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Importer A concluded a deal with company B, payment was by letter of credit
Importer A concluded a deal with company B, payment was by letter of credit. Company A opened L/C through his bank I. Company B shipped the goods as per sales contract and prepared documents required by the L/C. However, when company B was to present the documents, it received a cable from Bank I notifying company B that the applicant was bankrupt, therefore Bank I no longer held liability for payment.
Question: Is the issuing bank entitled to refuse the payment? Please Explain.
Expert Solution
All letter of credits are irrevocable according to UCP 600 and all credits will be paid by the bank in case of bankruptcy and it will also mean that the beneficiary always has to make a complying presentation in order to receive the payment.
in this case, the payment can never be cancelled by the bank because the issuing bank will be obligated for the payment because there are no conditions for issuance of the revocable letter of credit as they are almost uncommon so there is always an irrevocable letter of credit until everybody agrees to cancel the contract.
THE ISSUING BANK CANNOT REFUSE THE PAYMENT AND IT IS OBLIGATED TO PAY.
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