Commercial Law, 2019 Bar — Question B.20-a

ESSAY

F Corp., a corporation engaged in the export of fertilizers, entered into a sale of its products with Mr. P. In relation thereto, Bank C, F Corp.'s bank, received an irrevocable letter of credit, payable on sight, issued by Bank I for the account of its client, Mr. P, in the amount of P1,000,000.00 to cover the purchase price of the sale. In the letter of credit, Bank C was designated as the confirming bank. After being presented the required documents under the letter of credit, Bank C issued in favor of F Corp. a cashier's check in the amount of P1,000,000.00. Bank C then informed Bank I of the payment made pursuant to the letter of credit. Thereafter, Bank C transmitted the documents presented by F Corp. to Bank I and sought to be reimbursed from the amount it paid to F Corp. Bank I, however, refused to reimburse Bank C for the reason that it received an e-mail coming from Mr. P that the latter will not make any payment to Bank I in relation to the letter of credit because the products shipped to him by F Corp. were of substandard quality. (a) Is Bank I's refusal to reimburse Bank C warranted? Explain.

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