Hamilton's review of the books led him to conclude that the "sales of vehicles supposedly reflected by the sight drafts
, title certificates and accompanying materials were wholly fictitious.
The LC Beneficiaries might have had a better chance of payment of the LC if they had presented a sight draft
for $500,000, the maximum amount available for payment under the letter of credit, rather than the $1,500,000 sight draft
they had presented for payment.
The advantages of sight draft
terms to the importer are that they don't pay for the goods until the product arrives and it is less costly than an L/C.
The issuing bank responded that it had refused to honor the Beneficiary's sight draft
because of its customers' bankruptcy filing.
When a letter of credit is posted in lieu of a cash security deposit, the letter of credit provides that the landlord will be entitled to be paid by the tenant's bank up to the face amount of the letter of credit upon presenting to that bank (1) the original letter of credit; (2) a sight draft
, which merely directs the bank to pay the proceeds of the letter of credit to the landlord; and, in most cases, (3) a statement signed by the landlord specifying why the landlord is drawing on the letter of credit (i.e., because the tenant is in default under the lease).
As a result, the institution may raise the objection that it cannot honor a local government's sight draft
without an order of the bankruptcy court.