SPCL Letters of Credit Comia, A.T.

SPECIAL COMMERCIAL LAWS

A. LETTER OF CREDIT
1. Bank of the Philippine Islands . De Ren! Fa"#i$ Ind%st#ies& In$.& '( SCRA )(' *1+,-.
). Philippine /i#0inia To"a$$o Ad1inist#ation . De los An0eles& 123 SCRA (3' *1+44.
'. Ins%la# Bank of Asia and A1e#i$a . IAC& 12, SCRA 3(- *1+44.
3. Feati Bank and T#%st Co1pan! . Co%#t of Appeals& 1+2 SCRA (,2 *1++1.
(. P#%dential Bank and T#%st Co1pan! . IAC& )12 SCRA )(, *1++).
2. Bank of A1e#i$a . Co%#t of Appeals& ))4 SCRA '(, *1++'.
,. Relian$e Co11odities& In$. /. Dae5oo Ind%st#ial Co.& Ltd.& ))4 SCRA (3( *1++'.
4. Rod6ssen S%ppl! Co1pan!& In$.. Fa# East Bank and T#%st Co1pan!& '(, SCRA 214 *)--1.
+. A"ad . Co%#t of Appeals& 141 SCRA 1+1 *1++-.
1-. MWSS . 7on. Da5a!& 3') SCRA ((+ *)--3.
11. T#ansfield Philippines& In$. . L%6on 7!d#o Co#p.& 33' SCRA '-, *)--3.
1). Bank of Co11e#$e . Se##ano& 3(1 SCRA 343 *)--(.
1'. Land Bank of the Philippines . Monet8s E9po#t and Man%fa$t%#in0 Co#p.
3(' SCRA 1,' *)--(.
Page 1 of 20
SPCL Letters of Credit Comia, A.T.
1. Bank of the Philippine Islands . De Ren! Fa"#i$ Ind%st#ies& In$.& '( SCRA )(' *1+,-.
FACTS:
-On four (4) diffierent occasions in 1961, the De Reny Faric !ndustries, !nc", a Phi#i$$ine cor$oration, a$$#ied to the
%an& for four (4) irre'oca#e co((ercia# #etters of credit to co'er the $urchase y the cor$oration of goods
descried in the co'ering )*+ a$$#ications as ,dyestuffs of 'arious co#ors, fro( its -(erican su$$#ier, the ."%"
Distriuting +o($any"
--## the a$$#ications of the cor$oration /ere a$$ro'ed, and the corres$onding +o((ercia# )*+ -gree(ents /ere
e0ecuted $ursuant to an&ing $rocedures"
-Pursuant to an&ing regu#ations then in force, the cor$oration de#i'ered to the %an& $eso (argina# de$osits as
each #etter of credit /as o$ened"
-%y 'irtue of the foregoing transactions, the %an& issued irre'oca#e co((ercia# #etters of credit addressed to its
corres$ondent an&s in the 1nited 2tates, /ith unifor( instructions for the( to notify the eneficiary thereof, the .%"
Distriuting +o($any, that they ha'e een authori3ed to negotiate the #atter4s sight drafts u$ to the a(ounts
(entioned therein, res$ecti'e#y, if acco($anied, u$on $resentation, y a fu## set of negotia#e c#ean ,on oard,
ocean i##s of #ading, co'ering the (erchandise a$$earing in the )*+s, that is, dyestuffs of 'arious co#ors,
+onse5uent#y, the ."%" Distriuting +o($any dre/ u$on, $resented to and negotiated /ith these an&s, its sight
drafts co'ering the a(ounts of the (erchandise ostensi#y eing e0$orted y it, together /ith c#ean i##s of #ading,
and co##ected the fu## 'a#ue of the drafts u$ to the a(ounts a$$earing in the )* +s as ao'e indicated"
-6hese corres$ondent an&s then deited the account of the %an& of the Phi#i$$ine !s#ands /ith the( u$ to the fu##
'a#ue of th drafts $resented y the ."%" Distriuting +o($any, thereafter, endorsed and for/arded a## docu(ents to
the %an& of the Phi#i$$ine !s#ands"
-!n the (eanti(e, as each shi$(ent (co'ered y the ao'e-(entioned #etters of credit) arri'ed in the Phi#i$$ines, the
De Reny Faric !ndustries, !nc" (ade $artia# $ay(ents to the %an& a(ounting, in the aggregate, to P90,000"
-Further $ay(ents /ere, ho/e'er, suse5uent#y discontinued y the cor$oration /hen it eca(e esta#ished, as a
resu#t of a che(ica# test conducted y the 7ationa# 2cience De'e#o$(ent %oard, that the goods that arri'ed in
8ani#a /ere co#ored cha#&s instead of dyestuffs"
-6he cor$oration a#so refused to ta&e $ossession of these goods, and for this reason, the %an& caused the( to e
de$osited /ith a onded /arehouse $aying therefor the a(ount of P12,609"64 u$ to the fi#ing of its co($#aint /ith
the court e#o/ on Dece(er 10, 1962"
LOWER COURT:
Ordered the cor$oration and its co-defendants (the herein a$$e##ants) to $ay %P! the a(ount of the )+ agree(ent"
DEFENSE OF DE RENY:
!t /as the duty of the foreign corres$ondent an&s of the %an& of the Phi#i$$ine !s#ands to ta&e the necessary
$recautions to insure that the goods shi$$ed under the co'ering )*+s confor(ed /ith the ite( a$$earing therein,
and, that the foreign an&s ha'ing fai#ed to $erfor( this duty, no c#ai( for recou$(ent against the defendants-
a$$e##ants, arising fro( the #osses incurred for the non-de#i'ery or defecti'e de#i'ery of the artic#es ordered, cou#d
accrue"
Page 2 of 20
SPCL Letters of Credit Comia, A.T.
HELD:
1nder the ter(s of their +o((ercia# )etter of +redit -gree(ents /ith the %an&, the a$$e##ants agreed that the %an&
sha## not e res$onsi#e for the ,e0istence, chancier, 5ua#ity, 5uantity, conditions, $ac&ing, 'a#ue, or de#i'ery of the
$ro$erty $ur$orting to e re$resented y docu(ents, for any difference in character, 5ua#ity, 5uantity, condition, or
'a#ue of the $ro$erty front that e0$ressed in docu(ents,, or for ,$artia# or inco($#ete shi$(ent, or fai#ure or
o(ission to shi$ (y or a## of the $ro$erty referred to in the +redit,, as /e## as ,for any de'iation fro( instructions,
de#ay, defau#t or fraud y the shi$$er or inyone e#se in connection /ith the $ro$erty or the shi$$ing thereof,, and ,for
any reach of contract et/een the shi$$ers or 'endors and ourse#'es, 9$urchasers: or any of us",
;a'ing agreed to these ter(s, the a$$e##ants ha'e, therefore, no recourse ut to co($#y /ith their co'enant to the
ru#es of e'idence",
6he +ode of +o((erce, in its -rtic#e 2, #i&e/ise $ro'ides that ,-cts of co((erce, /hether those /ho e0ecute the(
e (erchants or not, and /hether s$ecified in this +ode or not, shou#d e go'erned y the $ro'isions contained in
it, in their asence, ) the usages of co((erce genera##y oser'ed in each $#ace, and in the asence of oth ru#es,
y those of the ci'i# #a/, ,6hose acts contained in this +ode and a## Others of ana#ogous character, sha## e dee(ed
acts of co((erce", !t (ust e noted that certain $rinci$#es go'erning the issuance, acce$tance and $ay(ent of
#etters of credit arc s$ecifica##y $ro'ided for in the +ode of +o((erce"
%ut e'en /ithout the sti$u#ation recited ao'e, the a$$e##ants cannot shift the urden of #oss to the %an& on account
of the 'io#ation y their 'endor of its $restation"
%an&s, in $ro'iding financing in internationa# usiness transactions such as those entered into y the a$$e##ants, do
not deal with the property to be exported or shipped to the importer, but deal only with documents. 6he %an&
introduced in e'idence a $ro'ision contained in the ,1nifor( +usto(s and Practices for +o((ercia# Docu(entary
+redits Fi0ed for the 6hirteenth +ongress of !nternationa# +ha(er of +o((erce,, to /hich the Phi#i$$ines is a
signatory nation" -rtic#e 10 thereof $ro'ides<
,!ts docu(entary credit o$erations, a## $arties concerned dea# in docu(ents and not in goods" $ay(ent, negotiation
or acce$tance against docu(ents in accordance /ith the ter(s and conditions of a credit y a %an& authori3ed to
do so inds the $arty gi'ing the authori3ation to ta&e u$ the docu(ents and rei(ursed the %an& (a&ing the
$ay(ent, negotiation or acce$tance",
6he e0istence of a custo( in internationa# an&ing and financing circ#es negating any duty on the $art of a an& to
'erify /hether /hat has een descried in #etters of credits or drafts or shi$$ing docu(ents actua##y ta##ies /ith /hat
/as #oaded aoard shi$, ha'ing een $ositi'e#y $ro'en as a fact, the a$$e##ants (e ound y this esta#ished
usage" 6hey /ere, after a##, the ones /ho ta$$ed the faci#ities afforded y the %an& in order to engage in
internationa# usiness"
). Phil. /i#0inia To"a$$o Ad1inist#ation s. Delos An0eles& 164 SCRA 543 (1988)
FACTS:
Page = of 20
SPCL Letters of Credit Comia, A.T.
-6i(oteo 2e'i##a, $ro$rietor and >enera# 8anager of the Phi#i$$ine -ssociated Resources (P-R) /as a/arded in a
$u#ic idding the right to i($ort ?irginia #eaf toacco for #ending $ur$oses and e0$ortation y the( of P?6- and
far(er4s #o/-grade toacco at a rate of one (1) &i#o of i($orted toacco for e'ery nine (9) &i#os of #eaf toacco
actua##y e0$orted"
-%efore 2e'i##a cou#d i($ort the counter$art #ending ?irginia toacco, Re$u#ic -ct 7o" 41@@ /as $assed and too&
effect on .une 20, 1964, authori3ing the P?6- to grant i($ort $ri'i#eges at the ratio of 4 to ! instead of 9 to 1 and to
dis$ose of a## its toacco stoc& at the est $rice a'ai#a#e"
-6hus, on 2e$te(er 14, 196@ suAect contract /hich /as a#ready a(ended on Dece(er 14, 196= ecause of the
$re'ai#ing e0$ort or /or#d (ar&et $rice under /hich res$ondent /i## e e0$orting at a #oss, /as further a(ended to
grant res$ondent the $ri'i#eges under aforesaid #a/, suAect to conditions, one of /hich is that res$ondent 2e'i##a
/ou#d o$en an irre'oca#e #etter of credit 7o" 62=2 /ith the Prudentia# %an& and 6rust +o" in fa'or of the P?6- to
secure the $ay(ent of said a#ance, dra/a#e u$on the re#ease fro( the %ureau of +usto(s of the i($orted
?irginia #ending toacco"
-Bhi#e Re'i##a /as trying to negotiate the reduction of the $rocure(ent cost of the 2,101"4C9 &i#os of P?6- toacco
a#ready e0$orted /hich atte($t /as denied y $etitioner and a#so y the Office of the President, $etitioner $re$ared
t/o drafts to e dra/n against said #etter of credit for a(ounts /hich ha'e a#ready eco(e due and de(anda#e"
-2e'i##a then fi#ed a co($#aint for da(ages /ith $re#i(inary inAunction"
-6he )o/er +ourt dis(issed the co($#aint and #ifted the $re#i(inary inAunction issued"
-2e'i##a fi#ed an urgent 8otion for Reconsideration"
-Pending Reso#ution, res$ondent Audge issued the assai#ed Order of .u#y 1C, 196C directing the Prudentia# %an& D
6rust +o" to (a&e the 5uestioned re#ease of funds fro( the )etter of +redit" %efore $etitioner cou#d fi#e a (otion for
reconsideration of said order, res$ondent 2e'i##a /as a#e to secure the re#ease of P=00,000"00 and the rest of the
a(ount"
ISSUE:
1" Res$ondent .udge acted /ithout or in e0cess of Aurisdiction or /ith gra'e ause of discretion /hen he issued the
Order of .u#y 1C, 196C, on the ground<
(a) the #etter of credit issued y res$ondent an& is irre'oca#eE 000
HELD:
!n issuing the Order of .u#y 1C, 196C, res$ondent .udge 'io#ated the irre'ocai#ity of the #etter of credit issued y
res$ondent %an& in fa'or of $etitioner" -n irre'oca#e #etter of credit cannot during its #ifeti(e e cance##ed or
(odified /ithout the e0$ress $er(ission of the eneficiary"
'. Ins%la# Bank of Asia : A1e#i$a s. IAC, 167 SCRA 450 (1988)
FACTS:
Page 4 of 20
SPCL Letters of Credit Comia, A.T.
-2o(eti(e in 19C6 and 19CC s$ouses %en 2" 8endo3a and .uanita 8" 8endo3a (the 8endo3as, for re'ity),
otained t/o (2) #oans fro( Phi#i$$ine -(erican )ife !nsurance +o" (Phi#a( )ife) in the tota# a(ount of P600,000"00
to finance the construction of their residentia# house at 8andaue +ity" 6he said #oans, /ith a 14F no(ina# interest
rate, /ere to e #i5uidated in e5ua# a(orti3ations o'er a $eriod of fi'e (@) years"
-6o secure $ay(ent, Phi#a( )ife re5uired that a(orti3ations e guaranteed y an irre'oca#e standy #etter of credit
of a co((ercia# an&" 6hus, the 8endo3as contracted /ith $etitioner !nsu#ar %an& of -sia and -(erica (!%--) for
the issuance of t/o (2) irre'oca#e standy )etters of +redit in fa'or of Phi#a( )ife for the tota# a(ount of
P600,000"00"
-6hese t/o (2) irre'oca#e standy )*+s /ere, in turn, secured y a rea# estate (ortgage for the sa(e a(ount on
the $ro$erty of Res$ondent 2$ouses in fa'or of !%--"
-6he 8endo3as fai#ed to $ay Phi#a( )ife the a(orti3ation that fe## due on ! .une 19CG so that Phi#a( )ife infor(ed
!%-- that it /as dec#aring oth #oans as ,entire#y due and de(anda#e, and de(anded $ay(ent of P492,996"=0"
;o/e'er, ecause !%-- contested the $ro$riety of ca##ing in the entire #oan, Phi#a( )ife desisted and resu(ed
a'ai#ing of the )*+s y dra/ing on the( for fi'e (@) (ore a(orti3ations"
-%ecause the 8endo3as defau#ted again on their a(orti3ation due on, Phi#a( )ife again infor(ed !%-- that it /as
dec#aring the entire a#ance outstanding on oth #oans, inc#uding #i5uidated da(ages, ,i((ediate#y due and
$aya#e", Phi#a( )ife then de(anded the $ay(ent of P2C4,CC9"@6 fro( !%-- ut the #atter too& the $osition that, as
a (ere guarantor of the 8endo3as /ho are the $rinci$a# detors, its re(aining outstanding o#igation under the t/o
(2) standy )*+s /as on#y P=0,100"60" )ater, !%-- corrected the #atter and de(anded refund ecause the $artia#
$ay(ent y 8endo3as ha'e the effect of reducing its #iai#ity as guarantor or surety under the ter(s of the standy
)*+s in 5uestion"
-6he rea# Hstate 8ortgage, /hich secured the t/o (2) standy )*+s, /as e0traAudicia##y forec#osed y, and so#d at
$u#ic auction to $etitioner !%-- as the #one and highest idder"
TRIAL COURT:
6ria# +ourt too& the $osition that !%--, ,as surety,, /as discharged of its #iai#ity to the e0tent of the $ay(ent (ade
y the 8endo3as, as the $rinci$a# detors, to the creditor, Phi#a( )ife"
COURT OF APPEALS:
Re'ersed the 6ria# +ourt and ru#ed instead that !%--4s #iai#ity /as not reduced y 'irtue of the $ay(ents (ade y
the 8endo3as"
ISSUE:
Bhether or not the $artia# $ay(ents (ade y the $rinci$a# o#igors (res$ondent 8H7DOI-2) /ou#d ha'e the
corres$onding effect of reducing the #iai#ity of the $etitioner as guarantor or surety under the ter(s of the standy
)+s in 5uestion"
HELD:
!n construing the ter(s of a )etter of +redit, as in other contracts, it is the intention of the $arties that (ust go'ern"
Page @ of 20
SPCL Letters of Credit Comia, A.T.
,)etters of credit and contracts for the issuance of such #etters are suAect to the sa(e ru#es of construction as are
ordinary co((ercia# contracts" 6hey are to recei'e a reasona#e and not a technica# construction and a#though
usage and custo( cannot contro# e0$ress ter(s in #etters of credit, they are to e construed /ith reference to a## the
surrounding facts and circu(stances, to the $articu#ar and often 'arying ter(s in /hich they (ay e e0$ressed, the
circu(stances and intention of the $arties to the(, and the usages of the $articu#ar trade of usiness
conte($#ated",
1ne5ui'oca##y, the suAect standy )etters of +redit secure the $ay(ent of any o#igation of the 8endo3as to
Phi#a( )ife inc#uding a## interests, surcharges and e0$enses thereon ut not to e0ceed P600,000"00" %ut /hi#e they
are a security arrange(ent, they are not con'erted therey into contracts of guaranty" 6hat /ou#d (a&e the( u#tra
'ires rather than a #etter of credit, /hich is /ithin the $o/ers of a an&" 6he standy )*+s are, ,in effect an aso#ute
underta&ing to $ay the (oney ad'anced or the a(ount for /hich credit is gi'en on the faith of the instru(ent", 6hey
are $ri(ary o#igations and not accessory contracts" %eing se$arate and inde$endent agree(ents, the $ay(ents
(ade y the 8endo3as cannot e added in co($uting !%--4s #iai#ity under its o/n standy #etters of credit"
Pay(ents (ade y the 8endo3as direct#y to Phi#a( )ife are in co($#iance /ith their o/n $restation under the #oan
agree(ent"
-s to the #iai#ity of the 8endo3as to !%--, it ears reca##ing that the 8endo3as, u$on their a$$#ication for the
o$ening and issuance of the !rre'oca#e 2tandy )etters of +redit in fa'or of Phi#a( )ife, had e0ecuted a Rea#
Hstate 8ortgage as security to !%-- for any $ay(ent that the #atter (ay re(it to Phi#a( )ife on the strength of said
)etters of +reditE and that !%-- had reco'ered fro( the 8endo3as the a(ount of P4=2,=G6"0C /hen it forec#osed
on the (ortgaged $ro$erty of said s$ouses in the conce$t of ,$rinci$a# (un$aid ad'ances under the 2 standy )+s
$#us interest and charges)", !n addition, !%-- had reco'ered P2@@,=64"9@ re$resenting its c#ean #oans to the
8endo3as $#us accrued interest esides the fact that it no/ has the forec#osed $ro$erty" -s et/een !%-- and the
8endo3as, therefore, there has een fu## #i5uidation" 6he re(aining o#igation of P222,000"00 on the #oan of the
8endo3as, therefore, is no/ !%--4s so#e res$onsii#ity to $ay to Phi#a( )ife y 'irtue of its aso#ute and irre'oca#e
underta&ing under the standy )*+s" 2$ecia##y so, since the $ro(issory notes e0ecuted y the 8endo3as in fa'or of
!%-- authori3ed the sa#e of the (ortgaged security ,for the $ur$ose of a$$#ying their $roceeds to 0 0 0 $ay(ents, of
their o#igations to !%--"
3. Feati Bank : T#%st Co1pan! s. Co%#t of Appeals& 1+2 SCRA (,2 *1++1.
FACTS:
-%ernardo H" ?i##a#u3 agreed to se## to the then defendant -0e# +hristiansen 2,000 cuic (eters of #auan #ogs at
J2C"00 $er cuic (eter FO%"
--fter ins$ecting the #ogs, +hristiansen issued $urchase order"
-On the arrange(ents (ade and u$on the instructions of the consignee, ;an(i 6rade De'e#o$(ent, )td", de 2anta
-na, +a#ifornia, the 2ecurity Pacific 7ationa# %an& of )os -nge#es, +a#ifornia issued !rre'oca#e )etter of +redit
a'ai#a#e at sight in fa'or of ?i##a#u3 for the su( of J@4,000"00, the tota# $urchase $rice of the #auan #ogs"
-6he #etter of credit /as (ai#ed to the Feati %an& and 6rust +o($any (no/ +itytrust) /ith the instruction to the #atter
that it ,for/ard the enc#osed #etter of credit to the eneficiary"K 6he #etter of credit further $ro'ided that the draft to e
dra/n is on 2ecurity Pacific 7ationa# %an& and that it e acco($anied y the docu(ents s$ecified therein" -#so
incor$orated y reference is the 1nifor( +usto(s and Practice for Docu(entary +redits)"
-6he #ogs /ere thereafter #oaded on the 'esse# ,Ien#in >#ory, /hich /as chartered y +hristiansen" %efore its
#oading, the #ogs /ere ins$ected y custo( ins$ectors, a## of /ho( certified to the good condition and e0$ortsi#ity
of the #ogs, and the #oading /as co($#eted"
Page 6 of 20
SPCL Letters of Credit Comia, A.T.
-;o/e'er, +hristiansen refused to issue the certification as re5uired in $aragra$h 4 of the #etter of credit, des$ite
se'era# re5uests (ade y the $ri'ate res$ondent"%ecause of the asence of the certification y +hristiansen, the
Feati %an& and 6rust +o($any refused to ad'ance the $ay(ent on the #etter of credit"
-8ean/hi#e, the #ogs arri'ed at !nchon, Lorea and /ere recei'ed y the consignee, ;an(i 6rade De'e#o$(ent
+o($any, to /ho( +hristiansen so#d the #ogs and otained $rofit" ;an(i 6rade De'e#o$(ent +o($any, on the
other hand so#d the #ogs to 6aisung )u(er +o($any at !nchon, Lorea"
-2ince the de(ands y the $ri'ate res$ondent for +hristiansen to e0ecute the certification $ro'ed futi#e, ?i##a#u3,
instituted an action for (anda(us and s$ecific $erfor(ance against +hristiansen and the Feati %an& and 6rust
+o($any (no/ +itytrust)"6he $etitioner /as i($#eaded as defendant efore the #o/er court on#y to afford co($#ete
re#ief shou#d the court a 5uo order +hristiansen to e0ecute the re5uired certifica tion"
-Bhi#e the case /as sti## $ending tria#, +hristiansen #eft the Phi#i$$ines /ithout infor(ing the +ourt and his counse#"
;ence, ?i##a#u3, fi#ed an a(ended co($#aint (a&e the $etitioner so#idari#y #ia#e /ith +hristiansen"
ISSUE:
Bhether or not a corres$ondent an& is to e he#d #ia#e under the #etter of credit des$ite non-co($#iance y the
eneficiary /ith the ter(s thereon"
HELD:
Commercial transactions involving letter of credits are governed by the rule on strict compliance-- !t is a sett#ed ru#e
in co((ercia# transactions in'o#'ing #etters of credit that the docu(ents tendered (ust strict#y confor( to the ter(s
of the #etter of credit" 6he tender of docu(ents y the eneficiary (se##er) (ust inc#ude a## docu(ents re5uired y the
#etter" - corres$ondent an& /hich de$arts fro( /hat has een sti$u#ated under the #etter of credit, as /hen it
acce$ts a fau#ty tender, acts on its o/n ris&s and it (ay not thereafter e a#e to reco'er fro( the uyer or the
issuing an&, as the case (ay e, the (oney thus $aid to the eneficiary" 6hus the ru#e of strict co($#iance"
!n the 1nited 2tates, co((ercia# transactions in'o#'ing #etters of credit are go'erned y the ru#e of strict co($#iance"
!n the Phi#i$$ines, the sa(e ho#ds true" 6he-sa(e ru#e (ust a#so e fo##o/ed"
-#though in so(e -(erican decisions, an&s are granted a #itt#e discretion to acce$t a fau#ty tender as /hen the
other docu(ents (ay e considered i((ateria# or su$erf#uous, this theory cou#d #ead to dangerous $recedents"
2ince a an& dea#s on#y /ith docu(ents, it is not in a $osition to deter(ine /hether or not the docu(ents re5uired
y the #etter of credit -re (ateria# or su$erf#uous" 6he (ere fact that the docu(ent /as s$ecified therein readi#y
(eans that the docu(ent is of 'ita# i($ortance to the uyer"
(. P#%dential Bank . IAC& 16 SCRA 57 (199)
FACTS:
Phi#i$$ine Rayon 8i##s, !nc" entered into a contract /ith 7issho +o", )td" of .a$an for the i($ortation of te0ti#e
(achineries under a fi'e-year deferred $ay(ent $#an"
Page C of 20
SPCL Letters of Credit Comia, A.T.
Rayon a$$#ied for a co((ercia# #etter of credit /ith the Prudentia# %an& and 6rust +o($any in fa'or of 7issho" %y
'irtue of said a$$#ication, the Prudentia# %an& o$ened 1tter of +redit
-gainst this #etter of credit, drafts /ere dra/n and issued y 7issho, /hich /ere a## $aid y the Prudentia# %an&
through its corres$ondent in .a$an, the %an& of 6o&yo, )td"
-s indicated on their faces, t/o of these drafts /ere acce$ted y the Rayon through its $resident, -nac#eto R" +hi,
/hi#e the others /ere not"
1$on the arri'a# of the (achineries, the Prudentia# %an& indorsed the shi$$ing docu(ents to Rayon /hich
acce$ted de#i'ery of the sa(e"
6o ena#e Rayon to ta&e de#i'ery of the (achineries, it e0ecuted, y $rior arrange(ent /ith the Prudentia# %an&, a
trust recei$t /hich /as signed y -nac#eto R" +hi in his ca$acity as President
"
-t the ac& of the trust recei$t is a $rinted for( to e acco($#ished y t/o sureties /ho, y the 'ery ter(s and
conditions thereof, /ere to e Aoint#y and se'era##y #ia#e to the Prudentia# %an& shou#d the Rayon fai# to $ay the tota#
a(ount or any $ortion of the drafts issued y 7issho and $aid for y Prudentia# %an&"
6he defendant-a$$e##ant /as a#e to ta&e de#i'ery of the te0ti#e (achineries and insta##ed the sa(e at its factory site
at 69 Oudan 2treet, Mue3on +ity"
2use5uent#y, Rayon ceased usiness o$eration" -## the te0ti#e (achineries in its factory /ere so#d to -!+
De'e#o$(ent +or$oration"
6he o#igation of Rayon arising fro( the #etter of credit and the trust recei$t re(ained un$aid and un#i5uidated"
Re$eated for(a# de(ands for the $ay(ent of the said trust recei$t yie#ded no resu#t"
TC<
-Ordered Phi#i$$ine Rayon to $ay, ho/e'er disregarded the #atter drafts as those drafts /ere not acce$ted y
Rayon"
Prudentia# %an&< 6ria# +ourt erred in inter$reting NsightK drafts as re5uiring acce$tance y Rayon efore it cou#d e
he#d #ia#e thereon"
CA<
-2ustained the 6ria# +ourt" 6he #ast drafts /hich had not een $resented and acce$ted y Rayon, $rudentia# %an&
/as not Austified in uni#atera##y $aying the a(ounts therein"
ISSUE:
Bhether or not sight drafts re5uire $rior acce$tance efore Rayon can e he#d #ia#e thereon"
HELD:
Page G of 20
SPCL Letters of Credit Comia, A.T.
Letters of Credit; Presentment for acceptance not required for sight drafts.-- - #etter of credit is defined as an
engage(ent y a an& or other $erson (ade at the re5uest of a custo(er that the issuer /i## honor drafts or other
de(ands for $ay(ent u$on co($#iance /ith the conditions s$ecified in the credit"11 6hrough a #etter of credit, the
an& (ere#y sustitutes its o/n $ro(ise to $ay for the $ro(ise to $ay of one of its custo(ers /ho in return $ro(ises
to $ay the an& the a(ount of funds (entioned in the #etter of credit $#us credit or co((it(ent fees (utua##y agreed
u$on" !n the instant case then, the dra/ee /as necessari#y the herein $etitioner" !t /as to the #atter that the drafts
/ere $resented for $ay(ent" !n fact, there /as no need for acce$tance as the issued drafts are sight drafts"
Present(ent for acce$tance is necessary on#y in the cases e0$ress#y $ro'ided for in 2ection 14= of the 7egotia#e
!nstru(ents )a/ (7!))"1= 6he said section reads<
,2H+" 14=" Bhen $resent(ent for acce$tance (ust e (ade"-Present(ent for acce$tance (ust e (ade<
(a) Bhere the i## is $aya#e after sight, or in any other ease, /here $resent(ent for acce$tance is necessary in
order to fi0 the (aturity of the instru(entE or
()Bhere the i## e0$ress#y sti$u#ates that it sha## e $resented for acce$tanceE
(c) Bhere the i## is dra/n $aya#e e#se/here than at the residence or $#ace of usiness of the dra/ee"
!n no other case is $resent(ent for acce$tance necessary in order to render any $arty to the i## #ia#e",
O'ious#y then, sight drafts do not re5uire $resent(ent for acce$tance"
Present(ent is not a condition sine 5ua non for rei(urse(ent"
2. Bank of A1e#i$a& ;T : SA . Co%#t of Appeals& ))4 SCRA '(, *1++'.
FACTS:
%an& of -(erica, 76 D 2-, 8ani#a, recei'ed y registered (ai# art !rre'oca#e )etter of +redit $ur$orted#y issued y
%an& of -yudhya, 2arnyae& %ranch, for the account of >enera# +he(ica#s, )td", of 6hai#and in the a(ount to co'er
the sa#e of P#astic ro$es and ,agricu#tura# fi#es,, /ith the %an& of -(erica as ad'ising an& and !nter-Resin !ndustria#
+or$oration as eneficiary"
1$on recei$t of the #etter-ad'ice /ith the #etter of credit, !nter-Resin sent its #a/yer to %an& of -(erica to ha'e the
#etter of credit confir(ed" 6he an& did not" 6he an& e($#oyee in charge of #etters of credit, ho/e'er, e0$#ained to
that there /as no need for confir(ation ecause the #etter of credit /ou#d not ha'e een trans(itted if it /ere not
genuine"
!nter-Resin sought to (a&e a $artia# a'ai#(ent under the #etter of credit y su(itting to %an& of -(erica in'oices,
co'ering the shi$(ent of 24,000 a#es of $o#yethy#ene ro$e to >enera# +he(ica#s 'a#ued at 12J1,=20,600"00, the
corres$onding $ac&ing #ist, e0$ort dec#aration and i## of #ading" Fina##y, after eing satisfied that !nter-Resin4s
docu(ents confor(ed /ith the conditions e0$ressed in the #etter of credit, %an& of -(erica issued in fa'or of !nter-
Resin a +ashier4s +hec& the $eso e5ui'a#ent of the draft"
%an& of -(erica /rote %an& of -yudhya ad'ising the #atter of the a'ai#(ent under the #etter of credit and sought the
corres$onding rei(ursernent therefor"
8ean/hi#e, !nter-Resin, $resented to %an& of -(erica the docu(ents for the second a'ai#(ent under the sa(e
#etter of credit" !((ediate#y u$on recei$t of a te#e0 fro( %an& of -yudhya dec#aring the #etter of credit fraudu#ent,
%an& of -(erica sto$$ed the $rocessing of !nter-Resin4s docu(ents and sent a te#e0 to its ranch office in %ang&o&,
6hai#and, re5uesting assistance in deter(ining the authenticity of the #etter of credit"
%an& of -(erica sued !nter-Resin for the reco'ery of the $eso e5ui'a#ent of the draft on the $artia# a'ai#(ent of the
no/ diso/ned #etter of credit"
Page 9 of 20
SPCL Letters of Credit Comia, A.T.
TC<
-Ru#ed for !nter-Resin, ho#ding that (c) %an& of -(erica cannot reco'er fro( !nter-Resin ecause the dra/er of the
#etter of credit is the %an& of -yudhya and not !nter-Resin, that %an& of -(erica (ade assurances that enticed
!nter-Resin and the (erchandise to 6hai#andE
CA:
!2ustained the 6ria# +ourt"
ISSUE:
Bhether or not the %an& of -(erica acted (ere#y as an ad'ising an& or a confir(ing an&, coro##ari#y, %an& of
-(erica can reco'er fro( !nter-Resin"
HELD:
!t cannot serious#y e dis$uted, #oo&ing at this case, that %an& of -(erica has, in fact, on#y een an ad'ising, not
confir(ing, an&, and this (uch is c#ear#y e'ident, a(ong other things, y the $ro'isions of the #etter of credit itse#f,
the $etitioner an&4s #etter of ad'ice, its re5uest for $ay(ent of ad'ising fee, and the ad(ission of !nter-Resin that it
has $aid the sa(e" 6hat %an& of -(erica has as&ed !nter-Resin to su(it docu(ents re5uired y the #etter of credit
and e'entua##y has $aid the $roceeds thereof, did not o'ious#y (a&e it a confir(ing an&" 6he fact, too, that the
draft re5uired y the #etter of credit is to e dra/n under the account of >enera# +he(ica#s (uyer) on#y (eans that
the sa(e had to e $resented to %an& of -yudhya (issuing, an&) for $ay(ent" !t (ay e significant to reca## that the
#etter of credit is an engage(ent of the issuing an&, not the ad'ising an&, to $ay the draft"
7o #ess i($ortant is that %an& of -(erica4s #etter of 11 8arch 19G1 has e0$ress#y stated that ,9t:he enc#osure is
so#e#y an ad'ise of credit o$ened y the ao'e(entioned corres$ondent and con'eys no engage(ent y us", 6his
/ritten reser'ation y %an& of -(erica in #i(iting its o#igation on#y to eing an ad'ising an& is in consonance /ith
the $ro'isions of 1"+"P"
-s an ad'ising or notifying an&, %an& of -(enca did not incur any o#igation (ore than Aust notifying !nter-Resin of
the #etter of credit issued in its fa'or, #et a#one to confir( the #etter of credit" 6he are state(ent of the an&
e($#oyee, afore(entioned, in res$onding to the in5uiry (ade y -tty" 6anay, !nter-Resin4s re$resentati'e, on the
authenticity of the #etter of credit certain#y did not ha'e the effect of no'ating the #etter of credit and %an& of
-(erica4s #etter of ad'ise, nor can it Austify the conc#usion that the an& (ust no/ assu(e tota# #iai#ity on the #etter
of credit" !ndeed, !nter-Resin itse#f cannot c#ai( to ha'e een a## that free fro( fau#t" -s the se##er, the issuance of
the #etter of credit shou#d ha'e o'ious#y een a great concern to it" !t /ou#d ha'e, in fact, een strange if it did not,
$rior to the #etter of credit, enter into a contract, or negotiated at the 'ery #east, /ith >enera# +he(ica#s" !n the
ordinary course, of usiness, the $erfection of contract $recedes the issuance of a #etter of credit"
,. Relian$e Co11odities& In$. /. Dae5oo Ind%st#ial Co.& Ltd.& ))4 SCRA (3( *1++'.
F"#$%:
-Re#iance +o((odities and Dae/oo !ndustria# entered into a contract of sa#e of foundry $ig iron"
Page 10 of 20
SPCL Letters of Credit Comia, A.T.
- Pursuant to this, Dae/oo shi$$ed fro( Pohang, Re$u#ic of Lorea, 2,000 (etric tons of foundry $ig iron for
de#i'ery to its consignee Re#iance"6he shi$(ent /as fu##y $aid for"
- 1$on arri'a# in 8ani#a, the cargo /as found to e short of 1=@"6@@ (etric tons"
- 2use5uent#y, another contract /as entered into et/een the sa(e $arties for the $urchase of another 2,000
(etric tons of foundry $ig iron"
-Dae/oo ac&no/#edged the short shi$(ent, and to co($ensate Re#iance therefore, ound itse#f to reduce the $rice"
-6he agree(ent /as (ade $art of the suse5uent contract, ho/e'er, that contract /as not consu((ated and /as
#ater su$erseded y sti## another contract"
- Re#iance fi#ed /ith the +hina %an&ing +or$oration, an a$$#ication for a #etter of credit in fa'or of Dae/oo"

-6he a$$#ication /as endorsed to the !ron 2tee# -uthority (!2-) for a$$ro'a#, ut the a$$#ication /as denied"
- Re#iance /as instead as&ed to su(it $urchase orders fro( end-users to su$$ort its a$$#ication for a #etter of
credit"
-;o/e'er, Re#iance /as not a#e to raise $urchase orders for 2,000 (etric tons" Re#iance a##eges that it /as a#e to
raise $urchase orders for 1,900 (etric tons"
-Dae/oo, u$on the other hand, contends that re#iance /as on#y a#e to raise $urchase orders for 900 (etric tons"
--n e0a(ination of the e0hiits4 $resented y Re#iance in the tria# court sho/s that on#y $urchase orders for 900
(etric tons /ere sta($ed ,Recei'ed, y the !2-" 6he other $urchase orders for 1,000 (etric tons a##eged#y sent y
$ros$ecti'e end-users to Re#iance /ere not sho/n to ha'e een du#y sent and e0hiited to the !2-" Bhate'er the
e0act a(ount of the $urchase orders /as, Dae/oo reAected the $ro$osed )*+ for the reason that the goods co'ered
fe## short of the contracted tonnage" 6hus, Re#iance /ithdre/ the a$$#ication for the )*+"
-2use5uent#y, Dae/oo #earned that the fai#ure of Re#iance to o$en the )+ /as due to the fact that Re#iance had
a#ready e0ceeded its foreign e0change a##ocation"
-%ecause of the fai#ure of Re#iance to co($#y /ith its underta&ing, Dae/oo /as co($e##ed to se## the 2,000 (etric
tons to another uyer at a #o/er $rice, to cut #osses and e0$enses Dae/oo had egun to incur due to its inai#ity to
shi$ the 2000 (etric tons to Re#iance under their contract"
-Re#iance, through its counse#, /rote Dae/oo re5uesting of the a(ount of P226,=C0"4G, re$resenting the 'a#ue of
the short de#i'ery of 1=@"6@@ (etric tons of foundry $ig iron under the 1
st
contract"
-7ot eing heeded, Re#iance fi#ed an action for da(ages against Dae/oo /ith the tria# court" Dae/oo res$onded,
inter a#ia, /ith a counterc#ai( for da(ages, contending that Re#iance /as gui#ty of reach of contract /hen it fai#ed
to o$en and )*+ as re5uired in the =1 .u#y 19G0 contract"
TC<
-Re#iance is in turn #ia#e for reach of contract for its fai#ure to o$en a #etter of credit in fa'or of Dae/oo $ursuant to
their contract and (ust therefore $ay the #atter actua# da(ages /ith #ega# interest $#us attorney4s fees"
Page 11 of 20
SPCL Letters of Credit Comia, A.T.
CA<
- -ffir(ed 6+
ISSUE:
-Bhether or not the fai#ure of an i($orter (Re#iance) to o$en a #etter of credit on the date agreed u$on (a&es hi(
#ia#e to the e0$orter (Dae/oo) for da(ages"
HELD:
-ailure of !eliance to open the appropriate letter of credit did not prevent the birth of the contract and neither did
such failure extinguish that contract.O Re#iance and Dae/oo, ha'ing reached ,a (eeting of (inds, in res$ect of the
suAect (atter of the contract (2000 (etric of foundry $ig iron /ith a s$ecified che(ica# co($osition), the $rice
thereof (12 J=G0,600"00), and other $rinci$a# $ro'isions,,they had a $erfected contract,fai#ure of Re#iance to o$en,
the a$$ro$riate )*+ did not $re'ent the irth of that contract, and neither did the fai#ure e0tinguish that contract" 6he
o$ening of the )*+ in fa'or of Dae/oo /as an o#igation of Re#iance and the $erfor(ance of that o#igation y
Re#iance /as a condition for enforce(ent of the reci$roca# o#igation of Dae/oo to shi$ the suAect (atter of the
contract-the foundry $ig iron-to Re#iance" %ut the contract itse#f et/een Re#iance and Dae/oo had a#ready s$rung
into #ega# e0istence and /as enforcea#e" Fai#ure of a uyer seasona#y to furnish an agreed #etter of credit is a
reach of the contract et/een uyer and se##er" Bhere the uyer fai#s to o$en a #etter of credit as sti$u#ated, the
se##er or e0$orter is entit#ed to c#ai( da(ages for such reach" Da(ages for fai#ure to o$en a co((ercia# credit
(ay, in a$$ro$riate ca$es, inc#ude the #oss of $rofit /hich the se##er /ou#d reasona#y ha'e (ade had the
transaction een carried out"
4. Rod6ssen S%ppl! Co1pan!& In$.. Fa# East Bank and T#%st Co1pan!& '(, SCRA 214 *)--1.
FACTS:
-Rod3ssen 2u$$#y o$ened an irre'oca#e #etter =0-day do(estic #etter of credit fro( Far Hast %an& and 6rust in
fa'or of H&(an and +o($any, !nc" for the $urchase of fi'e units of hydrau#ic #oadersE suse5uent a(end(ents
e0tended the 'a#idity of the said )+ for eight (onths"
-For the first three hydrau#ic #oaders that /ere de#i'ered, the %an& $aid for the a(ount s$ecified in the #etter of
credit"
-6he #ast t/o hydrau#ic #oaders /ere de#i'ered #ate, ne'erthe#ess, Rod3ssen acce$ted the sa(e"
-1$on H&(anPs $resentation of docu(ents, F%6+ $aid e'en if it /as no #onger ound to do so, ecause the #etter of
credit has a#ready e0$ired fi'e (onths ago"
-F%6+ de(anded $ay(ent fro( Rod3ssen"
-Rod3ssen refused to $ay and instead offered to return the #ast t/o $ieces of e5ui$(ent"
TC "&' CA<
- Ordered Rod3ssen to $ay F%6+"
Page 12 of 20
SPCL Letters of Credit Comia, A.T.
ISSUE:
1" Bhether or not it is $ro$er for a an&ing institution to $ay a #etter of credit /hich has #ong e0$ired or een
cance##ed"
2" Bhether or not Rod3ssen is #ia#e to rei(urse F%6+"
HELD:
1" 6he suAect )etter of +redit had eco(e in'a#id u$on the #a$se of the $eriod fi0ed therein" 6hus, F%6+ shou#d not
ha'e $aid H&(anE it /as not o#iged to do so" !n the sa(e 'ein, of no (o(ent /as H&(anPs $resentation, /ithin
the $rescried $eriod, of a## the docu(ents necessary for co##ection, as the )etter of +redit had a#ready e0$ired and
had in fact een cance##ed"
2" %e that as it (ay, /e agree /ith the +- that Rod3ssen shou#d $ay F%6+ the a(ount the #atter e0$ended for the
e5ui$(ent e#ated#y de#i'ered y H&(an and 'o#untari#y recei'ed and &e$t y $etitioner"
F%6+Ps right to see& reco'ery fro( $etitioner is anchored, not u$on the inefficacious )etter of +redit, ut on -rtic#e
2142 of the +i'i# +ode /hich reads as fo##o/s<
"Certain lawful, voluntary and unilateral acts give rise to the #uridical relation of quasi-contract to the end that no
one shall be un#ustly enriched or benefited at the expense of another.$
!ndeed, e5uita#e considerations ehoo'e us to a##o/ reco'ery y F%6+" 6rue, it erred in $aying H&(an, ut
Rod3ssen itse#f /as not /ithout fau#t in the transaction" !t (ust e noted that the #atter had 'o#untari#y recei'ed and
&e$t the #oaders"
Bhen oth $arties to a transaction are (utua##y neg#igent in the $erfor(ance of their o#igations, the fau#t of one
cance#s the neg#igence of the other and, as in this case, their rights and o#igations (ay e deter(ined e5uita#y
under the #a/ $roscriing unAust enrich(ent"
+. A"ad . Co%#t of Appeals& 141 SCRA 1+1 *1++-.
FACTS:
- 6O8+O, !nc"a$$#ied for, and /as granted y the Phi#i$$ine +o((ercia# and !ndustria# %an& (hereafter ca##ed
,P+!%,), a do(estic #etter of credit in fa'or of its su$$#ier, Oregon !ndustries, !nc", to $ay for one 2&agit Qarder /ith
accessories" P+!% $aid to Oregon !ndustries the cost of the (achinery against a i## of e0change "
--fter (a&ing the re5uired (argina# de$osit, 6O8+O, !nc" signed and de#i'ered to the an& a trust recei$t
ac&no/#edging recei$t of the (erchandise in trust for the an&, /ith the o#igation ,to ho#d the sa(e in storage, as
$ro$erty of P+!%, /ith a right to se## the sa(e for cash $ro'ided that the entire $roceeds thereof are turned o'er to
the an&, to e a$$#ied against acce$tance(s) and any other indetedness of 6O8+O, !nc"
-!n consideration of the re#ease to 6O8+O, !nc" y P+!% of the (achinery co'ered y the trust recei$t, Ra(on -ad
signed an underta&ing entit#ed, ,Deed of +ontinuing >uaranty, a$$earing on the ac& of the trust recei$t, /herey
he Pro(ised to $ay the o#igation Aoint#y and se'era##y /ith 6O8+O, !nc"
Page 1= of 20
SPCL Letters of Credit Comia, A.T.
-H0ce$t for 6O8+OPs P2G,000 (argina# de$osit in the an&, no $ay(ent has een (ade to P+!% y either
6O8+O, !nc" or its surety, -ad, on the PG0,000 #etter of credit"
-+onse5uent#y, the an& sued 6O8+O, !nc" and -ad
-6O8+O did not deny its #iai#ity to P+!% under the #etter of credit ut it a##eged that inas(uch as it (ade a (argina#
de$osit the sa(e shou#d ha'e een deducted fro( its $rinci$a# o#igation, on /hich the an& shou#d ha'e
co($uted the interest, an& charges, and attorney4s fees"
TC<
-in fa'or of P+!% ordering 6O8+O and -%-D to $ay Aoint#y and se'era##y to P+!% /ith the (argina# de$osit sti##
inc#uded in the co($utation of the o#igation"
CA<
- -ffir(ed in toto decision of 6+"
ISSUE:
- Bhether or not the (argina# de$osit $aid for shou#d first e deducted fro( its $rinci$a# efore co($uting interests
and other charges"
HELD:
- 6he (argina# de$osit re5uire(ent is a +entra# %an& (easure to cut off e0cess currency #i5uidity /hich /ou#d
create inf#ationary $ressure" !t is a co##atera# security gi'en y the detor, and is su$$osed to e returned to hi(
u$on his co($#iance /ith his secured o#igation" +onse5uent#y, the an& $ays no interest on the (argina# de$osit,
un#i&e an ordinary an& de$osit /hich earns interest in the an&" -s a (atter of fact, the (argina# de$osit
re5uire(ent for #etters of credit has een discontinued, e0ce$t in those cases /here the a$$#icant for a #etter of
credit is not &no/n to the an& or does not (aintain a good credit standing therein"
- !t is on#y fair then that the (argina# de$osit (if one /as (ade, as in this case), shou#d e set off against his det,
for /hi#e the i($orter earns no interest on his (argina# de$osit, the an&, a$art fro( eing a#e to use said de$osit
for its o/n $ur$oses, a#so earns interest on the (oney it #oaned to the i($orter" !t /ou#d e onerous to co($ute
interest and other charges on the face 'a#ue of the #etter of credit /hich the an& issued, /ithout first crediting or
setting off the (argina# de$osit /hich the i($orter $aid to the an&" 6o a##o/ such /ou#d e a c#ear case of unAust
enrich(ent"
1-. MWSS . 7on. Da5a!& 3') SCRA ((+ *)--3.
FACTS:
- 8B22 granted 8ayni#ad a 20- year $eriod to (anage, o$erate, re$air, deco((ission and refurish the e0isting
8B22 /ater de#i'ery and se/erage ser'ices in the /est 3one ser'ice area, for /hich 8ayni#ad undertoo& to $ay
the corres$onding concession fees on the date agreed u$on in the said agree(ent /hich consisted of the $ay(ents
of 8B22P foreign #oans"
Page 14 of 20
SPCL Letters of Credit Comia, A.T.
- 6o secure the concessionairePs $erfor(ance of itPs o#igation under the +oncession -gree(ent, 8ayni#ad /as
re5uired to $ut u$ a ond, an& guarantee or other security acce$ta#e to 8B22"
- !n co($#iance /ith this re5uire(ent, 8ayni#ad arranged for a = year faci#ity /ith a nu(er of foreign an&s, #ed y
+iticor$ !nternationa# )i(ited for the issuance of an irre'oca#e 2tandy )etter of +redit for the fu## and $ro($t
$erfor(ance of 8ayni#adPs o#igations under 8B22"
- -s a resu#t, of the de$reciation of the Phi#i$$ine Peso against 12 do##ar, 8ayni#ad incurred #osses and issued a
force (aAeure notice and uni#atera##y sus$end $ay(ent of the concession fees"
- !n an effort to sa#'age the concession agree(ent, the $arties entered into a 8e(orandu( of -gree(ent /herein
8ayni#ad /as a##o/ed to reco'er foreign e0change #osses under a for(u#a agreed u$on et/een the("
- 8ayni#ad fi#ed again another force (aAeure notice and since 8B22 cou#d not agree /ith the ter(s of the notice,
the sa(e /as referred to the -$$ea#s Pane# for aritration"
- 7e/ ter( /as agreed u$on"
- Prior to that 8ayni#ad had fi#ed a $etition for rehai#itation"
- R6+ issued an order staying the enforce(ent of the c#ai(s and sto$$ing $ay(ent of #iai#ities, ecause it is under
rehai#itation" !t effecti'e#y sto$$ed the co((encing $rocess of $ay(ent y the an& to 8B22"
- Bhen 8B22 de(anded $ay(ent and co((enced dra/ing on the irre'oca#e standy #etter of credit, another
order /as issued y the R6+ dec#aring such act of 8B22 as 'io#ati'e of stay order ear#ier issued"
- -ggrie'ed, 8B22 fi#ed this $etition for re'ie/ y /ay of certiorari under ru#e 6@"
ISSUE:
-Bhether or not +ourt has the authority to issue order enAoining 8B22 fro( $roceeding against the 2tand-y )etter
of +redit"
HELD:
-Letters of credit are in effect absolute underta%ings to pay the money advanced or the amount for which credit is
given on the faith of the instrument; they are primary obligations and not accessory contracts and while they are
security arrangements, they are not converted into contracts of guaranty.&)etters of credit /ere de'e#o$ed for the
$ur$ose of insuring to a se##er $ay(ent of a definite a(ount u$on the $resentation of docu(ents and is thus a
co((it(ent y the issuer that the $arty in /hose fa'or it is issued and /ho can co##ect u$on it /i## ha'e his credit
against the a$$#icant of the #etter, du#y $aid in the a(ount s$ecified in the #etter" 6hey are in effect aso#ute
underta&ings to $ay the (oney ad'anced or the a(ount for /hich credit is gi'en on the faith of the instru(ent" 6hey
are $ri(ary o#igations and not accessory contracts and /hi#e they are security arrange(ents, they are not
con'erted therey into contracts of guaranty" Bhat distinguishes #etters of credit fro( other accessory contracts is
the engage(ent of the issuing an& to $ay the se##er once draft and other re5uired shi$$ing docu(ents are
$resented to it" 6hey are definite underta&ings to $ay at sight once the docu(ents sti$u#ated therein are $resented"
Page 1@ of 20
SPCL Letters of Credit Comia, A.T.
-'he obligation of the ban%s issuing letters of credit are solidary with that of the person or entity requesting for its
issuance, the same being a direct, primary, absolute and definite underta%ing to pay the beneficiary upon the
presentation of the set of documents required therein.
- (eing a solidary obligation, the letter of credit is excluded from the #urisdiction of the rehabilitation and therefore in
en#oining )*++ from proceeding against the +tandby Letters of Credit to which it had a clear right under the law
and the terms of said +tandby Letter of credit, ,on. -away acted in excess of his #urisdiction
11. T#ansfield Philippines& In$. . L%6on 7!d#o Co#p.& 33' SCRA '-, *)--3.
FACTS:
-6ransfie#d and )u3on ;ydro +or$oration entered into a 6urn&ey contract /herey 6ransfie#d, as turn&ey contractor,
undertoo& to construct, on a turn&ey asis, a se'enty 8ega/att ;ydro-H#ectric $o/er station at the %a&un Ri'er in
the $ro'inces of %enguet and !#ocos 2ur"
-6ransfie#d /as gi'en the so#e res$onsii#ity for the design, construction, co((issioning, testing and co($#etion of
the $roAect"
-6he turn&ey contract entit#ed 6ransfie#d to c#ai( e0tensions of ti(e for reasons enu(erated in the turn&ey contract,
a(ong /hich are 'ariations, force (aAeure and de#ays caused y );+ itse#f"
-6o secure $erfor(ance of 6ransfie#dPs o#igation on or efore target co($#etion date, 6ransfie#d o$ened in fa'or of
);+ t/o stand-y #etters of credit"
-!n the course of construction of the $roAect, 6ransfie#d sought 'arious e0tension of ti(e to co($#ete the $roAect" 6he
e0tensions /ere re5uested a##eged#y due to se'era# factors /hich $re'ented the co($#etion of the $roAect on the
target date, such as force (aAeure occasioned y ty$hoon Ie, arricades and de(onstration" );+ denied the
re5uests"
--ritration $roceeding /ere initiated"
--sserting that );+ had no right to ca## on the securities unti# the reso#ution of dis$utes efore the aritration
triuna#s, 6ransfie#d /arned the an&s that any transfer, re#ease or dis$osition of the securities in fa'or of );+
/ou#d constrain it to ho#d the( #ia#e for da(ages"
-Des$ite /arning, ho/e'er, the an&s infor(ed 6ransfie#d that they /ou#d $ay on the securities if and /hen );+
ca##s on the("
-2use5uent#y, );+ dec#ared 6ransfie#d in defau#t and de(anded $ay(ent for the de#ay unti# actua# co($#etion of
the $roAect $ursuant to the turn&ey contract"
--#so, );+ ser'ed notice that it /ou#d ca## on the securities for $ay(ent of #i5uidated da(ages for the de#ay"
-;ence, 6ransfie#d fi#ed a co($#aint for inAunction against );+ and the an&s"
ISSUES:
1" Bhether or not it is on#y the issuing an& that (ay in'o&e the inde$endence $rinci$#e on #etters of credit"
Page 16 of 20
SPCL Letters of Credit Comia, A.T.
2" Bhether or not there is necessity of reso#'ing first any dis$ute y the $arties efore the eneficiary is entit#ed to
ca## on the #etter of credit"
=" Bhether or not inAunction is the $ro$er re(edy to restrain /rongfu# dra/s on the securities"
4" Bhether the an&s /ere Austified in re#easing the a(ounts due under the securities"
HELD:
- )etters of credit are a#so used in non-sa#e settings /here they ser'e to reduce the ris& of non-$erfor(ance" )etters
of credit in non-sa#e settings are &no/n as standy #etters of credit" 6here are three significant differences et/een
co((ercia# and standy credits" First, co((ercia# credits in'o#'e the $ay(ent of (oney under a contract of sa#e"
2uch credits eco(e $aya#e u$on the $resentation y the se##er-eneficiary of docu(ents that sho/ he has ta&en
affir(ati'e ste$s to co($#y /ith the sa#es agree(ent" !n the standy ty$e, the credit is $aya#e u$on certification of
a $arty4s non$erfor(ance of the agree(ent" 6he docu(ents that acco($any the eneficiary4s draft tend to sho/
that the a$$#icant has not $erfor(ed" 6he eneficiary of a co((ercia# credit (ust de(onstrate y docu(ents that
he has $erfor(ed his contract" 6he eneficiary of the standy credit (ust certify that his o#igor has not $erfor(ed
the contract"
- -s eneficiary of the #etter of credit, );+ is entit#ed to in'o&e the $rinci$#e"
- 6he so-ca##ed Ninde$endence $rinci$#eK assures the se##er or the eneficiary of $ro($t $ay(ent inde$endent of any
reach of the (ain contract and $rec#udes the issuing an& fro( deter(ining /hether the (ain contract is actua##y
acco($#ished or not" 1nder this $rinci$#e, an&s assu(e no #iai#ity or res$onsii#ity for the for(, sufficiency,
accuracy, genuineness, fa#sification or #ega# effect of any docu(ents, or for the genera# and*or $articu#ar conditions
sti$u#ated in the docu(ents or su$eri($osed thereon, nor do they assu(e any #iai#ity or res$onsii#ity for the
descri$tion, 5uantity, /eight, 5ua#ity, condition, $ac&ing, de#i'ery, 'a#ue or e0istence of the goods re$resented y
any docu(ents, or for the good faith or acts and*or o(issions, so#'ency, $erfor(ance or standing of the consignor,
the carriers, or the insurers of the goods, or any other $erson /ho(soe'er"
6he inde$endent nature of the #etter of credit (ay e<
(a) inde$endence in toto /here the credit is inde$endent fro( the Austification as$ect and is a se$arate o#igation
fro( the under#ying agree(ent #i&e for instance a ty$ica# standyE or
() inde$endence (ay e on#y as to the Austification as$ect #i&e in a co((ercia# #etter of credit or re$ay(ent
standy, /hich is identica# /ith the sa(e o#igations under the under#ying agree(ent" !n oth cases the $ay(ent
(ay e enAoined if in the #ight of the $ur$ose of the credit the $ay(ent of the credit /ou#d constitute fraudu#ent
ause of the credit"
-6he Nfraud e0ce$tion $rinci$#eK is an e0ce$tion to the inde$endence $rinci$#e" 6he untruthfu#ness of a certificate
acco($anying a de(and for $ay(ent under a standy #etter of credit (ay 5ua#ify as fraud sufficient to su$$ort an
inAunction against $ay(ent" 6he re(edy for fraudu#ent ause is an inAunction" ;o/e'er, inAunction shou#d not e
granted un#ess<
(a) there is a c#ear $roof of fraudE
() the fraud constitutes fraudu#ent ause of the inde$endent $ur$ose of the #etter of credit and not on#y fraud in the
(ain agree(entE and
Page 1C of 20
SPCL Letters of Credit Comia, A.T.
(=) irre$ara#e inAury (ight fo##o/ if inAunction is not granted or the reco'ery of da(ages /ou#d e serious#y
da(aged"
-Bhere the a$$#icant entered into a 6urn&ey contract /herey it undertoo& to construct, on a turn&ey asis, a
se'enty (C0) (ega/att hydro e#ectric $o/er station, the $erfor(ance of /hich is secured y a standy #etter of
credit, the resort to aritration y the a$$#icant* contractor to aritration to deter(ine if the #atter is gui#ty of de#ay
does not $rec#ude the eneficiary to dra/ on the #etter of credit u$on the issuance of certificate of defau#t ecause
/hether or not the issuance of certification of defau#t a(ounted to fraud /as not raised in the #o/er court and the
$arties did not sti$u#ate that a## dis$ute regarding de#ay shou#d first e sett#ed through aritration efore the
eneficiary /ou#d e a##o/ed to ca## u$on the #etter of credit" !f dra/ing u$on the #etter of credit /as /rongfu# due to
the non-e0istent of the fact of defau#t, the right of the a$$#icant to see& inde(nification for da(ages it suffered /ou#d
not nor(a##y e forec#osed $ursuant to genera# $rinci$#e of #a/"
1). Bank of Co11e#$e . Se##ano& 3(1 SCRA 343 *)--(.
FACTS:
- ?ia 8oda !nternationa#, through 2errano, otained an e0$ort $ac&ing #oan fro(, %an& of +o((erce (%O+)
secured y a Deed of -ssign(ent o'er !rre'oca#e 6ransfera#e )etter of +redit" 2errano e0ecuted in fa'or of %O+
Pro(issory 7ote" ?ia 8oda then o$ened a de$osit account for the $roceeds of the said #oan"
-%O+ issued to ?ia 8oda, !rre'oca#e )etter of +redit for the $urchase and i($ortation of faric and te0ti#e $roducts
fro( 6iger Har Faric +o" )td" of 6ai/an" 6o secure the re#ease of the goods co'ered, 2errano, in re$resentation of
?ia 8oda, e0ecuted 6rust Recei$t "
-1nder the ter(s of the trust recei$t, ?ia 8oda agreed to ho#d the goods in trust for %O+ as the #atterPs $ro$erty and
to se## the sa(e for the #atterPs account" !n case of sa#e, the $roceeds are to e re(itted to the an& as soon as it is
recei'ed, ut not #ater than the (aturity date" 2aid $roceeds are to e a$$#ied to the re#ati'e acce$tances, /ith
interest and $ena#ty or in the a#ternati'e, to return the goods in case of non-sa#e"
-6he goods co'ered y the trust recei$t /ere shi$$ed y ?ia 8oda to its consignee in 7e/ .ersey, 12-, /ho sent
an H0$ort )etter of +redit issued y the %an& of 7e/ Qor&, in fa'or of %O+" 6he Regiona# O$erations Officer of
%O+ signed the e0$ort dec#arations to sho/ consent to the shi$(ent" 6he $roceeds of the entrusted goods so#d
/ere not credited to the trust recei$t ut, /ere a$$#ied y the an& to the $rinci$a#, $ena#ties and interest of the
e0$ort $ac&ing #oan" 6he e0cess /as a$$#ied to the trust recei$t, #ea'ing a a#ance"
- %O+ sent a de(and #etter to ?ia 8oda to $ay the said a(ount $#us interest and $ena#ty charges, or to return the
goods co'ered y 6rust Recei$t /ithin @ days fro( recei$t"
-6he de(and /as not heeded"
-2errano /as charged /ith the cri(e of estafa under -rtic#e =1@ () of the Re'ised Pena# +ode in re#ation to
Presidentia# Decree 7o" 11@"
TC<
Page 1G of 20
SPCL Letters of Credit Comia, A.T.
-2errano gui#ty and ordered to $ay ci'i# #iai#ity to %O+"
CA<
-Re'ersed the decision of 6+"
ISSUE:
- Bhether or not 2errano is Aoint#y and se'era##y #ia#e /ith ?ia 8oda under the guarantee of the )etter of +redit
secured y the 6rust Recei$t"
HELD:
- - #etter of credit is a se$arate docu(ent fro( a trust recei$t" Bhi#e the trust recei$t (ay ha'e een e0ecuted as a
security on the #etter of credit, sti## the t/o docu(ents in'o#'e different underta&ings and o#igations" - #etter of credit
is an engage(ent y a an& or other $erson (ade at the re5uest of a custo(er that the issuer /i## honor drafts or
other de(ands for $ay(ent u$on co($#iance /ith the conditions s$ecified in the credit" 6hrough a #etter of credit,
the an& (ere#y sustitutes its o/n $ro(ise to $ay for the $ro(ise to $ay of one of its custo(ers /ho in return
$ro(ises to $ay the an& the a(ount of funds (entioned in the #etter of credit $#us credit or co((it(ent fees
(utua##y agreed u$on" %y contrast, a trust recei$t transaction is one /here the entruster, /ho ho#ds an aso#ute tit#e
or security interests o'er certain goods, docu(ents or instru(ents, re#eased the sa(e to the entrustee, /ho
e0ecutes a trust recei$t inding hi(se#f to ho#d the goods, docu(ents or instru(ents in trust for the entruster and to
se## or other/ise dis$ose of the goods, docu(ents and instru(ents /ith the o#igation to turn o'er to the entruster
the $roceeds thereof to the e0tent of the a(ount o/ing to the entruster, or as a$$ears in the trust recei$t, or return
the goods, docu(ents or instru(ents the(se#'es if they are unso#d, or not other/ise dis$osed of, in accordance
/ith the ter(s and conditions s$ecified in the trust recei$t"
- 2errano cannot e he#d ci'i##y #ia#e under the trust recei$t since she /as not (ade $ersona##y #ia#e nor /as she a
guarantor therein" 6he $arties sti$u#ated during the $re-tria# that res$ondent 2errano e0ecuted the trust recei$t in
re$resentation of ?ia 8oda, !nc", /hich has a se$arate $ersona#ity fro( 2errano, and $etitioner %O+ fai#ed to sho/
sufficient reason to Austify the $iercing of the 'ei# of cor$orate fiction" !t thus ru#ed that this /as not 2erranoPs
$ersona# o#igation ut that of ?ia 8oda and there /as no asis of finding her so#idari#y #ia#e /ith ?ia 8oda"
1'. Land Bank of the Philippines . Monet8s E9po#t and Man%fa$t%#in0 Co#p. 3(' SCRA 1,' *)--(.
FACTS:
- )and %an& of the Phi#i$$ines ()and %an&), and 8onet4s H0$ort and 8anufacturing +or$oration (8onet) e0ecuted
an H0$ort Pac&ing +redit )ine -gree(ent under /hich 8onet /as gi'en a credit #ine in the a(ount of P2@0,000"00,
secured y the $roceeds of its e0$ort #etters of credit, the continuing guaranty of the s$ouses ?icente ?" 6ag#e, 2r"
and 8a" +onsue#o >" 6ag#e, and the third $arty (ortgage"
-6he credit #ine agree(ent /as rene/ed and a(ended se'era# ti(es unti# it /as increased to P@,000,000"00"
-O/ing to the continued fai#ure and refusa# of 8onet, not/ithstanding re$eated de(ands, to $ay its indetedness to
)and %an&, /hich ha'e a##ooned to P11,464,246"19 a co($#aint for co##ection of su( of (oney /ith $rayer for
$re#i(inary attach(ent /as fi#ed y )and %an&"
Page 19 of 20
SPCL Letters of Credit Comia, A.T.
DEFENSE OF (ONET AND TA)LE SPOUSES:
- )and %an& fai#ed and refused to co##ect the recei'a#es on their e0$ort #etter of credit against Bishone 6rading
+o($any, /hi#e it (ade unauthori3ed $ay(ent on their i($ort #etter of credit to %eauti#i&e )i(ited /hich serious#y
da(aged the usiness interests of 8onet"
LC AND CA<
- )and %an& /as res$onsi#e for the (is(anage(ent of the Bishone and %eauti#i&e accounts of 8onet" 6hat
ecause of the non- co##ection and unauthori3ed $ay(ent (ade y )and %an& on eha#f of 8onet and considering
that the #atter cou#d no #onger dra/ fro( its credit #ine /ith )and %an&, it suffered fro( #ac& of financia# resources
sufficient to uy the needed (ateria#s to fi## u$ the standing orders fro( its custo(ers"
ISSUE:
- Bhether or not fau#t or acts of (is(anage(ent can e attriuted to )and %an& re#ati'e to 8onet4s i($ort #etter of
credit
HELD:
- 'he engagement of the issuing ban% is to pay the seller or beneficiary of the credit once the draft and the required
documents are presented to it. 'he so-called .independence principle assures the seller or the beneficiary of prompt
payment independent of an! "#ea$h of the 1ain $ont#a$t and p#e$l%des the iss%in0 "ank f#o1 dete#1inin0
5hethe# the 1ain $ont#a$t is a$t%all! a$$o1plished o# not. -ccording#y, /e find (erit in the contention of )and
%an& that, as the issuing an& in the %eauti#i&e transaction in'o#'ing an i($ort #etter of credit, it on#y dea#s in
docu(ents and it is not in'o#'ed in the contract et/een the $arties" 6he re#ationshi$ et/een the eneficiary and
the issuer of a #etter of credit is not strict#y contractua#, ecause oth $ri'ity and a (eeting of the (inds are #ac&ing"
6hus, u$on recei$t y )and %an& of the docu(ents of tit#e /hich confor( to /hat the #etter of credit re5uires, it is
duty ound to $ay the se##er, as it did in this case"
-6hus, no fau#t or acts of (is(anage(ent can e attriuted to )and %an& re#ati'e to 8onet4s i($ort #etter of credit
Page 20 of 20