Letter of Credit Non-payment Resulted in Paper Slippers Becoming a Tax Deduction

Letter Of Credit, Beneficiary, Applicant

LETTER OF CREDIT ISSUED FOR THE PAYMENT

A New York bank issued a letter of credit for the importation of paper slippers used in medical clinics and hospitals. The patients donned the disposable slippers as they strolled through sanitary areas of the hospital. The merchandise description on the letter of credit read as follows: “paper slippers with soles double-stitched.”

"DISCREPANCIES" IN THE DOCUMENTS

The documents presented by the beneficiary did not properly indicate double-stitched soles. The issuing bank inadvertently overlooked this requirement and honored the beneficiary’s request for payment.

When the applicant received the slippers and inspected the incorrect documents, he rejected them, demanding that the issuing bank refund their money. Since the bank had already paid the beneficiary, the bank became the unwilling owner of single-stitched paper slippers with little hope of selling them to recover their loss.

DONATE THE SLIPPERS

An official at the bank ingeniously suggested they donate the slippers to a Veterans Administration hospital and capture a tax deduction. The savings resulting from the tax deduction nearly compensated the bank for its loss.

Another lesson learned, thanks to Jim Harrington.