The plaintiff contracted to purchase hog bristles from Transea Traders in India. The defendant bank issued an irrevocable letter of credit to Transea covering a shipment of hog bristles and payable upon presentation of the proper documents. Transea filled fifty cases with cow hair and other worthless rubbish in order to obtain an ocean bill of lading from the steamship company showing the shipment of fifty cases of hog bristles. The documents and draft were presented to the defendant bank by The Chartered Bank of India, acting as agent for Transea. The plaintiff brought this action against the issuing bank to restrain it from paying on the letter of credit.
1. What basic principle of letter of credit law does this decision challenge?
2. How would the result be different if the draft and documents had been sold and negotiated to a holder in due course who took with no knowledge of the fraud, and who then presented the documents to the issuing bank for payment?
3. Explain the misrepresentation that took place in this case. How was this "fraud in the transaction"? Can you think of other examples of how fraud could occur in a documentary letter of credit transaction between foreign parties?