Article

Topic: Contract

Note: In 2002, Contigroup Companies, Inc., Seller, agreed to sell a cargo of butane to Glencore, A.G. with delivery in China set for 12 June. The cargo was resold to a related company, Glencore International, A.G., which resold it again to Petrochina Zhejiang Huadian Resource Co. Ltd. In fact, the butane did not arrive and begin unloading until 15 June. The ultimate buyer incurred losses of US$172,899.67 which was set off against the ultimate seller.

The opinion quoted from the contract between the ultimate seller and intermediate buyer which provided for payment by letter of credit. Its terms stated:

Payment terms.

By irrevocable Letter of Credit opened in format acceptable to Seller, with a bank acceptable to seller. Confirmation by a bank outside of China, if required, to be arranged and paid by Seller. The Letter of Credit shall be opened not later than May 27th, 2002. The form of L/C to be as normal for a delivery to shore terminal. Wording to be agreed by Seller along with Buyers bank and branch. The L/C shall be drawn against draft upon presentation of the following documents.

(a) invoice (original)

(b) full set of 3/3 of clean onboard ocean bill of lading to the order of applicant and marked freight as agree ...

Comment: While this term gives seller/beneficiary considerable discretion regarding "format", issuer, and "wording", it limits this discretion somewhat by a) requiring that it be "normal" for delivery to a shore terminal and b) setting forth three required documents.

One wonders what the seller would have to prove if it were to claim breach of contract by buyer for failure to provide an acceptable LC. Indeed, one wonders if the buyer has such an obligation. If so, it is implied.

[JEB/lhd]

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