The manager of the international department of the McAllen Bank learns on the way to work that the ship
on which a local exporter shipped some goods has sunk. The manager has received all the documents required in the letter of credit and is ready to pay the exporter for the shipment. In view of the news about the ship, the manager now knows that the foreign customer will never receive the goods.
Should the manager pay the exporter, or should he withhold payment and notify the overseas customer?
The fact that the bank manager knows the ship sank is immaterial. The proper paperwork has been received to authorize payment. If the purchaser did not pay for insurance, and the shipper provide it, it is the purchaser's loss.
To determine the appropriate action for the manager in this scenario, we need to consider the underlying principles of a letter of credit and the responsibilities of the parties involved.
A letter of credit is a financial instrument used in international trade transactions. It serves as a guarantee of payment from the importer's (overseas customer) bank to the exporter (local exporter). The letter of credit outlines the conditions that the exporter must meet to receive payment, including the submission of specified documents.
In this case, the manager has received all the required documents from the exporter, and in normal circumstances, the manager would be obligated to make payment to the exporter. However, due to the unfortunate incident of the ship sinking, it is clear that the foreign customer will never receive the goods.
The manager now faces a dilemma of whether to pay the exporter or withhold payment and notify the overseas customer. To make an informed decision, the manager should consider the following factors:
1. Contractual Obligations: The manager should review the terms of the underlying contract between the exporter and the overseas customer. If the contract includes provisions or force majeure clauses that address such situations, those need to be taken into consideration.
2. Legal and Ethical Considerations: The manager should evaluate the legal and ethical implications of the situation. Is there any jurisdiction-specific legal requirement or regulation that guides how to handle such incidents? Additionally, ethically, the manager should consider the principles of fairness and acting in good faith.
3. Communication and Transparency: The manager should communicate promptly with both the exporter and the overseas customer to inform them about the situation and seek a resolution. Transparency is crucial in maintaining trust and preserving relationships with all parties involved.
Based on a thorough analysis of the contractual obligations, legal and ethical considerations, as well as effective communication, the manager can then determine the appropriate course of action.