Your firm has contracted to purchase silk from overseas suppliers on letter of credit terms….

Your firm has contracted to purchase silk from overseas suppliers on letter of credit terms. After contracting but before presentment of the seller’s documents, China expands its production and floods the market with raw silk. The price of silk plummets on world markets. Comment on whether you should try to find a minor discrepancy in the documents to justify rejecting the documents. Is it ethical for a buyer to reject documents presented under a letter of credit that contains only a minor discrepancy between the documents and the credit? Do the reasons matter? Does it matter that the buyer may know that the shipment actually conforms to the requirements of the contract and of the letter of credit? What is meant by the following statement: “Buyers and their banks have on occasion been known to ‘invent’ discrepancies; to make a ‘mountain out of a molehill.’”

 

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