Corby, an experienced tire broker in Wales, offered to sell tires to Chappell, a tire broker in California. Chappell contacted two U.S. tire distributors, Jenkins in Tennessee and Hein in Ohio, and agreed to act as their agent in negotiations with Corby. Corby claimed that he had a large client who had Chapter 7: Bank Collections, Trade Finance, and Letters of Credit 255 negotiated an arrangement directly with Michelin to handle all of its overstock blemished tires from France and who could offer 50,000 to 70,000 Michelin tires per quarter at 40 to 60 percent below the U.S. market price on an exclusive and ongoing basis. Corby faxed a list of tires, showing that the tires bore the designation “DA/2C.” Chappell faxed the list to Jenkins and Hein. They knew that the “DA” meant “defective appearance.” When Chappell asked Corby about the “/2C” he was told that it meant the tires were located at a different warehouse. Chappell told Corby on several occasions that since it was October 1998, the season for selling winter tires was almost over and that he required summer tires as well, to bundle with the winter tires. A second list showed no summer tires and nowhere near the 50,000 tires promised. In November and December, Corby pressured Chappell and Jenkins to open the letter of credit, asserting that if they did not do so the deal would be ended, thus preventing the buyers from being able to procure the requested summer tires. In late December, Jenkins began having reservations regarding the deal because Corby’s representations were becoming suspicious. Jenkins requested to speak to Corby’s source. Corby put him in touch with Evans, a tire distributor in England. In January, Evans sent the following fax to Jenkins:
There are large stocks of Michelin summer pattern tyres being made available within the next 7/10 days and we will be pleased to offer these to you when an acceptable Letter of Credit is received for the winter pattern tyres.
1. What are the buyer’s legal arguments supporting their petition for a restraining order? How do the facts support that argument? What precedent can they cite?
2. What are the seller’s arguments opposing the petition for a restraining order?
3. What do you think about the way the buyer handled this from the beginning? What does this say about their level of expertise in international business? Explain.
4. If you had been in the buyer’s position, what would you have done differently?
5. If the documents had not strictly complied with the credit, would this case have turned out differently?