collection, and bank letter of credit. The most common and important of these three payment methods is the letter of credit, which is a written proof of payment guarantee provided by the bank to the seller based on its own reputation. According to the different characteristics of letters of credit, they can be classified into the following types: revocable letters of credit, sight letters of credit, transferable and divisible letters of credit. Due to the diverse types of letters of credit and the complex legal relationships, including the applicant, issuing bank, notifying bank, beneficiary, confirming bank, negotiating bank, and paying bank, disputes related to letters of credit will inevitably occur in large numbers. Below is a brief of the common letter of credit disputes.

1. Disputes arising from discrepancies between letters of credit and contracts
If both parties of international goods agree to use a letter of credit for transactions, the buyer can apply to open a letter of credit according to the contract. In general, it is required that the content of the letter of credit be consistent with the content of the international contract for the sale of goods. However, letters of credit often cannot include all the contents of the contract. If there is a discrepancy between the provisions of the letter of credit and the international contract for the sale of goods, dispute over whether to perform according to the contract or the letter of credit. If the seller fulfills the delivery obligation in accordance with the contract, the bill of lading issued may differ from the letter of credit, and the bank may refuse payment on the grounds of discrepancies in the documents; If the seller fulfills the delivery obligation according to the content of the letter of credit, there is a risk that the buyer may claim compensation according to the contract. The solution to the problem is that when the seller receives the letter of credit from the buyer, if they find any discrepancies between the letter of credit and the contract signed by both parties, they should immediately notify the buyer or modify the letter of credit to make it consistent with the contract. After such processing, the seller can fulfill the delivery obligation under the letter of credit and ensure that the documents match.

2. Disputes arising from discrepancies in documents
There is a principle in letter of credit transactions, which means that when the seller submits various documents to the bank for payment, these documents must fully meet the requirements of the letter of credit on the surface before the bank can make payment; Otherwise, if the documents submitted by the seller do not comply with the requirements of the letter of credit, the bank has the right to refuse payment. Moreover, in the process of international goods trading, the international market situation is constantly changing, and buyers often refuse to make payment to banks for redemption on the pretext of inconsistent documents for their own interests. Therefore, based on the principle of documentary consistency in letters of credit, disputes over letters of credit are most likely to arise between the parties involved in international goods sales and between banks.

3. Disputes regarding the buyer’s obligation to issue a letter of credit and the time of issuance In letter of credit business, the buyer has the obligation to open a letter of credit to the seller in a timely manner. Usually, the opening of a letter of credit by the buyer is a prerequisite for the seller to fulfill its delivery obligation. Therefore, if the buyer fails to fulfill its obligation to open a letter of credit, it is a significant breach of contract. On the other hand, if the sales contract specifies the date of opening the letter of credit, the buyer must open the letter of credit on the specified date. If the contract does not specify a specific date for the buyer to issue the letter of credit, but only specifies the seller’s shipping period, the buyer shall issue the letter of credit to the seller within a reasonable time before the start of the shipping period, or at the latest, on the first day of the shipping period. Otherwise, the seller also has the right to refuse delivery and hold the buyer responsible for breach of contract, or request a corresponding extension of the shipping period.

PREV
NEXT

RELATED POSTS

Leave a Reply

*

*

FOLLOW US

WhatsApp Wechat
Wechat