The president of your client, Sweet Tooth, Inc. of New York comes to your law office. Sweet Tooth, Inc. is a major producer of candy and chocolate. Up to now, Sweet Tooth, Inc. has purchased the cocoa it needs for chocolate production from an American wholeseller. However, Sweet Tooth, Inc. has now determined that it is far cheaper to import the cocoa directly from a seller in a cocoa producing country.
Sweet Tooth, Inc. has been in negotiations with Cocoa Beans, Inc. a producer of cocoa located in Ecuador. An agreement has been reached that Sweet Tooth, Inc. will purchase 60,000 pounds of quality 1AA cocoa beans at a price of US Dollar 3,000.000.--, but there has been some dispute on how payment is to be made.
Cocoa Beans, Inc. has now sent an e-mail to Sweet Tooth, Inc. suggesting payment as follows:
“Payment is to be made by a documentary letter of credit, payable against the following documents:
- original clean, onboard bill of lading;
- certificates of weight, quality and origin issued by the Ministry of Cocoa Exports, Quito, Ecuador;
- three invoices;
- marine insurance naming Sweet Tooth, Inc. as beneficiary.”
The president of Sweet Tooth, Inc. has never dealt with letters of credit before and has no idea what this letter means. Please explain to him how this transaction would work, explaining each of the important terms mentioned in the letter of Cocoa Beans, Inc. Your client is worried that if there is a dispute under the letter of credit – for example, whether a certificate is in strict compliance with the letter of credit – the issue might arise whether this question is be resolved under the laws of Ecuador or of New York or otherwise. What do you advise your client in this regard in order to avoid this uncertainty?