1

Law

1. The principle of strict compliance of letters of credit

Demand warranties and standby letters of credit have a vital relationship to autonomy.

The need for issuing a demand guarantee is a function of the underlying contract between the

principal (or applicant) and the beneficiary. However, the guarantee is different from that

contract, and the rights and responsibilities that it creates are distinct from those established by

the contract (Alavi 2017, pg4-17). In reality, most demand guarantees are "on-demand" or "on

first demand," indicating that they constitute a legal obligation to pay only against the most

trivial of requests made by the beneficiary, regardless of any indications of failure on the

principal's part. Because of this, a guarantor, such as a bank, will provide a demand guarantee.

Article 5 of the 2007 Uniform Customs and Practice for Documentary Credits (‘UCP 600')].

Rule 1.06(according to URDG 758) of the 2010 Uniform Rules for Demand Guarantees).

"ISP98" is another set of international standby practices. The UNCITRAL Convention,

which governs an international endeavor like a demand guarantee or standby letter of credit, has

provisions on the autonomy principle, found in paragraphs 2 and 3. They are entirely

documentary (Joneydi and Bahrampoori 2021, pp.219-237). Autonomy is so intrinsically linked

to the documentary character of these tools that it is impossible to consider them apart, albeit

their principles may be individually articulated.

In the Loomcraft fabrics v Nedbank Ltd & Another case (as it was in South Africa), the

South African Appellate Division noted that if a bank decided to pay a customer based on a

commercial letter of credit whose documents did not comply with the specified specifications,
 2

the customer was powerless to prevent the bank from paying. Banks may become insolvent and

unable to repay themselves. They are therefore essentially paying with their own money.

A bank ('issuing bank') that creates a letter of credit on the request and, under the client's

instructions, commits to pay money to the beneficiary when presented with the specified

documentation. Customers often specify the kind of papers to be given to them, and banks

usually have little interest in their content or length of time. In other words, the issuing bank

must pay the beneficiary if the presentation of the papers is following the requirements outlined

in the letter of credit.

The issuing bank is not required nor entitled to pay the beneficiary in full if the submitted

papers do not comply with the conditions of the letter of credit (Joneydi and Bahrampoori 2021,

pp.219-237). The documentary credit's documentary style is upheld throughout the world under

article 5 of the UCP 600 (a similar provision was found in art 4 of the UCP 500, the predecessor

of UCP 600). The backup letter of credit confirms the documented nature of the first letter of

credit. In the same way, URDG 458 and URDG 758 prove the documented character of demand.

2. Disclosed and undisclosed agency

A few ideas related to the uncovered and hidden agency have previously been discussed.

When a third party understands he is operating via an agent, he unknowingly uses a hidden

agency. A hidden agency operates so that a third party is unaware of whether he or she is using

an agent. The agreement shall be considered as performed under an unknown agency (Poddar

2019, p.74). No problems can emerge if there is no principle and the agent is working on his

behalf. The contract will be invalid if the third party finds out that an agent is involved since an

agent's statements are legally binding only if they are truthful.

This provision was maintained from an earlier case; however, some lawyers believe it

should be replaced by an agent's duty to identify his unidentified principal within a reasonable

period after being informed of legal proceedings (Poddar 2019, p.74). The primary definition of

'Commission agency' describes it as an agency whereby the agent works on his behalf but retains

whatever profits he may have earned as a merchant. The agent is also accountable for any

liabilities he may have accrued for the products he is selling.

Disclosed agency

When the principle is fully revealed in an agency, the agent has the right to divulge the

principal's name. These were the words that were spoken in Harper v Vigors Bros. (1909). An

agreement between the principal and the third party when an agent has revealed that they work

for an agency may be seen as a third-party contract between the principal and the agent. Once the

contract is finished, the agent 'drops out,' and both party's rights and duties become exercisable

solely between the principal and the third party (Poddar 2019, p.74). Contracts (rights of third

parties) Act 1999 contract is created when the agent and the third party have privity (Ryder et al.,

2012). Agents have the option of having continuing responsibilities and rights under a contract.

The previous rule which prohibited foreign principals from suing or being sued was struck down

in Teheran-Europe v St Belton (Tractors) (1968)

Undisclosed agency
While most oppose the notion that an agent may have a hidden principle, many

individuals argue that the agency can have a principal whose identity is unknown. However, it

must be admitted that in the Teheran-Europe v St Belton (Tractors) (1968) case, economic

convenience was the justification for the concept. Principals who would usually be rejected as

purchasers because of their identification may employ an agency to circumvent the identity-
 4

based pricing discrimination. An excellent illustration of this is if a principal owns all of the

property in a particular region, but a third party owns land there. The third party would know the

worth of the land to the principal, therefore, would charge more. This theory reflects the

assumption that contracts are not typically defined by physical characteristics, although in some

cases, there are exceptions (Poddar 2019, p.74). An agent is only authorized to represent an

unknown principal after they have concluded a contract on their behalf. The rights and

responsibilities of that contract are thus between the agent and the third party (the agent does not

drop out as in disclosed agency). Even if the principal's identity is exposed, this will alter. The

employment of an agent and the establishment of privity both allow an undiscovered agency to

be imitated, but because the common law has recognized privity concepts from time

immemorial, it is believed that this is why a hidden agency exists. Also, the "principal" is held to

a higher risk.

3. The seller's responsibility to provide a clean bill of lading to the buyer under a C.I.F

Contract.

In contemporary times, communications like the telex and maritime insurance were

prevalent. It was then usual for the seller to do all the arranging, and the bill of lading is held

until the money was received. Before the goods arrived, the buyer typically got three copies of

the bill of lading sent to him overland or by airmail. The airmail services offered by

Documentary Trusts Banker Irrevocable Documentary Credits and Documentary Trusts Banker

Irrevocable Confirmed Documentary Credits allow nowadays (Bridge, 2019). In C.i.f. Sales

contracts, the information must be sent rapidly and, as a result, C.i.f. It is regarded as a more

expedient way of contracting than F.O.B.F.O.B. All of the expenses included in the contract
 5

price are the costs associated with transporting the products, including insurance from the port of

loading to destination and shipping fees. A free of charge

A contract is a document that lists the location of the merchandise. When items are to be

unloaded in London, “c.i.f.” Is used as opposed to the port of shipping, e.g., F.O.B.F.O.B. The

term New York signifies that the merchandise must be delivered from New York. Biddell Bros V

E.Clemens Horst Co.1 Manbre Saccharine v Corn Products, two and Groom V Barber help find

leading definitions of c.i.f. 3. In this series of instances, it becomes clear that the seller transmits

the items to the buyer, transferring ownership of the merchandise via a paper title transfer. The

buyerʼs remedy is, therefore, only the carrier and not against the seller after the shipping was

completed for damage to the goods after delivery (McKendrick 2020, pp. 647-698). "We do not

see this arrangement as a contract for the sale of commodities," Scrutton stated.

Under the c.i.f. Contract, you agree to sell goods by providing papers such as an invoice,

bill of lading, and insurance policy as specified in Bankson J in Arnold (Karberge) v Blythe,

namely invoice, bill of lading, and insurance policy, and that agreement must be upheld as

legitimate. While the receipt of otherwise conforming papers made the deal legally binding, the

buyer was not obligated to pay for the documents' attempted endorsement because the

transaction was deemed illegal trade with the enemy. While defending in Gardano v Mamidakis,

McNair J stated, "It is not a contract that the goods will arrive, but a contract to ship goods

according to the terms of the contract of sale, to obtain, unless the contract otherwise provides,

the ordinary contract of carriage to the place of destination, and to tender these documents

against payment of the contract price." In contrast, Scrutton J contended that "It is not a contract

that the goods will arrive, but a contract to ship goods that are following the terms of the contract
 6

of sale, to obtain, unless the contract otherwise provides, the ordinary contract of carriage to the

place of destination, and to tender these documents for payment of the contract price."

In Hindley v East Indian Produce, the court ruled that the items must have been sent for

no need to arrive. Because the parties may insert words into the contract, a comprehensive list of

the relative obligations of the buyer and the seller is not feasible (McKendrick 2020, pp. 647-

698). The fundamental elements of a c.i.f contract as shipping of products and the arrangement

of the papers about the contract of carriage, insurance, and tender are detailed in The Julia,

written by Porter L. (omitting to comment on who has the responsibility to pay).

References

Alavi, H., 2017. Risk management techniques and their application to a documentary

discrepancy in the letter of the credit transaction. European Journal of Economic

Studies, 6(1), pp.4-17.

Bridge, M., 2019. C.I.F.C.I.F. and F.O.B.F.O.B. contracts in English law: current issues and

problems. In Research Handbook on International and Comparative Sale of Goods Law.

Edward Elgar Publishing.

Jones, L., and Bahrampoori, R., 2021. Applicable Law to Relationships in International Letters

of Credit. Law Quarterly, 51(2), pp.219-237.

McKendrick, E., 2020. C.I.F.C.I.F. Contracts (pp. 647-698). Informa Law from Routledge.

Poddar, P., 2019. The Rationalisation of Third-Party Rights under the Law of Undisclosed

Agency. N.A.L.S.A.R. Stud. L. Rev., 13, p.74.

Ryder, N., Griffiths, M. and Singh, L., 2012. Commercial law: Principles and policy. Cambridge

University Press.