Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

STL > IBT - Part 2 > Flashcards

IBT - Part 2 Flashcards

1
Q

What is a contract inter absentes?

A

“Contracts inter absentes” refers to contracts that are made between parties who are not physically present with each other. These contracts are typically formed through various means of communication or transaction methods where the parties are geographically separated. This can include contracts formed via mail, email, telephone, or other electronic means, where the parties negotiate and agree on terms without meeting face-to-face.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a different name for letter of credit?

A

Documentary credit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the two options you have when you have doubt about the counterparty?

A

You do not enter into a contract or take a higher price as a seller or a lower price as a buyer.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is a bill of exchange?
What law governs it?

A

A party promises to pay another party in the future; use of a negotiable instrument. Governed by national law.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

In the letters of credit / demand guarantees, we have discussed three different steps. What are the steps and under what “soft law” are these steps governed?

A

Collection process: Using the banking system as an intermediary to forward commercial documents. Uniform rules for Collections (URC)

Letter of credit: Using the banking system to hand-over documents and ensure payment under a commercial contract. Uniform Customs and Practices for Documentary Credits (UCP)

Demand guarantee: Using the banking system to ensure payment of a specific sum in the event of non-performance under a commercial contract. Uniform Rules for Demand Guarantees (URDG)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the normative framework for documentary credits?

A

Uniform Customs and Practices for Documentary Credits (UCP) 600

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How does the UCP 600 relate to CISG?

A

The use of the UCP is so wide that they may also be viewed as international trade usages.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How high is the bank’s fee usually in letters of credit?

A

1%.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What case can be cited for the application of the UCP 600?
With four points (no need to mention here)

A

Forestal Mimosa v Oriental Credit [1986] 1 WLR 631

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the four lessons from the Forestal Mimosa v Oriental Credit?

A

1) Agreement or Trade Usage: To apply UCP rules, there must be either an explicit agreement between the parties to adhere to UCP terms or a recognized trade usage that incorporates UCP standards.
2) Soft Law Nature and Contract Terms: UCP rules are considered soft law instruments that establish default contract terms. Parties can deviate from these terms by mutual agreement, creating a special agreement that supersedes the general UCP provisions.
3) Handling Irreconcilable Inconsistencies: If there is a conflict between the terms of the documentary credit and UCP rules, the preference is to reconcile them if possible. If reconciliation is not feasible and there is an irreconcilable inconsistency, the express terms agreed upon by the parties prevail over UCP rules.
4) Consideration of Financing Mechanism: When interpreting the terms of the agreement, particularly in the context of a financing mechanism like a documentary credit, the court should consider the overarching purpose and function of the financing arrangement in determining the parties’ intentions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Who are the applicant and beneficiary in letters of credit?

A

Seller: Beneficiary
Buyer: Applicant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Once a letter of credit has been issued, can it be cancelled or amended?

A

Art. 10(a) UCP 600: “Except as otherwise provided by Article 38, a credit can neither be amended nor
cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the role of the advising bank?

A

An advising bank advises a beneficiary (exporter) that a letter of credit (L/C) opened by an issuing bank for an applicant (importer) is available. An advising bank’s responsibility is to authenticate the letter of credit issued by the issuer to avoid fraud.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Are branches of the same bank considered the same bank under the UCP?

A

Art. 3 UCP 600: “Branches of a bank in different countries are considered to be separate banks.”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the difference of confirming bank and nominating bank?

A

Confirming bank has the obligation to pay upon presentation of complying documents.
Nominating bank has the option to pay, but no obligation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the five contractual relationships in letters of credit?

A

Beneficiary (Seller) – Applicant (Buyer)
Applicant (Buyer) – Issuing Bank
Issuing Bank – Confirming Bank/Nominating Bank
Issuing Bank – Beneficiary (Seller)
Confirming Bank – Beneficiary (Seller)

(You can draw a square but don’t forget the connection between the beneficiary (on the left) and the issuing bank).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Which dual role does the confirming bank have?

A

The confirming bank is also an advising bank. It has the obligation to inform the applicant that the letter of credit has been opened.
The nominating bank does not have that obligation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What might be a reason for a nominating bank not do honor their option?

A

Lack of liquidity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Delete

A

Delete

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Is a letter of credit revocable?

A

By default (UCP), it is irrevocable. If it was to be made revocable, it has to be expressly mentioned.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the difference between a presentation and a complying presentation?

A

“Presentation means either the delivery of documents under a credit to the issuing bank or nominated
bank or the documents so delivered.”

“Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What, when, where - of a letter of credit

A

What: Present documents stipulated in the credit
When: Present documents within the stipulated time
Where: Present documents at the nominated/issuing bank

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

When presenting documents, can it be a copy?

A

No, it has to be an original. A bank shall treat as an original any document bearing an apparently original signature, mark, stamp, or label of the issuer of the document, unless the document itself indicates that it is not an original. Art. 17 UCP 600.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is the special rule for the presentation of documents? (It contains a deadline)

A

They must be presented not later than 21 days after the date of the shipment, but in any event not later than the expiry date of the credit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What happens if the last day of presentation falls on a banking holiday?
The expiry date or the last day for presentation, as the case may be, will be extended to the first following banking day (art. 29(a) UCP 600).
26
Does a bank have an obligation to accept a presentation outside its banking hours?
No. Art. 33 UCP 600.
27
If a bank's business is interrupted by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control, will it honour or negotiate under a credit that expired during such interruption of its business?
No. Art. 36 UCP 600.
28
What are the three obligations an issuing or confirming bank has?
1) Verify if presentation is complying. 2) Pay the beneficiary. 3) Deliver the documents to the issuing bank.
29
Art. 16 UCP 600 contains two important provisions regarding non-complying presentations, which?
Art. 16 UCP 600: “(a) When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank determines that a presentation does not comply, it may refuse to honour or negotiate. (b) When an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant for a waiver of the discrepancies.
30
The "Prima Facie" Compliance provision
Art. 14(a) UCP 600
31
What are the two leading cases for "compliance in substance"?
Equitable Trust Co of New York v Dawson Partners Ltd [1927] 27 LIL Rep 49 Kredietbank Antwerp v Midland Bank plc [1999] 1 All ER (Comm) 801
32
The Equitable Trust case posed the following problem: Credit: Presentation of a certificate of quality: i. produced by expertS and ii. signed by the Batavia Chamber of Commerce Submitted certificate: Produced by one expert and signed by the Commercial Association of Batavia What was the court's finding?
There is no Batavia Chamber of Commerce, but there is a Commercial Association of Batavia. The court held that it can only be understood as the latter ("insightful inspiration"). However, the document stipulated expertS (plural), but only one certificate was presented. Hence, the presentation was non-complying.
33
What does the UCP 600 say about the level of compliance of documents? What is the article?
Art. 14(d) UCP 600: “Data in a document, when read in context with the credit, the document itself and international standard banking practise, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.”
34
Kredietbank Antwerp v Midland Bank plc [1999] 1 All ER (Comm) 801 Credit: “Draft survey report issued by Griffith Inspectorate at port of loading” Submitted certificate: Signed on behalf of Daniel C Griffith (Holland) BV; logo on document with the word “INSPECTORATE”; printing beneath the logo “MEMBER OF THE WORLDWIDE INSPECTORATE GROUP. DEDICATED TO THE ELIMINATION OF RISK” Was this presentation found complying? What did the judge say?
Yes. It does not need to be the exact same words. "The requirement of strict compliance is not equivalent to a test of exact literal compliance in all circumstances and as regards all documents. To some extent, therefore, the banker must exercise his own judgment whether the requirement is satisfied by the documents presented to him.” 1) Substantive compliance = strict compliance, not exact literal compliance 2) Banker must exercise his own judgement
35
What "test" can be adduced for checking compliance of documents?
Reasonable person test.
36
Which case covered the "special agreement" requirement for the presentation of documents?
Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1993] 1 Lloyd’s Rep 236 If we have a special agreement that certain information should appear, it should appear. Otherwise, the presentation must be rendered non complying.
37
Need to review all the presented documents together. Which case?
Glencore International AG v Bank of China [1996] 1 Lloyd’s Rep 135
38
Bulgrains & Co. Ltd v Shinhan Bank [2013] EWHC 2498 Credit: i. Bulgrains Co. Limited; ii. wheat bran pellets in bulk Submitted invoice: i. Bulgrains & Co. Limited; ii. Bulgarian wheat grain pellets What did the court find?
[T]here was a discrepancy as to name that was not clearly and demonstrably simply a typographical error and was material, and it, together with the discrepancy as to description in the invoice, gave the defendant the right to reject the documents. Bank cannot know the difference just from the description alone. Do not expect the bank to conduct research to find out if the goods are the same.
39
If a presenter presents additional documents not mentioned in the letter of credit, can they be used to make a presentation complying?
Additional documents cannot be used to cure a discrepancy or to render a presentation complying.
40
What are the obligations of a bank upon presentation of documents? Obligations related to presentation.
* It must assess compliance within five banking days following the presentation (art. 14(b)). * it must give the presenter a single notice if the bank refuses to honor the letter of credit. The notice must be unambiguous and should be given with an explanation. The notice must be given within 5 banking days.
41
In what cases can a presenter make a second presentation?
First presentation: if a discrepancy is detected and refused, the beneficiary may be given the right to rectify. Second presentation: bank can only reject for discrepancies that have not been detected in the first presentation.
42
What is the principle of autonomy? Does it apply to letters of credit or demand guarantees?
A credit by its nature is a separate transaction from the sale or other contract on which it may be based. It applies to both.
43
Are demand guarantees and letters of credit mutually exclusive?
No, we can have both for a transactions (or a series of transactions). But they are expensive.
44
For letters of credit, we talk about complying presentations, what do we use for demand guarantees?
Complying demands.
45
The autonomy principle applies to both demand guarantees and letter of credits. What other principle applies to both?
The strict compliance principle.
46
What is the benefit of the UCP and the URDG over private international instruments?
The latter (except for the CISG) are only ratified by few countries, while UCP and URDG can be incorporated into contracts easily by reference; this is being done.
47
Orthodox guarantees are secondary undertakings. Demand guarantees are primary undertakings. What is the difference between the two undertakings?
A primary undertaking refers to a guarantee where the guarantor's obligation to fulfill the guarantee is immediate and not dependent on the default or failure of another party (the debtor or obligor). A secondary undertaking, on the other hand, is contingent upon the default or failure of the primary obligor (usually the debtor or party responsible for the underlying obligation).
48
If someone calls for a demand guarantee although they don't need it, how is that called?
Abusive calling of demand guarantees
49
According to Gold Coast Ltd v Caja de Ahorros del Mediterraneo [2002] 1 Lloyd’s Rep 617 (Eng.), what are the two elements of a demand guarantee?
Irrevocable and unconditional undertaking + Written demand = Demand guarantee
50
Caterpillar Motoren GmbH & Co vs Mutual Benefits Assurance Co [2015] EWHC 2304 (Comm) (Eng.) delivered four factors that can be considered to determine of an instrument is a demand guarantee, which are those?
“[If] an instrument (i) relates to an underlying transaction between parties in different jurisdictions, (ii) is issued by a bank, (iii) contains an undertaking to pay ‘on demand’ (with or without the words ‘first’ and/or ‘written’) and (iv) does not contain clauses excluding or limiting the defences available to a guarantor there will be a presumption that it will be construed as an ‘on demand’ bond or guarantee.
51
What different purposes do letters of credit and demand guarantees have?
Letter of credit: Ensures performance by the seller but it also a method of payment (dual function). Demand guarantee: Ensures payment to the buyer in case of default (ensures performance)
52
Art. 2 URDG 758: “[A demand guarantee is] any signed undertaking, however named or described, providing for payment on presentation of a complying demand.” Art. 2 UCP 600: “[A documentary credit is] any arrangement, however named or described, that is irrevocable and…constitutes a definite undertaking of the issuing bank to honour a complying presentation.” Why are the texts similar?
The drafters are the same: International Chamber of Commerce.
53
In international sales contracts, who would usually breach the contract?
The seller.
54
What is the difference in the value of the documents to be presented between letters of credit and demand guarantees?
For letters of credit, the are the security. For instance, if the issuing bank does not pay the nominating or confirming bank, they can retain them as a security. For demand guarantees, they have no value.
55
Do we have a mirror image rule in demand guarantees or letters of credit?
No.
56
Do the terms change in documentary credits and demand guarantees?
For documentary credits, the term stay the same across the chain. For demand guarantees, there are separate and, possibly, different terms for each guarantee
57
Can letters of credit and demand guarantees be issued by non-financial institutions?
Only demand guarantees.
58
What is the difference between direct demand guarantees and counter-demand guarantees?
Direct demand guarantee: Applicant à Guarantor à Beneficiary Counter-demand guarantee: Applicant à Counter-guarantor à Guarantor à Beneficiary
59
For what kind of contracts can letters of credits and demand guarantees be used?
Letters of credits: International shipment of goods Demand guarantees: All kinds of contracts
60
In a demand guarantee, there exist four types of contracts between the guarantor, the counter-guarantor, the beneficiary, and the applicant. Which?
Counter-Guarantor and Applicant: Guarantee Contract Counter-Guarantor and Guarantor: Counter-Guarantee Contract Guarantor and Beneficiary: Indemnity Contract Applicant and Beneficiary: Commercial Contract
61
What is the corresponding of a confirming bank in demand guarantees?
Counter-guarantee.
62
For demand guarantees, the the applicant goes to which one? Guarantor Counter-Guarantor
Counter-Guarantor If there is no Counter-Guarantor, Guarantor.
63
Which are the three general principles that are the same between letters of credit and demand guarantees?
Irrevocability Independence & autonomy Strict compliance
64
The amount specified in demand guarantee may be changed (increased or decreased) based on what?
Either an event (e.g., milestone) or date.
65
What is a requirement for the demand? Will the applicant be informed about the demand? Can they stop it?
The demand has to be made in writing. The guarantor has to inform the applicant about the demand. The applicant cannot stop it.
66
What are the limitations to making a demand for a demand guarantee? (where and when)
It has to be at the place of issue or a place specified in the guarantee. It has to be made before expiry.
67
What is the deadline for a guarantor to determine compliance of the presentation?
5 business days after the presentation.
68
What are the two conditions that can render a demand non-complying in terms of amount?
Art. 17(e) URDG 758: “A demand is a non-complying demand if: i. it is for more than the amount available under the guarantee, or ii. any supporting statement or other documents required by the guarantee indicate amounts that in total are less than the amount demanded. Conversely, any supporting statement or other document indicating an amount that is more than the amount demanded does not make the demand a non-complying demand.
69
In IE Contractors Ltd v Lloyd’s Bank Pls [1990] 2 Lloyd’s Rep 496 (Eng.), there were two issues: Issue No. 1: Guarantee required claim of damages; demand stipulated only breach of contract Issue No. 2: Guarantee stipulating that guarantor was required to pay; the guarantor noted that a demand was made, not that they had to pay. This was an issue between guarantor and counter-guarantor. What did the court say?
Issue 1: This was an implied claim because the damage flow naturally from the breach of contract. Issue 2: The guarantor should have recorded that it was required to pay, not just that a demand was made. Strict compliance.
70
There is an odd requirement for numbering in the URDG that the UCP 600 does not have, which?
Art. 14(f) URDG 768: “Each presentation shall identify the guarantee under which it is made, such as by stating the guarantor’s reference number for the guarantee. If it does not, the time for examination indicated in article 20 shall start on the date of identification.
71
What are the legal requirements for a guarantor when it rejects a demand?
Art. 24 URDG 768: “(a) When the guarantor determines that a demand under the guarantee is not a complying demand, it may reject that demand or, in its sole judgement, approach the instructing party, or in the case of a counter-guarantee, the counter-guarantor, for a waiver of the discrepancies. […].
72
How do the requirements in case of a rejection differ for demand guarantees compared to letters of credit?
They don't. Both rejections need to be made within 5 days (business days for demand guarantees, banking days for letters of credit). Rejections need to be made with a justification (discrepancies).
73
There is a way for a beneficiary to exert pressure on the applicant through a demand guarantee. How does it work?
Art. 23 URDG 758: “(a) Where a complying demand includes, as an alternative, a request to extend the expiry, the guarantor may suspend payment for a period not exceeding 30 calendar days following its receipt of the demand. […]
74
Under what circumstances can demand guarantees be terminated?
Art. 25(b) URDG 758: “Whether or not the guarantee document is returned to the guarantor, the guarantee shall terminate: i. on expiry, ii. when no amount remains payable under it, or iii. on presentation to the guarantor of the beneficiary’s signed release from liability under the guarantee.”
75
What is defined as "expiry" under the URDG?
Art. 2 URDG 758: “Expiry means the expiry date or the expiry event or, if both are specified, the earlier of the two; Expiry date means the date specified in the guarantee on or before which a presentation may be made; Expiry event means an event which under the terms of the guarantee results in its expiry, whether immediately or within a specified time after the event occurs […]”
76
What is the maximum time a guarantee lasts?
Art. 25 URDG 758: “(c) If the guarantee or the counter-guarantee states neither an expiry date nor expiry event, the guarantee shall terminate after the lapse of three years from the date of issue and the counter-guarantee shall terminate 30 calendar days after the guarantee terminates. […]
77
Can lack of funds of the applicant be used by a guarantor to refuse payment?
No.
78
What are the three exceptions to the autonomy principle for demand guarantees?
1) The documentary credit/demand guarantee requires a review of the matrix commercial contract 2) The documentary credit/demand guarantee contravenes rules of public policy (United City Merchants case) 3) The presentation by the beneficiary constitutes a fraudulent act
79
What are the two requirements for fraud?
i. Beneficiary’s fraud: There must be evidence of subjective dishonesty of the beneficiary ii. Bank’s knowledge: When a bank has knowledge of the fraud, it must decline payment even against an apparently complying presentation – Knowledge must stem from the documents presented
80
What were the three fraud cases discussed in demand guarantees?
United City Merchants (Investments) Ltd v Royal Bank of Canada, The American Accord [1983] 1 AC 168 **Montrod** Ltd v Grundkotter Fleishvertriebs GmbH [2002] 1 All ER (Comm) 257 **Edward Owen Engineering** Ltd. v Barclays Bank International [1978] 1 Lloyd's Rep. 166
81
In the United City Merchants case, there were two issues. Issue 1: Contract price set at twice the market price to circumnavigate foreign exchange regulations; did the fraud regarding the price render the credit invalid? Issue 2: – Fraudulent presentation by the beneficiary; did the fraud regarding the date of the bill of lading render the credit invalid? What did the court hold?
Issue 1: Court reduced the amount in the demand guarantee to salvage it. Issue 2: Banks deal with documents, not with goods; banks cannot look beyond the documents presented (four corners test).
82
In Montrod Ltd v Grundkotter Fleishvertriebs GmbH [2002] 1 All ER (Comm) 257, the beneficiary was deviously led to believe that it had authority to sign a certificate of inspection, and, thus, signed the document itself. Was this fraud?
i. Beneficiary’s fraud: There must be evidence of subjective dishonesty of the beneficiary ii. Bank’s knowledge: When a bank has knowledge of the fraud, it must decline payment even against an apparently complying presentation – Knowledge must stem from the documents presented The first requirement was not met. As there was no fraudulent intent by the beneficiary, the document was not a nullity.
83
In the case Edward Owen Engineering Ltd. v Barclays Bank International [1978] 1 Lloyd's Rep. 166, the two parties had agreed for the applicant to open a demand guarantee, which wasn't done by the applicant. The beneficiary made a claim. Was this fraud?
Fraud exception: There must be proof that the beneficiary did not honestly believe it had the right to make a demand AND the bank knew of it.
84
What are the key findings for 1) Agreements deviating from the autonomy principle 2) Public policy 3) Threshold for fraud
Agreements deviating from the autonomy principle must be clear and unequivocal When a credit contravenes rules of public policy, the credit is salvaged by aligning it with the current legal standards The threshold for fraud is very high and will rarely be met. It requires that: i. the beneficiary is party or has knowledge of the fraud, AND ii. the bank had knowledge of the fraud
85
We have a discrepancy in the name, what case do we cite?
Bulgrains & Co. Ltd v Shinhan Bank [2013] EWHC 2498 Rejected due to discrepancy in the name ("&" was missing).

STL (39 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions