Land Bank v. Monet’s Export and Manufacturing (2005) G.R. No.

161865
March 10, 2005 YNARES-SANTIAGO, J.
TOPIC IN SYLLABUS: Doctrine of Independence  In commercial letter of credit
SUMMARY: Monet contended that Land Bank (issuing bank) ought to be held liable for paying on the LOC when the
goods actually delivered to Monet (as the applicant of the LOC and also the buyer of the goods) did not conform to the
specifications given.

[Divina,p.9] The issuing bank is not liable for damages even if the shipment did not conform to the specifications of the
applicant. Under the “independence principle”, the obligation of the issuing bank to pay the beneficiary arises once the
latter is able to submit the stipulated documents under the letter of credit.

PROCEDURAL ANTECEDENTS: Petition for Review on Certiorari (R45) filed by Land Bank before the SC.

FACTS:
 25 June 1981: Land Bank and Monet executed an agreement whereby the latter was given a credit line (P250k)
secured by the proceeds of its export letters of credit (LOC) – eventually this was increased to P5M.
o However, Monet repeatedly failed to pay its debts, which ballooned to P11.5M (P11,464,246.19).
 31 August 1992: Land Bank filed a complaint for the collection of sum of money, w/ prayer for preliminary
attachment, against Monet and the guarantors. [Manila RTC]
 Monet, et al. filed a joint Answer w/ Compulsory Counterclaim.
o Alleged that Land Bank had (1) failed and refused to collect the receivables on their export LOC against
Wishbone Trading (HK) totaling $33.4k ($33,434); AND, (2) had made unauthorized payments on their
import LOC to Beautilike (HK) in the amount of $38.8k ($38,768.4).
 15 July 1997: RTC recognized the obligation of Monet, et al. to Land Bank BUT granted the counterclaim
against Land Bank ($30k).
 Land Bank filed an appeal with the CA.
 9 October 2003: CA affirmed the RTC (and denied the MR).
o Held that due to the non-collection (Wishbone) and the unauthorized payment (Beautilike), Monet
suffered from lack of financial resources sufficient to buy the necessary materials to fill up standing
orders from customers.

ISSUES:
1. ***Did the RTC and CA err in holding that Land Bank failed to protect Monet’s interest, vis-à-vis the
unauthorized payment to Beautilike, despite discrepancies in the shipment vis-à-vis the order specifications
of Monet?***
2. Did the RTC and CA err in holding that Land Bank was liable for opportunity losses, vis-à-vis the
Wishbone transaction?
3. Did the RTC and CA err in limiting the obligation of Monet to Land Bank to what was stated in Exhibit 9
(Schedule of Amortization from the Loans and Discounts Department of LANDBANK)?

PETITIONER’S ARGUMENT:
1. Upon its receipt of the documents of title conforming with what the LOC requires, it was duty-bound to pay the
seller.
o As the issuing bank (Beautilike), it only deals in documents and is NOT involved in the contract between
the parties – the relationship between the beneficiary and the issuer is NOT strictly contractual as privity
and meeting of the minds are lacking.
2. [Note: not expressly discussed.]
3. [Note: not expressly discussed.]

RESPONDENT’S ARGUMENT: [Note: not expressly discussed.]

1. [Note: not expressly discussed.]
2. Land Bank failed in its duty to protect Monet’s interest in collecting the amount due to it from its customers.
3. [Note: not expressly discussed.]

HELD: [Dispositive: SC granted the petition]

DODOT CASE #16
1. ***YES. No fault or acts of mismanagement can be attributed to Land Bank relative to the Beautilike
transaction.***
 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. [quoting Bank of America, NT &SA v. CA]
 The “independence principle” assures the seller or the beneficiary of prompt payment independent of any
breach of the main contract and precludes the issuing bank from determining whether the main contract is
actually accomplished or not. [quoting Transfield Philippines, Inc. v. Luzon Hydro Corp., et al.]
 Uniform Customs and Practice (UCP) for Documentary Credits:
o Credits are separate transactions from the sales or other contract/s on which they may be based – banks
are in no way concerned with or bound by those other contracts (even if such contracts are referred to in
the credit). [Art. 3]
o Banks do not assume any liability/responsibility for the description, weight, quality, condition, packing,
delivery, value or existence of the goods represented by any documents. [Art. 15]
 SC: if the letter of credit is drawable only after the settlement of any dispute on the main contract entered into by
the applicant of the said letter of credit and the beneficiary, then there would be no practical and beneficial use for
letters of credit in commercial transactions.

2. NO. Land Bank was properly recognized as the attorney-in-fact of Monet vis-à-vis the Wishbone transaction.
 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.
 NOTE: amount awarded via counterclaim reduced to $15k.

3. YES. The lower courts overly relied on the figures contained in Exhibit 39, to the exclusion of other pieces of
documentary evidence annexed by Land Bank to its complaint.
 The amount covered by the said summary pertains only to the indebtedness of Monet to Land Bank amounting to
P2,500,000.00, as covered by one Promissory note – in fact, the records show that several promissory notes had
been issued in favor of Land Bank.
o Other evidence showing this:
 Consolidated Statement of Account;
 Summary of Availments and Payments from 1981 to 1989.
 No explanation was given why only Exhibit 39 was used to determine the indebtedness due to Land Bank.
 NOTE: SC had to remand the case to the lower court in order to determine the total amount of indebtedness due.

DODOT CASE #16