Stella Inc is a US exporter of soy beans. On January 5, 2020, Stella made a contract to sell 10,000 tons of Grade A soy beans to Harpo Inc, a buyer in the Eastern European nation of Fredonia. The contract provided that the contract was "CIF Fredonia, shipped from an east coast US port, to arrive on or before April 11, 2020."The contract between Stella and Harpo contained a force majeure provision identical to the contract provision inTsakiroglou.

Harpo duly obtained a letter of credit issued by Fredonia BankCorp., a private bank in that country. The Letter of Credit, per the contract of sale, was confirmed by Chase Bank (NY).

On April 1, 2020, Stella delivered the soy beans to Brothers Shipping, a well-established ocean carrier, and arranged (and paid for) the ocean freight on Brother's vessel, The Chico. The Chico was due to sale the next day for Fredonia, scheduled to arrive in Fredonia on April 10, 2020. The goods were duly loaded on the The Chico, and the ship left New Jersey on April 2.

During the ocean voyage, 3 crew members on The Chico contracted the Corona virus. When the ship arrived off Fredonia on April 9, the Fredonia coast guard intercepted the ship and would not allow it to dock. After 5 days, The Chico's captain abandoned any attempt to land in Fredonia, and continued on to Finland, where he will (probably) be able to dock and discharge the cargo. If so, the soy beans would have to be put in storage at the port in Finland or shipped overland to Fredonia. Harpo does not know when (if ever) it will be able to receive the goods, and who knows what condition they will be in by then.

On April 7, Stella presented the Bill of Lading, invoice and other required documents to Chase. The item has not yet been paid because the law gives banks seven (7) banking days to dishonor or pay,i.e.on April 17.

Harpo e-mailed your company on April 14, saying it was going to instruct the banks not to pay because the shipment will not arrive in accordance with the contract term. Harpo also stated that if the banks refuse and pay Stella, Harpo will sue Stella for breach of contract.

Today is April 16.You are the employee at Stella in charge of exports to eastern Europe. The head of your division, Julius Henry Marx, asked you to write one (1) memo concisely addressing 3 questions (Marx strongly suggested you use subheadings to display organization of your memo):

1.If Harpo instructs Fredonia Bank and Chase not to honor the Letter of Credit, how will the banks behave, and why?

2.What is the advantage to our company of requiring that Harpo obtain a Letter of Credit, with Chase as a "Confirming Bank"? Does that fact affect the likelihood that we will in fact be paid for the shipment?

3.Is Harpo correct that it is excused from paying, or entitled to a refund, because the shipment did not arrive on time?

Memos