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and ANACLETO R. CHI, respondents. FACTS : Philippine Rayon Mills, Inc. (PRMI)applied for a commercial letter of credit with Prudential bank for the importation of textile machinery with Nissho Co., Ltd. of Japan. Prudential Bank executed a trust receipt signed by the President of PRMI. PMRI received the machinery and installed the same at its factory. PMRI ceased business sometime in 1967 without paying his obligation arising from the letters of credit and trust receipt. Repeated demands for the payment of the said trust receipt were made and to no avail. Hence, action for collection of money was filed to the trial court.
ISSUE : Whether Philippine Rayon is liable on the basis of the trust receipt?
HELD : Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturity of any accepted draft, bill of exchange or indebtedness shall not be extinguished or modified" 17 does not, contrary to the holding of the public respondent, contemplate prior acceptance by Philippine Rayon, but by the petitioner. Acceptance, however, was not even necessary in the first place because the drafts which were eventually issued were sight drafts And even if these were not sight drafts, thereby necessitating acceptance, it would be the petitioner — and not Philippine Rayon — which had to accept the same for the latter was not the drawee. Presentment for acceptance is defined an the production of a bill of exchange to a drawee for acceptance. 18 The trial court and the public respondent, therefore, erred in ruling that presentment for acceptance was an indispensable requisite for Philippine Rayon's liability on the drafts to attach. Contrary to both courts' pronouncements, Philippine Rayon immediately became liable thereon upon petitioner's payment thereof. Such is the essence of the letter of credit issued by the petitioner. A different conclusion would violate the principle upon which commercial letters of credit are founded because in such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the petitioner, respectively, would be placed at the mercy of Philippine Rayon even if the latter had already received the imported machinery and the petitioner had fully paid for it. Commercial letters of credit have come into general use in international sales transactions where much time necessarily elapses between the sale and the receipt by a purchaser of the merchandise, during which interval great price changes may occur. Their purpose is to insure to a seller payment of a definite amount upon presentation of documents. The bank deals only with documents. It has nothing to do with the quality of the merchandise. Disputes as to the merchandise shipped may arise and be litigated later between vendor and vendee, but they may not impede acceptance of drafts and payment by the issuing bank when the proper documents are presented. A letter of credit is defined as an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. 11 Through a letter of credit, the bank merely substitutes its own promise to pay for one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. 12 In the instant case then, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. In fact, there was no
1993 BANK OF AMERICA. NT & SA. COURT OF APPEALS. No. given the factual findings of the courts below. Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). who refuses to part with his goods before he is paid. BA advice Bank of Ayudhya of IR’s availment under the letter of credit and asked for the corresponding reimbursement. G. respondents. for the sale of plastic ropes and agricultural files with Bank of America as advising bank and Inter-Resin Industrial Corp. FRANCISCO TRAJANO. the buyer may be required to contract a bank to issue a letter of credit in favor of the seller so that. JOHN DOE AND JANE DOE. who wants to have control of the goods before paying. but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer. 10 The buyer and the seller agree on what documents are to be presented for payment. petitioner bank.need for acceptance as the issued drafts are sight drafts. as beneficiary. Inter-Resin made a partial availment of the Letter of Credit after presentment of the required documents to Bank of America.Resin told Bank of America to confirm said letter of credit. is entitled to recover on Inter-Resin's partial availment as beneficiary of the letter of credit which has been disowned by the alleged issuer bank. by virtue of the latter of credit. we conclude that petitioner Bank of America has acted merely as a notifying bank and did not assume the responsibility of a confirming bank. 105395 December 10. 9 To break the impasse. Inc. Bank of America explained that there was no need for confirmation. INTER-RESIN INDUSTRIAL CORPORATION. vs. FACTS : Bank of America received an Irrevocable Letter of Credit issued bu Bank of Ayudhya for the Account of General Chemicals Ltd. IR presented documents for the second availment under the same LC but BA stopped the processing of such after they received a telex from Bank of Ayudhya delaring that the LC fraudulent. After confirmation of all the documents BA issued a check in favor of IR.. the issuing bank can authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously with the tender of documents required by the letter of credit. as a negotiating bank. and Second. ISSUE : Whether or not Bank of America may recover what it has paid under the letter of credit to Inter-Resin? HELD : In fine. . but the bank did not confirm such. Upon receipt of the letter advice with letter of credit by Inter. and a buyer. petitioners. A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller. we hold that — First.R. BA sued IR for the recovery of the first LC payment.
17 which undertakes to encash the drafts drawn by the exporter. with General Chemicals. As an advising or notifying bank. As the seller. 27 It would have. of a confirming bank 16 which will lend credence to the letter of credit issued by a lesser known issuing bank. It may be significant to recall that the letter of credit is an engagement of the issuing bank. and the admission of Inter-Resin that it has paid the same. Further payments were. the De Reny Fabric Industries. or. in fact. aforementioned. AURORA T. bank. among other things. Inc. That Bank of America has asked Inter-Resin to submit documents required by the letter of credit and eventually has paid the proceeds thereof. The fact. Inc. 12 who procures the letter of credit and obliges himself to reimburse the issuing bank upon receipts of the documents of title. subsequently . 28 In the ordinary course of business. No. in responding to the inquiry made by Atty.R. Bank of America did not incur any obligation more than just notifying Inter-Resin of the letter of credit issued in its favor. Indeed. INC. Inter-Resin itself cannot claim to have been all that free from fault. to pay the draft. too. the services of an advising (notifying) bank 15 may be utilized to convey to the seller the existence of the credit. 26 nor can it justify the conclusion that the bank must now assume total liability on the letter of credit. or negotiated at the every least. not the advising bank. Tanay. only been an advising. vs. looking at this case. plaintiff-appellee. TUYO and AURORA CARCERENY alias AURORA C. and. or. Further. The number of the parties. As each shipment arrived in the Philippines. termed the negotiating bank. the petitioner bank's letter of advice. G. instead of going to the place of the issuing bank to claim payment.B. applied to the Bank for four (4) irrevocable commercial letters of credit to cover the purchase by the corporation of goods from its American supplier. FACTS : De Reny Fabric Industries. Thus. enter into a contract. not confirming. that Bank of America has. the buyer may approach another bank. its request for payment of advising fee. DE RENY FABRIC INDUSTRIES. not infrequently and almost invariably in international trade practice. in fact. however. Inter-Resin's representative. and this much is clearly evident. L-24821 October 16. It cannot seriously be disputed. did not obviously make it a confirming bank. prior to the letter of credit. the issuance of the letter of credit should have obviously been a great concern to it. on the authenticity of the letter of credit certainly did not have the effect of novating the letter of credit and Bank of America's letter of advise. 13 which undertakes to pay the seller upon receipt of the draft and proper document of titles and to surrender the documents to the buyer upon reimbursement. the perfection of contract precedes the issuance of a letter of credit. (c) the seller. defendants-appellants. 14 who in compliance with the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment. made partial payments to the Bank amounting.There would at least be three (3) parties: (a) the buyer. by the provisions of the letter of credit itself. Distributing Company. let alone to confirm the letter of credit. 18 to have the draft discounted. may be increased. 1970 BANK OF THE PHILIPPINE ISLANDS. 25 The bare statement of the bank employees. (b) the bank issuing the letter of credit.. the J. that the draft required by the letter of credit is to be drawn under the account of General Chemicals (buyer) only means the same had to be presented to Bank of Ayudhya (issuing bank) for payment. of a paying bank. GONZALES. been strange if it did not.
MENDOZA. the ones who tapped the facilities afforded by the Bank in order to engage in international business. ISSUE : Whether or not De Reny fabrics is liable under the letter of Credit? HLED : Under the terms of their Commercial Letter of Credit Agreements with the Bank. quantity. BEN MENDOZA & JUANITA M. Phiilam life required that the amortization be guaranteed by an irrevocable LC of a commerciaql bank. such LC’s in turn. therefore. It was uncontrovertibly proven by the Bank during the trial below that banks. quantity." Having agreed to these terms. but deal only with documents. default or fraud by the shipper or anyone else in connection with the property the shippers or vendors and ourselves [purchasers] or any of us. no recourse but to comply with their covenant.. for any difference in character. and for this reason. 74834 November 17. after all. vs.R. secured by a real mortgage on the property of spouses in favor of IBAA. character. The Mendoza’s contracted Insular Bank of Asia and America (IBAA) for the issuance of LC in favor of Philam life. 1988 INSULAR BANK OF ASIA & AMERICA (NOW PHILIPPINE COMMERCIAL INTERNATIONAL BANK). the appellants agreed that the Bank shall not be responsible for the "existence. petitioner. respondents. the Bank caused them to be deposited with a bonded warehouse paying therefor the amount of P12. ." as well as "for any deviation from instructions. or delivery of the property purporting to be represented by documents. condition. G. the appellants have. or value of the property from that expressed in documents. SPS. FACTS : Spouses Mendoza obtained a from PHILAM Life to finance the construction of their residential house." or for "partial or incomplete shipment. But even without the stipulation recited above. in providing financing in international business transactions such as those entered into by the appellants. They were. The corporation also refused to take possession of these goods. that the goods that arrived in Manila were colored chalks instead of dyestuffs. delay. as a result of a chemical test conducted by the National Science Development Board.64 up to the filing of its complaint with the court. the appellants cannot shift the burden of loss to the Bank on account of the violation by their vendor of its prestation. INTERMEDIATE APPELLATE COURT.609. do not deal with the property to be exported or shipped to the importer. No. The existence of a custom in international banking and financing circles negating any duty on the part of a bank to verify whether what has been described in letters of credits or drafts or shipping documents actually tallies with what was loaded aboard ship. value. conditions. HON. packing. THE PHILIPPINE AMERICAN LIFE INSURANCE CO. quality. having been positively proven as a fact. the appellants are bound by this established usage. or failure or omission to ship any or all of the property referred to in the Credit.discontinued by the corporation when it became established. quality.
56 from IBAA but the latter took the position that. which is within the powers of a bank. the circumstances and intention of the parties to them. therefore. the latter's separate undertaking under its L/Cs remains. Pursuant to its absolute undertaking under the L/Cs. That would make them ultra vires rather than a letter of credit. the payments made by the Mendozas cannot be added in computing IBAA's liability under its own standby letters of credit. including liquidated damages. . was extrajudicially foreclosed by. Unequivocally. the subject standby Letters of Credit secure the payment of any obligation of the Mendozas to Philam Life including all interests. Letters of credit and contracts for the issuance of such letters are subject to the same rules of construction as are ordinary commercial contracts. the amount allegedly still owing under the loan. to petitioner IBAA as the lone and highest bidder. They are to receive a reasonable and not a technical construction and although usage and custom cannot control express terms in letters of credit. is entitled to a refund? HELD : In construing the terms of a Letter of Credit. "in effect an absolute undertaking to pay the money advanced or the amount for which credit is given on the faith of the instrument.000. Both Notes authorized IBAA "to sell at public or private sale such securities or things for the purpose of applying their proceeds to such payments" of many particular obligation or obligations" the Mendozas may have to IBAA. and the usages of the particular trade of business contemplated . which secured the two (2) standby L/Cs. to the particular and often varying terms in which they may be expressed.00. They are primary obligations and not accessory contracts.000. The Real Estate Mortgage. they are not converted thereby into contracts of guaranty. The Mendozas failed to pay Philam Life the amortization and informed IBAA that it was declaring the entire balance outstanding on both loans. But while they are a security arrangement. for the recovery of the sum of P274. And although these payments could result in the reduction of the actual amount which could ultimately be collected from IBAA. Being separate and independent agreements.779.Mendoza’s executed promissory notes in favor of IBAA. Payments made by the Mendozas directly to Philam Life are in compliance with their own prestation under the loan agreements. Branch XXXXI.779. IBAA cannot escape the obligation to pay Philam Life for this unexpended balance. as in other contracts. they are to be construed with reference to all the surrounding facts and circumstances. That there still remains a balance on the loan.56.00. surcharges and expenses thereon but not to exceed P600. "immediately due and payable. as a melee guarantor of the Mendozas who are the principal debtors. and sold at public auction for P775. Philam Life filed suit against Respondent Spouses and IBAA before the Regional Trial Court of Manila. it is the intention of the parties that must govern. The standby L/Cs are." Philam Life then demanded the payment of P274. ISSUE : Whether or not IBAA has no more liability to Philam Life under the two (2) standby Letters of Credit and. instead.
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