QUESTION 1

The Bill of Lading is an important document for an international transaction. Which of the following statements about the Bill of Lading is NOT correct:

a.The holder of a properly endorsed Bill of Lading gives the holder the right to claim the goods.

b.By default, the Bill of Lading is an invoice showing the amount the shipper needs to pay the carrier. Other than that, it has no significance.

c.The Bill of Lading is evidence that the seller has performed his part of the contract

d.The Bill of Lading is the contract between the shipper and the carrier

QUESTION 2

Buyer and Seller enter into a contract that provides for the purchase of down ski jackets shipped from Shenzhen, China to San Francisco, California.The jackets are destroyed when a hurricane (typhoon)sinks the boat.

Which of the following statements is most correct?

a.

If the INCO term is CIF San Francisco (INCO 2000), then theBuyer bears the risk because the jackets "crossed the ship's rail,"but the insurance that the Seller was required to buy will cover his loss.

b.

If the INCO term is FOB San Francisco (INCO 2000), then Seller bears the loss but it is covered by insurance that the Seller was required to buy for the shipment.

c.

If the INCO termis C&F (INCO 2000), then the Seller bears the risk of loss because it breached the contract by not buying insurance to cover the loss

d.

The Seller always bears the risk untilthe Buyer picks up the goods at the dock.

10 points

QUESTION 3

Which of the following statements is most correct:

a.

UNIDROIT is an international treaty that applies to an international contract for the sale of goods and services by default.

b.

CISG is an international treatythat will not applyto an international transaction for the sale of goods unless the parties explicitly say it applies totheir contract, i.e., opt-in(and thecountries haveratified the treaty).

c.

INCO terms arelaw that apply to all international transactions The same is true for the Uniform Customs & Practice for Documentary Credits (UCP) that is used for Letters of Credit.

d.

The UCP is a treaty that applies to Letters of Credit if the country has ratified that treaty.

e.

An international contract between a Maryland company and a company in India states:"The law of Maryland shall apply to this contract and all dispute proceedings shall be held in Maryland."This clause is valid because state law can apply to international contracts if it bears a reasonable relationship to the transaction and the parties agree.

QUESTION 4

Which of the following statements is most correct:

a.

If a transaction is financed by a Letter of Credit and the Buyer notifies the Issuer of the LC (the Buyer's Bank) that the Seller has breached the sales contract, the Buyer's Bank should immediately stop payment under the LC.Breach of contract is always a valid reason for the Bank to stop payment.

b.

The Independence Principle means that banks pay against the documents set forth in the LC regardless of what happens under the sales contract, i.e. the bank pays even if there is a breach of contract if it receives a complying presentation.

c.

The UCP is a set of principles that applies to Letters of Credit.It applies by default and only the latest version will apply.

d.

The UCP contains a strong anti-fraud provision which protects banks from paying money in the event the Buyer alleges fraud in the transaction.

QUESTION 5

Prospective Buyer in San Francisco texts Seller in Singapore asking for a price quote of 500 DVDs of Taylor Swift's new album "Folklore." Seller replies to prospective Buyer:

"The cost of 500DVDs is $4000, FOB Singapore(INCO 2000) financed by an irrevocable LC confirmed by my bank in Singapore."

Buyer replies: "please send 1000 DVDs for $7000 CIF San Francisco (INCO 2000), expedite processing."

Buyer immediately thereafter opens a LC for the benefit of Seller for $7000.Seller's Bank in Singapore refuses to confirm the LC, questioning the financial stability of Buyer's Bank which is located in Argentina where the economy is crumbling from the COVID-19 virus.

Which of the following statements is most correct:

a.

If Seller ships any DVDsto Buyer, itarguably might be held to the terms of Buyers final "offer" under the "last shot" rule, and hence would have to comply with those terms, i.e., $7000 for 1000 DVDsshipped C&F to San Francisco.Although Seller's Bank in Singapore refused to confirm the LC, Seller has started to perform and that conduct could be deemed an acceptance of Buyer's final offer.

b.

Under the mirror image rule, the buyer and seller have entered into a contract.

c.

Seller needs to ship the DVDs even though Seller's Bank has not confirmed the LC because Buyer provided an LC; confirmation is not an essential term of the contract because Seller did not require a confirmed LC.

d.

Under the UCC and CISG, Buyer's reply requesting 1000 DVDs with a different price, shipping term and quantity is not a material change from Seller's offer, and Seller is required to perform under those terms because there was a meeting of the minds.

QUESTION 6

Seller/Smith and Buyer/Better Clothing enter into a contract for the sale of clothing and Buyer obtains a Letter of Credit directing payment to Smith;Seller's Bank confirms the LC. The Buyer's Bank misspells the Seller's name as Smythe, and incorrectly identifies the goods that are the subject of the sale.Seller's Bank receives the Bill of Lading and other associated documents from Seller/Smith after the goods are shipped, determines that the presentation is a complying presentation, and pays the Seller/Smith within 5 banking days because it knows Smith; he ignores the misspelling.Seller's Bank then presents the documents to the Buyer's Bank who discovers the discrepancies and refuses to pay. The LC states the UCP 600 will apply to the LC.

Which of the following statements is most correct:

a.

The Buyer can enjoin (meaning "stop" ) its bank (the Buyer's Bank) from paying the Seller's Bank if there was a breach of the salescontract.

b.

The Buyer's Bank should pay against the documents because it made the mistakes when it drafted the LC which is the reasoning adopted in Hanil Bank.

c.

The Seller's Bank can force the Buyer's Bank to pay against the documents because it has already paid the Seller.

d.

Under both the Hanil Bank and Voest-Alpine cases, the Buyers Bank will have to pay Seller's Bank because Seller's Bank determined the presentation was a complying presentation; that determination binds Buyer's Bank, so it must pay.

e.

Under the Hanil Bank decision, Buyer's Bank should not pay because the discrepancies violate the mirror image rule announced in the Coromandel nuts case; but under the Voest-Alpine v. Bank of China case, Buyer's Bank may be required to pay if all the documents obviously relate to the transaction on their face despite the errors.

QUESTION 7

Which of the following statements is most correct:

a.

A Force Majeure clause deals with unforeseen and unanticipated events and suspends the duties of the parties to perform under the contract for the duration of the event. Article 79 of CISG allows a party, i.e., either the Buyer or Seller, to invoke Force Majeure.In contrast, the UCC allows only the Seller to invoke FM.

b.

In reviewing a presentation of documents under a Letter of Credit, banks should examine the documents "on their face", and if it finds discrepancies, it must research those discrepancies (e.g.,check Google or Wikipedia) before paying.

c.

A Bill of Sale serves the same purpose as the Bill of Lading in a "payments against document"transactionbecause the Seller issues the Bill of Sale andit is proof that the Buyer has purchased the goods.

d.

Under UCP 600 , a bank paying against documents pursuant to a Letter of Credit should examine the sales transaction to ensure there is no breach of the salescontract before paying.

QUESTION 8

Seller/Magnavos is located in Japan and sells high-end audio components to major distribution outlets in the United States.On Nov. 1st, before the US elections, Audio One, a US company based in California, and Magnavos agree to the following terms:

500 units, Model LS-650X, total contract cost of $50,000 financed with an irrevocable Letter of Credit confirmed by BNP Paribas, Magnavos's bank; delivery no later than Nov 30th. CIF San Francisco (INCO 2000)

The LC is issued by Citibank, Audio One's bank and confirmed by Seller's Bank, BNP Paribas. UCP 600 applies.

Seller loads the units on a truck and delivers them to the Shingu Port , a port on the southeast coast of Japan on Nov. 5th, where they are loaded on the USS Big Ship.

Meanwhile, although ballots are still being counted, most of the results from the US elections are counted and Biden declares victory over Trump.Trump is upset, believing that he won the election and vows to pursue litigation to identify and reverse the election fraud that he says has occurred; he promises to pursue litigation all the way to the US Supreme Court.

While the USS Big Ship is enroute to San Francisco, Kim Jung-Un is glad to have Trump gone because he feels "slighted" that Trump did not live up to his promises to lift sanctions on N. Korea.He wants to demonstrate to President-elect Biden that he is a serious force to be "reckoned with."He also wants to celebrate Trump's loss and to confirm a written "congratulatory but condemning note" that he sends by diplomatic sources to Trump saying "good bye, you obviously don't know how to hold an election."Kim Jung-Un then launches 2 of its largest unarmed missiles of intermediate range that fly over Japan.While passing over Japan, one of the missiles fails and explodes due to a malfunction, with debris falling over the waters of southeast Japan.A major piece of the destroyed missile hits the USS Big Ship which left port the previous day for San Francisco, damaging its cargo and destroying it navigation capabilities, e.g., its GPS satellite systems. The Captain notifies the Port Authority that the ship is returning to port because its navigation system is inoperative.

Learning this, Audio One immediately orders Citibank to stop payment on the LC; but BNP has already paid Seller and conveyed a complying presentation to Citibank.

Which of the following statements is most correct:

a.

If N. Korea's launch of the missile is deemed a Force Majeure event, Citibank can honor Audio One's request to stop-payment because the parties' obligations to perform under the sales contract have been suspended.

b.

Under the CIF INCO term in this transaction, Buyer/Audio One was required to buy its own insurance which will cover the loss.

c.

Citibank is required to pay BNP Paribas if it receives a complying presentation under the Independence Principle; insurance that Seller bought will cover the loss.

d.

Citibank should honor Audio One's stop-payment request because the goods have been destroyed, and Magnavos is in breach of contract

e.

The deal is over.Citibank is not required to pay BNP Paribas even if it receives a complying presentation because the goods have been destroyed and/or will most likely not be delivered by the deadline.

QUESTION 9

Which of the following statements is most correct:

a.

The Mid-America case stands for the proposition that material fraud in the the transaction--whether in the sales contract, the LC or other aspect of the transaction--is a basis to void the banks payment obligation.The law will not be used to require payment when the "payment against documents" concept is corruptedby material fraud.

b.

Under the UCP, a bank must make payment if it receives a complying presentation; if part of the presentation includes a document not specified in the Letter of Credit, the bank is required to evaluate the relevance of that document and consider its relevance to the payment obligation.

c.

The common law definition of fraud normally does not require intent to defraud because intent is a state of mind.

d.

A Seller can use a Standby Letter of Credit to ensure repayment of its Advance Payment, very similar to a Letter of Credit.

QUESTION 10

Buyer is located in Hong Kong and distributes coffee and tea to retail stores in China. Seller is located in Jakarta, Indonesia and sells coffee beans. Buyer orders 5 tons of coffee beans from Seller.The contract provides CIF Hong Kong (INCO 2000) for delivery by December 1st; the contract is financed with a Letter of Credit issued by Buyer's Bank in Hong Kong and confirmed by Seller's Bank in Indonesia. UCP 600 applies to the LC.Seller has the coffee beans packed and ready to ship to the dock on time.

Meanwhile, a terrorist bomb explodes in downtown Hong Kong;rebels protesting against excessive oversight by Beijing under the National Security Laws demand more economic and political freedom and claim responsibility for the bombing. All businesses are shut down and residents told to stay in their homes while law enforcement attempts to control the protests.

Buyer promptly sends an email to Seller and tells him NOT to ship the coffee beans because the Hong Kong ports are closed for an indefinite period of time.Seller ships the coffee anyway and makes a complying presentation to its Bank in Indonesia who pays Seller.Buyer's Bank in Hong Kong is closed due to the terrorist activity, but as soon as business resumes, it pays Seller's Bank when it receives the complying presentation, and then attempts to collect from the Buyer.CISG applies to this transaction.

Which of the following is most correct:

a.

Under UCP 600, Buyer's Bank should not have paid Seller's Bank because its client had invoked Force Majeure, and this terminated Buyer's Bank in Hong Kong obligation to pay Seller's Bank.

b.

Under Article 79 of CISG, Buyer can invoke Force Majeure but that will not stop payment of the transaction because of the Independence Principle.Seller's Bank in Indonesia and Buyer's Bank in Hong Kong were required to pay when they received a complying presentation, and Buyer will be required to pay it's Bank or be in breach of its LC.

c.

Under UCP 600, Seller's Bank and Buyer's Bank will refuse to honor any presentation of documents because an Event of Force Majeure has occurred and the obligation of the parties to perform under the contract has been suspended.

d.

Under Article 79 of CISG, Buyer in Hong Kong cannot invoke Force Majeure because this Article only applies to the Seller and not the Buyer.

QUESTION 11

Which of the following statements is most correct:

a. Central Bank Digital Currencies are a digital version of the fiat currency that the country has issued. They are issued by local commercial banks without any recourse to the central bank of that country.

b. The Hanil Bank and Bank of China cases illustrate the point that complying presentations must be perfect or the bank does not have to pay, i.e., a type of "mirror image" rule.

c. In Ziraat Bankasi, Park Avenue was smart to off load the risk of non-payment by Ram Metals.It used a Standby Letter of Credit that was triggered when Ram Metals failed to pay, thus forcing Ziraat to make the payment.

d. The UCP includes a material fraud provision which is used to determine when a bank should not pay, even when it receives a complying presentation.