Options available for VATC
Case Study
An LC (letter of credit) is a document that enables the “beneficiary” to receive payment once they present the necessary documents to the Letter of credit (LC) issuing institution. In this case, the VATC Company fails to adhere to the Letter of Credit compliant documents; thus, the financing institution, the Bank of China, fails to make the payments. The VATC institution has to identify the available options based on the Letter of Credit legal issues to receive payment.
Options available for VATC
The Volst-Alpine Trading USA Company (VATC) had the option of correcting the mistakes present in the LC documents to give the Bank the platform of securing payment. Secondly, the Company would have considered lowering the consignment price since the market price had reduced. The VATC Company could also turn to the court and accuse the Bank of China of failing to act on the Letter of Credit (Jones, 2018). If the institution offers the correct argument, the court will rule in their favor, and they would be granted payment. Although the market prices have gone down, the VATC Company can cite that the agreement with the buyer was made before the occurrence, and there was no alternative in their contract. Moreover, the Bank does not have any authority to intervene in the issue between the author and seller as long as the delivery had been made. The VATC Company can also identify other loopholes in how the Bank of China handled the issue and find leeway to their payment.
If discrepancies alleged between the letter of credit and shipping documents enough grounds for the dishonor of the letter of credit? The legal framework of how letters of Credit work based on the situation.
The alleged discrepancies between the letter of credit and the shipping documents were not enough in discrediting the letter of credit. The VATC company who are beneficiaries fail to issue documents as requires; thus, the financial institution takes it as an act of dishonoring the terms of an LC. However, the Bank of China would have given the VATC Company a chance to correct the discrepancies between the two documents. As such, the Bank would have offered a statement of the discrepancies and await the Company’s reply. If the Bank were provided the correct documents within the appropriate period, then it would have been fit to make payments (Nathan, 2002). The Bank had no legal authority to get involved in the promises or arguments between the two parties, but rather, the Bank was supposed to make payments once the delivery was made.
Moreover, the Bank of China was also supposed to send a notification on their decision of not making the payment and offer the ground for this decision. The letter of credit in this regard provided the Bank of China protection based on the discrepancies between the letter of credit and shipping documents. The letter of credit works in the manner that the documents presented should align and should be similar to avoid discrepancies. The VATC Company was supposed to be careful in the presentation of documents by providing accurate information as dictated in the letter of Credit principles.
Conclusion
In conclusion, the letter of credit assures the beneficiary of payment if they present the appropriate LC documents. In this case, the VATC company presents documents with discrepancies; thus, the Bank of China fails to make payment. The VATC is left with the choice of correcting the documents once they are sent by the financial institution or presenting the grievances in a court of law. However, the discrepancies between the letter of credit and the shipping documents were not enough in discrediting the letter of credit since the Bank would have easily sent them back to the VATC Company for correction. Businesses should be cautious and accurate while presenting a letter of Credit documents to avoid discrepancies.
References
Jones, S. A. (2018). Letters of Credit. In Trade and Receivables Finance (pp. 191-239).
Palgrave Macmillan, Cham.
Nathan, B. (2002). Letters to credit: Another case when the LC issuing bank must pay despite
discrepancies. Business Credit, 104(1), 12-12.