THE POSSIBILITY OF ADOPTING OTHER EXCEPTIONS TO THE INDEPENDENCE PRINCIPLE IN LETTERS OF CREDIT IN THE PHILIPPINES

Abstract

The purpose of this thesis is to identify other exceptions to the application of documentary letters of credit other than the fraud exception rule as recognised by the courts in the US, England, Australia and Singapore, with special focus on their adaptability in the Philippines. After examining various cases, three other exceptions have emerged namely, unconscionability, illegality and nullity of documents.

The fraud rule is the only recognised exception in a letter of credit transaction. Only the existence of fraud could hinder payment to the beneficiary of a letter of credit. With the payment function of a letter of credit, the beneficiary is assured of payment. Any activity or transaction on the part of the beneficiary, absence of fraud, will not affect the letter of credit transaction. Consequently, beneficiaries are overly protected from non- payment while buyers/applicants are left with limited recourse.

This research examines other exceptions that could further be alleged by the applicant to stop the beneficiary from drawing on the credit. Upon further research, adapting the three other exceptions would promote balance of rights between the applicant and beneficiary as it would compensate for the rigid application of the independence principle. As a result, it had been concluded that the three other asserted exceptions could be adapted in the Philippines following the decisions arrived at or guidelines provided by the courts in the US, England, Australia and Singapore.