First Western was well regarded for their trade financing skills and had a reasonable reputation in the

market, locally and in the region. While the transaction was unusual and involved a country they had

little experience with, the bank was anxious to impress Wisconsin and win the mandate to do

the deal because of its size, likely revenue and the opportunity for additional future business. They

proposed the following:

An irrevocable letter of credit to be issued by Bank of Saigon to be advised through First

Midwestern Bank with a request to add their confirmation.

The total value was to be $3 million to be payable in three equal installments of $1 million,

one at sight, another twelve months later and the third a year later.

The letter of credit was to call for three drafts (bills of exchange) to be drawn on the advising

bank to be accepted by them after shipment and presentation of documents to the bank in full

conformity with the letter of credit. The first draft was to be payable three months after final

shipment of all the jade, the second and third payments were to be due for payment in twelve

month intervals after the date of the first payment.

First Midwestern undertook to confirm the D/C if requested by the issuing bank.

The bank undertook to buy the drafts for the second and third payments through their forfait

subsidiary thereby providing Wisconsin immediate funding, less the amount of the discounted

interest to maturity of the drafts.

The letter of credit was to include provision for on-board Bills of Lading, commercial invoices,

and for inspection certificates issued by an independent inspection agency to verify quantity and

quality of the jade before shipment.

The letter of credit was to be issued subject to the International Chamber of Commerce (ICC)

Uniform Customs and Practices for Documentary Credits, version 600.

The buyers and foreign bank deliver their instruments

Wisconsin conveyed to their Vietnamese buyers the terms required and outlined the necessary letter of

credit details and terms. Three weeks later Mid Western Bank received the following from Bank of

Saigon:

An irrevocable guarantee issued in favor of Wisconsin Fine Jewelry undertaking to guarantee

payment of three drafts for $1 million dollars each. The first was payable at sight and the

remaining two were to be due for payment in two 12 month intervals after the first draft was

paid.

The drafts were to be drawn on the issuing bank and would be accepted by them after the

delivery of the full quantity of jade and against an inspection certificate indicating that the jade

was of correct quality and density. The guarantee did not indicate which party was responsible

for issuing the inspection certificate.

The certificates and drafts were to be forwarded to the issuing bank by First

Midwestern after all jade had been shipped and they received an authenticated SWIFT

message from the issuing bank that the full shipment had been successfully delivered to

the buyers.

The issuing bank did not request the advising bank to add its confirmation.

The guarantee was not subject to any ICC or other universally recognized rules.

4. What recourse or courses of action are available to First Midwestern to recover payment for the

drafts?