Question

Suppose that an issuing bank pays on documents that are conforming to the requirements of the letter of credit, but the seller has shipped worthless goods to the buyer. Which of the following statements, if any, are true?

a) As long as the documents strickly comply with the letter of credit requirements, the bank will not have to reimburse the buyer
b) If there is fraud in the transaction, the bank will have to reinburse the buyer and seek its remedies against the seller
c) The strick compliance insulates the bank from liability, since it assures the bank that the underlying contract between the buyer and seller is entirely independent from the letter of credit contract
d) A and B

Answer 1

a) As long as the documents strictly comply with the letter of credit requirements, the bank will not have to reimburse the buyer

Step-by-step explanation:

A letter of credit refers to the letter in which the bank is made a guarantee to pay the amount to a particular person by compiling the specific conditions during the exporting of goods

Since in the question, it is given that the seller has shipped the goods that are worthless i.e of no use for the buyer so in this case, the bank would not reimburse the buyer.

Therefore the correct option is A.