UNIVERSITY OF SAN CARLOS COLLEGE OF LAW FIRST YEAR SECOND SEMESTER

COURSE Obligations and Contracts

MODULE NO. B TOPIC Quasi-contracts, sources of obligations

CASE TITLE Rodzssen Supply, Inc. vs. Far East Bank & Trust Co., 148 SCAD 392, 357 SCRA 618 (G.R. No. 109087,
May 9, 2001

DIGESTED BY Danica Tiu

PARTIES TO THE CASE

(who are the petitioners, respondents, etc.)

RODZSSEN SUPPLY CO. INC., petitioner,

vs.
FAR EAST BANK & TRUST CO., respondent.

FACTS OF THE CASE

(include relevant facts, and rulings from lower courts, if applicable.)

● A 30-day notice of intent to sue on January 15, 1979 was filed by Rodzssen Supply Co., Inc.,
which happens to be the defendant. Domestic letter credit for Ekman and
Company in the sum of P190,000 with the plaintiff, Far East Bank, and Trust Co.

● It was phased out on February 15, 1979. It was prolonged till the 16th of October,
1979. They bought five Hydraulic units, and three of them were successfully delivered to
the defendant on March 16, 1979.

● The plaintiff paid Ekman P114, 000.00 on March 26, 1979. Ekman sent the remaining two
pieces, which cost P76,000.00, before the LC maturity date. Ekman received the
remaining P76,000.00 from the plaintiff.

● The bank paid the amount stipulated in the letter of credit for the first three hydraulic
loaders supplied. Only the latter two hydraulic loaders are the subject of the current
controversy. However, when Defendant pursued pay from Plaintiff, they refused to pay
P76,000.00 for no valid reason.

● The plaintiff violated his contract by paying Ekman in ill faith, and this constituted a
breach of contract. Plaintiff seeks a judgment directing the defendant to pay the
above-mentioned P76,000.00 plus interest, as well as 25% of the award amount as
attorney's fees.

The CA Ruling

The CA rejected petitioner's imputation of bad faith and negligence to respondent bank for
paying for the two hydraulic loaders, which had been delivered after the expiration of the
subject letter of credit. The appellate court pointed out that petitioner received the equipment
after the letter of credit had expired. "To absolve defendant from liability for the price of the
same," the CA explained, "is to allow it to get away with its unjust enrichment at the expense of
the plaintiff."

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The Court's Ruling

The Court affirms the ruling of the Court of Appeals but lowers the interest rate to 6 percent and
deletes the award of attorney's fees.

ISSUE/S

1. Whether it is proper for a banking institution to pay a letter of credit that has expired or
been canceled.

2. Whether there was a consummated sale between petitioner and Ekman Co.

3. Whether the Court of Appeals was correct in evading the issues raised in the appeal
regarding the trust receipt.

RULING

The Court affirms the decision of the Court of Appeals with modifications. Petitioner is
ordered to reimburse respondent the amount paid to Ekman for the two hydraulic loaders, plus
interest at a rate of 6 percent per annum computed from April 7, 1983. After the judgment
becomes final, the interest shall be 12 percent per annum. The award of attorney's fees in favor
of the respondent is deleted.

RATIO DECIDENDI (Reason)

● The Court agrees with the Court of Appeals that respondent bank was not negligent in
paying for the two hydraulic loaders, despite the expiration of the letter of credit. The
bank's right to seek recovery from petitioner is based on Article 2142 of the Civil Code,
which states that certain lawful, voluntary, and unilateral acts give rise to the juridical
relation of quasi-contract to prevent unjust enrichment. Although the letter of credit had
become invalid upon its expiration, petitioner voluntarily received and kept the loaders,
which justifies respondent's claim for reimbursement.

● Regarding the interest rate, the Court disagrees with the 12 percent interest imposed by
the lower courts. Pursuant to established jurisprudence and Article 2009 of the Civil Code,
petitioner is bound to pay interest at a rate of 6 percent per annum, computed from April
7, 1983, the time respondent demanded payment. After the judgment becomes final, the
interest shall be 12 percent per annum.

● As for attorney's fees, the Court deems it appropriate to delete the award in favor of the
respondent since negligence is imputable to both parties.

OTHER IMPORTANT NOTES (if applicable)

(Discussion on Principles in relation to the topic, notes from Concurring or Dissenting opinions, etc.)

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What is this case all about?

The case involves a Petition for Review on Certiorari filed by Rodzssen Supply Co. Inc. against Far
East Bank & Trust Co. The Court of Appeals affirmed the ruling of the Regional Trial Court of
Bacolod City in Civil Case No. 2296, with some modifications. The main issue in the case is
whether the bank was negligent in paying for the two hydraulic loaders, which were delivered
after the expiration of the letter of credit.

NOTE:

In a case involving a dispute over a letter of credit, a banking institution is held liable for paying
for equipment that was delivered after the expiration of the letter of credit, but the interest rate
is lowered and attorney's fees are deleted.

DISCLAIMER: STILL READ THE FULL CASE. DO NOT RELY ON THE DIGESTS ALONE. WHEN PASTING THE LINK OF YOUR DOCS TO
THE DIGEST GOOGLE SHEETS, ALLOW ‘COMMENT’ PERMISSIONS.
DISCLAIMER: STILL READ THE FULL CASE. DO NOT RELY ON THE DIGESTS ALONE. WHEN PASTING THE LINK OF
YOUR DOCS TO THE DIGEST GOOGLE SHEETS, ALLOW ‘COMMENT’ PERMISSIONS.