LETTERS OF CREDIT CASES

1. THE HONGKONG & SHANGHAI BANKING CORPORATION, LIMITED vs.

NATIONAL STEEL CORPORATION & CITY TRUST BANKING CORPORATION

G.R. NO. 183486, February 24, 2016

FACTS:

The National Steel Corporation (NSC) and Klockner East Asia Limited
(Klockner) entered into an Export Sales Contract on October 12, 1993 to which
NSC sold 1,200 metric tons of prime cold rolled coils to Klockner. In securing
its payment to NSC, Klockner applied with HSBC and irrevocable Letter of
Credit amounting to 468,000 US dollars
naming NSC as the beneficiary to the Letter of Credit.

HSBC then issued an irrevocable Letter of Credit in favor of NSC governed by

UCP 400 and further stipulated that HSBC has the obligation to NSC upon the
presentment of the documents listed in the Letter of Credit.

There was an amendment on the Letter of Credit and it was done twice. The
first amendment was for the transferring of the terms of the contract from FOB
ST Iligan to FOB ST Manila and further increased the amount to $488,000,
while the second amendment was for the delivery date of the prime cold rolled
coils.

The prime cold rolled coils were loaded to MV Sea Dragon under China Ocean
Shipping Company with Bill of Lading No. HKG 266001 and the same arrived
in
Hong Kong. Thereafter, NSC through City Trust facilitated the collection of its
payment from Klockner by the Letter of Credit issued by HSBC. Thereafter, City
Trust sent HSBC a collection Order as HSBC acknowledged the receipt.

Klockner refused payment neither to give any reason of such refusal. NSC
sent HSBC a demand letter.

ISSUE:
Who among the parties bear the liability to pay the amount stated in the
Letter of Credit?

HELD:
The Court ruled based on the principle of Independence on the law on Letters
of Credit. In this case, HSBC has the obligation as it binds itself both to
Klockner and NSC as it freely and knowingly must perform an act, where its
obligation arises from
the two source, First, it has a contractual obligation to Klockner when it agreed
to pay NSC upon the due presentment to it of the LC by City Trust, Second,
HSBC has
the obligation to NSC to honor the LC. The obligation of HSBC to pay NSC
under the LC will stand independent even if Klockner refuse to pay.

2. LAND BANK OF THE PHILIPPINES, Petitioners, vs. MONET’S EXPORT

AND MANUFACTURING CORPORATION, SPOUSES VICENTE V. TAGLE, SR.
and MA. CONSUELO G. TAGLE, Respondents

G.R. No. 161865. March 10, 2005

FACTS:

On June 25, 1981, petitioner, Land Bank of the Philippines (Land Bank), and
Monet's Export and Manufacturing Corporation (Monet) executed an Export
Packing Credit Line Agreement under which Monet was given a credit line in
the amount of P250,000.00, secured by the proceeds of its export letters of
credit, the continuing guaranty of the spouses Tagle and the third party
mortgage executed by Mendigoria.

The credit line agreement was renewed and amended several times until it was
increased to P5,000,000.00. Owing to the continued failure and refusal of
Monet, notwithstanding repeated demands, to pay its indebtedness to Land
Bank, which have ballooned to P11,464,246.19 by August 31, 1992, a
complaint for collection of sum of money was filed.

Monet and the Tagle spouses alleged that Land Bank failed and refused to
collect the receivables on their export letter of credit against Wishbone Trading
Company of Hong Kong in the sum of US$33,434.00, while it made
unauthorized payments on their import letter of credit to Beautilike (H.K.) Ltd.
in the amount of US$38,768.40, which seriously damaged the business
interests of Monet.

Both RTC and CA find for the petitioner.

ISSUE: Whether or not Land Bank is liable for acts of mismanagement relative
to Monet’s Letters of Credit.

HELD:
What characterizes letters of credit, as distinguished from other accessory
contracts, is the engagement of the issuing bank to pay the seller once the
draft and the required shipping documents are presented to it. In turn, this
arrangement assures the seller of prompt payment, independent of any breach
of the main sales contract. By this so-called "independence principle," the bank
determines compliance with the letter of credit only by examining the shipping
documents presented; it is precluded from determining whether the main
contract is actually accomplished or not.

SC finds merit in the contention of Land Bank that, as the issuing bank in the
Beautilike transaction involving an import letter of credit, it only deals in
documents and it is not involved in the contract between the parties. The
relationship between the beneficiary and the issuer of a letter of credit is not
strictly contractual, because both privity and a meeting of the minds are
lacking. Thus, upon receipt by Land Bank of the documents of title which
conform with what the letter of credit requires, it is duty bound to pay the
seller, as it did in this case. Thus, no fault or acts of mismanagement can be
attributed to Land Bank relative to Monet's import letter of credit.

A careful review of the records reveal that the trial court correctly considered
Land Bank as the attorney-infact of Monet with regard to its export
transactions with Wishbone Trading Company. As the attorney-in-fact of Monet
in transactions involving its export letters of credit, such as the Wishbone
account, Land Bank should have exercised the requisite degree of diligence in
collecting the amount due to the former. The records of this case are bereft of
evidence showing that Land Bank exercised the prudence mandated by its
contractual obligations to Monet. The failure of Land Bank to judiciously
safeguard the interest of Monet is not without any repercussions vis-à-vis the
viability of Monet as a business enterprise.
TRANSPORTATION LAW CASES

1. SPOUSES TEODORO and NANETTE PERENA, Petitioners, v. SPOUSES

NICOLAS and TERESITA L. ZARATE, PHILIPPINE NATIONAL RAILWAYS,
and the COURT OF APPEALS, Respondents

G.R. No. 157917, August 29, 2012

FACTS:

Spouses Teodoro and Nanette Peres (Peres) were engaged in the business of
transporting students from their respective residences in Paraque City to Don
Bosco in Pasong Tamo, Makati City, and back. They employed Clemente Alfaro
(Alfaro) as driver of the van. Spouses Nicolas and Teresita Zarate (Zarates)
contracted the Peres to transport their son Aaron to and from Don Bosco.

Considering that the students were due at Don Bosco by 7:15 a.m., and that
they were already running late because of the heavy vehicular traffic on the
South Superhighway, Alfaro took the van to an alternate route at about 6:45
a.m. by traversing the narrow path underneath the Magallanes Interchange.
The railroad crossing in the narrow path had no railroad warning signs, or
watchmen, or other responsible persons manning the crossing. In fact, the
bamboo barandilla was up, leaving the railroad crossing open to traversing
motorists.

At about the time the van was to traverse the railroad crossing, PNR Commuter
No. 302 (train), was in the vicinity of the Magallanes Interchange travelling
northbound. As the train neared the railroad crossing, Alfaro drove the van
eastward across the railroad tracks, closely tailing a large passenger bus. His
view of the oncoming train was blocked because he overtook the passenger bus
on its left side. The train blew its horn to warn motorists of its approach. The
passenger bus successfully crossed the railroad tracks, but the van driven by
Alfaro did not. The impact threw nine of the 12 students in the rear, including
Aaron, out of the van. Aaron landed in the path of the train, which dragged his
body and severed his head, instantaneously killing him.

Thus, the Zarates sued the Peres for breach of contract of carriage and the PNR
for quasi-delict. The RTC ruled in favor of the Zarates. On appeal, the CA
affirmed the findings of the RTC.
ISSUE: Whether or not the Peres are liable for breach of contract of carriage?

HELD: The petition has no merit.

A common carrier is a person, corporation, firm or association engaged in the

business of carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering such services to the public. Contracts
of common carriage are governed by the provisions on common carriers of the
Civil Code, the Public Service Act, and other special laws relating to
transportation. A common carrier is required to observe extraordinary
diligence, and is presumed to be at fault or to have acted negligently in case of
the loss of the effects of passengers, or the death or injuries to passengers. The
true test for a common carrier is not the quantity or extent of the business
actually transacted, or the number and character of the conveyances used in
the activity, but whether the undertaking is a part of the activity engaged in by
the carrier that he has held out to the general public as his business or
occupation.

Applying these considerations to the case before us, there is no question that
the Peres as the operators of a school bus service were: (a) engaged in
transporting passengers generally as a business, not just as a casual
occupation; (b) undertaking to carry passengers over established roads by the
method by which the business was conducted; and (c) transporting students
for a fee. Despite catering to a limited clientele, the Peres operated as a
common carrier because they held themselves out as a ready transportation
indiscriminately to the students of a particular school living within or near
where they operated the service and for a fee.

Article 1755 of the Civil Code specifies that the common carrier should "carry
the passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with a due regard for all the
circumstances." To successfully fend off liability in an action upon the death or
injury to a passenger, the common carrier must prove his or its observance of
that extraordinary diligence; otherwise, the legal presumption that he or it was
at fault or acted negligently would stand.

According to Article 1759 of the Civil Code, their liability as a common carrier
did not cease upon proof that they exercised all the diligence of a good father of
a family in the selection and supervision of their employee. The Peres were
liable for the death of Aaron despite the fact that their driver might have acted
beyond the scope of his authority or even in violation of the orders of the
common carrier. DENIED.
2. DELSAN TRANSPORT LINES, INC. vs. COURT OF APPEALS

G.R. No. 127897 - November 15, 2001

FACTS:

Caltex Philippines entered into a contract of affreightment with the petitioner,

Delsan Transport Lines, Inc., for a period of one year whereby the said common
carrier agreed to transport Caltex’s industrial fuel oil from the Batangas-
Bataan Refinery to different parts of the country. Under the contract, petitioner
took on board its vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil
of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. The
shipment was insured with the private respondent, American Home Assurance
Corporation.

On August 14, 1986, MT Maysun set sail from Batangas for Zamboanga City.
Unfortunately, the vessel sank in the early morning of August 16, 1986 near
Panay Gulf in the Visayas taking with it the entire cargo of fuel oil.

Subsequently, private respondent paid Caltex the sum of Five Million Ninety-
Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos
(P5,096,635.57) representing the insured value of the lost cargo. Exercising its
right of subrogation under Article 2207 of the New Civil Code, private
respondent demanded of the petitioner the same amount it paid to Caltex. Due
to its failure to collect from the petitioner despite prior demand, private
respondent filed a complaint with the Regional Trial Court of Makati, Branch
137, for collection of a sum of money. After trial, the trial court rendered a
decision on November 29, 1990 dismissing the complaint. The trial court found
that the vessel, MT Maysun, was seaworthy and that the incident was caused
by unexpected inclement weather condition or force majeure, thus, exempting
the common carrier from liability for the loss of its cargo.

The decision of the trial court, however, was reversed, on appeal, by the Court
of Appeals. The appellate court ruled that petitioner is liable on its obligation
as common carrier to herein private respondent insurance company as
subrogee of Caltex. The subsequent motion for reconsideration was denied by
the appellate court. Hence, petitioner filed the instant petition before the
Supreme Court.

ISSUE:
Whether or not the payment made by private respondent to Caltex amounted to
an automatic admission of the vessel’s seaworthiness.

HELD:

No.The payment made by the private respondent for the insured value of the
lost cargo operates as waiver of its (private respondent) right to enforce the
term of the implied warranty against Caltex under the marine insurance policy.
However, the same cannot be validly interpreted as an automatic admission of
the vessel’s seaworthiness by the private respondent as to foreclose recourse
against the petitioner for any liability under its contractual obligation as a
common carrier. The fact of payment grants the private respondent
subrogatory right which enables it to exercise legal remedies that would
otherwise be available to Caltex as owner of the lost cargo against the
petitioner common carrier.