Assume that DownPillow sells pillows to a Japanese buyer and forwards documents and a draft for acceptance. Assume also that DownPillow discounts the trade acceptance to a U.S. bank, which then discounts the instrument in the credit markets. If the pillows turn out to be moldy and worthless, which of the following statement(s) is (are) true?

Question

Quizplus · Accepted Answer

The Japanese buyer must still honor and pay the acceptance upon presentation. The fact that the pillows turn out to be moldy and worthless is not a valid reason for the buyer to refuse payment under the terms of the acceptance. The U.S. bank is not liable for the quality of the goods and therefore is not obligated to reimburse anyone who bought the instrument. DownPillow may be liable for breach of contract if they failed to deliver conforming goods, but this would not affect the Japanese buyer's obligation to pay the acceptance.

Assume That DownPillow Sells Pillows to a Japanese Buyer and Forwards