phBar.org (Bar Exams Forum-Philippines)

I.

X Corporation entered into a contract with PT Construction Corp. for the latter to construct and build a sugar mill within six (6) months. They agreed that in case of delay, PT Construction Corp. will pay X Corporation P100,000 for every day of delay. To ensure payment of the agreed amount of damages, PT Construction Corporation secured from Atlantic Bank a confirmed and irrevocable letter of credit which was accepted by X Corporation in due time. One week before the expiration of the six (6) month period, PT Construction Corp. requested for an extension of time to deliver claiming that the delay was due to the fault of X Corporation. A controversy as to the cause of the delay which involved the workmanship of the building ensued. The controversy remained unresolved. Despite the controversy, X Corporation presented a claim against Atlantic Bank by executing a draft against the letter of credit.

A) Can Atlantic Bank refuse payment due to the unresolved controversy? Explain. (3%)

B) Can X Corporation claim directly from PT Construction Corporation? Explain. (3%)

My suggested answer

a) Atlantic Bank cannot refuse payment due to unresolved controversy. The settlement of a dispute between the parties is not a condition precedent to the release of funds under a letter of credit. Under the independence principle, the beneficiary is assured of prompt payment independent of any breach of the main contract and bars the issuing bank from determining whether the main contract is actually accomplished or not. The issuing banks' undertaking is simply to pay once the required documents are presented by the beneficiary with which X Corporation in fact complied in the instant case.

b) This depends on the stipulations of the contract. The answer is in the affirmative if the contract provides that X Corporation, without prejudice to any other method of recovery, deduct the amount of the liquidated damages from any monies due, or to become due to the PT Construction Corp. and/or by drawing on the security.

is the letter of credit a standby letter of credit?

i think this question was substantially taken from the case of Transfield Philippines v. Luzon Hydro Corp (Nov. 22, 2004) penned by no less than Justice Tinga himself. by the way, nung exam khpon, did anyone notice that Justice Tinga was visiting the classrooms? as in pumapasok sya sa loob ng room. may nagppicture-picture habang nag-eexam mga examinees and he was at the back of each of the classroom habang tntake yung picture

almost the same answer with manresa but in b. i said yes, something like based on faithful compliance of the contract.

My answer is based on this case law.

2nd sunday i noticed merong nagpipicture sa room namin, maraming beses eh but i did not notice justice tinga because of the very long civil law exam.I guess sya yun.

I noticed justice Tinga entered our classroom during the 3rd sunday. Sabi pa ng mga kasama ko, binabasa daw nya mga sagot ng iba. Hehe. Buti nlng sa harapan seat ko. Hehe. I concur with Manresa with sub-question a. I also invoked the independence principle. Sa presentation ng sagot nlng siguro magkakatalo. With respect sub question b, i can't recall na my answer. Mercantile was the most difficult exam.. for me.