Instaleaf, a Canadian clothing merchandiser, made a contract with Raston Clothing of Hong Kong whereby Instaleaf would import jackets from Raston and pay them by letter of credit. The letter of credit provided that shipments were to be made in installments from Taiwan to Montreal and that the foreign supplier could recover payment for each installment by making partial draws against the letter of credit. Each draw was to be made by presenting a draft for the price of each shipment together with the bill of lading, a commercial invoice, a Canadian customs invoice, an insurance certificate, and a quality inspection certificate. It also provided that the bill of lading was transferrable and subject to redirecting the location for delivery by the transferee. The L/C included the usual undertaking by the issuing bank to honour drafts presented by the negotiating bank that are accompanied by conforming documents.

The first and second shipments were made and invoiced for $107,000 and $85,000 respectively. At the time of the first shipment, the bill of lading was transferred to Cramkoft, another Canadian clothing merchandiser, the confirming bank presented the issuing bank a draft with conforming documents redirecting delivery to Cramkoft in Vancouver and that draft was honoured. After payment of the first draft, but before payment of the second draft it was discovered that the first shipment stated the initial delivery location was Quebec before Cramkoft redirected the delivery to Vancouver.

In addition, Interpol had issued an alert for banks to watch for forged documents for clothing shipments coming from Hong Kong with the forgers illegally using Cramkoft's name.

When the second draft was presented, the issuing bank said it was rejected because it was in the name of Cramkoft not Instaleaf. Instaleaf objected but was sued for breach by Raston, the seller, before it could resolve the issue. Instaleaf said the issuing bank is responsible for improperly rejecting the draft. During the suit it was discovered the second draft was forged and the documents listed Quebec as the initial destination.

The issuing bank asks you to give them an assessment of the case and whether Instaleaf will be successful in the suit against it.