Prudential Bank v. CA, Phil.

Rayon Mills Inc, and Chi GR 74886

Facts:
Rayon Mills entered into a contract with Nissho Co of Japan for the importation of textile
machineries under a five-year deferred payment plan. He applied for a commercial letter of credit with
Prudential Bank in favor of Nissho to effect payment.

Prudential Bank opened one letter of credit, against this, drafts were drawn and issued by
Nissho, all of which were paid by Prudential Bank.

Prudential Bank indorsed the shipping documents to Rayon Mills which accepted the delivery. It
executed a trust receipt signed by President Chi of Rayon Mills with Prudential Bank to enable Rayon
Mills to take delivery of the machineries.

Rayon Mills later ceased business operation. Its factory was later leased by Yupanco Mills. 5 years later,
all textile machineries in the factory were sold to AIC Dev’t Corp.

The obligation of Rayon Mills remained unpaid and unliquidated despite repeated formal demands.

Prudential Bank filed an action for collection of the principal amount against Rayon Mills and Chi.

RTC ruled in favor of Prudential Bank, but dismissed the case against Chi. Prudential Bank appealed,
praying that Chi be solidarily liable and argued that CA erred in interpreting “sight” drafts as requiring
acceptance by Rayon Mills before the latter could be held liable thereon. CA sustained RTC decision.

Issue:

Whether or not presentment for acceptance of the drafts was indispensable to make Phil. Rayon Mills
liable.

Ruling:

No. Presentment for acceptance of the drafts was not indispensable to make Phil. Rayon Mills liable.

We are unable to agree with this proposition. The transaction in the case at bar stemmed from
Philippine Rayon’s application for a commercial letter of credit with the petitioner x.x.x. to cover the
former’s contract x.x.x. from Nissho Company.

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. Through a letter of credit, the bank merely substitutes its own promise
to pay for the promise to pay of 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.

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 need for acceptance as the issued drafts are
sight drafts. Presentment for acceptance is necessary only in the cases expressly provided for in
Section 143 of the Negotiable Instruments Law (NIL).
Petitioner: Elvira Yu Oh

Respondent(s): Court of Appeals and People of the Philippines

FACTS:

Petitioner purchased pieces of jewelry from Solid Gold International Traders, Inc. Due to her failure to
pay the purchase price, the company filed civil cases against her for specific performance before the RTC
of Pasig.

On September 17, 1990, petitioner and Solid Gold through it general manager, Joaquin Novales III
entered into a compromise agreement to settle said civil cases. It was approved by the trial court
provided that petitioner shall issue a total of ninety-nine post-dated checks in the amount of PHP
50,000.00 each, dated every 15 th and 30th of the month starting October 1, 1990 and the balance of over
PHP 1million to be paid in lump sum on November 16, 1994 (the due date of the 99 th post dated check).

Petitioner then issued ten checks at Php 50,000.00 each for a total of Php 500,000.00 drawn against her
account at the Equitable Banking Corporation (EBC). Novales then deposited each of the ten checks on
their respective due dates to the company bank account. However, said checks were dishonored by the
EBC for the reason “Account Closed”.

Dishonor slips were issued for each check that was returned to Novales. On October 5, 1992, Novales
filed 10 separate informations before the RTC of Quezon City charging the petitioner with violation of
Batas Pambansa Blg. 22. Upon arraignment, petitioner pleaded not guilty.

Nonetheless, RTC convicted her of ten counts of violation of BP 22. CA affirmed the decision.

ISSUES:

(1)   Whether or not appellate court was mistaken in not granting retroactive effect to RA 7691 in view
of Art 22 of the RPC.

(2)   Whether or not “notice of dishonor” is indispensable in this case.

HELD:

(1)   No.  RA 7691 is not a penal law and therefore, Art 22 of the RPC does not apply in the present case.
A penal law is an act of the legislature that prohibits certain acts and establishes penalties for its
violations. It also defines crime, treats of their nature and provides for its punishment. RA 7691 is a law
that vests additional jurisdiction on courts, thus, it is substantive. The court further held that it cannot
be given retroactive effect.

(2)   Yes. It is necessary that a “notice of dishonor” be received by the issuer and the prosecution has the
burden of proving the fact of service. It thus stated in section 2 of BP 22. It is essential for the drawer to
be notified of the dishonor of her checks so she could make arrangements for its payment within the
period prescribed by law (5 days).

Hence, SC reversed the decision of the CA and acquits the petioner.

https://www.scribd.com/document/331589294/73-PNB-v-Soriano