Rodzssen Supply Co. Inc. vs. Far East Bank & Trust Co.

(357 SCRA 618)

FACTS:

Petitioner opened with respondent a domestic letter of credit (LOC) in favor of Ekman and Company,
Inc. (Ekman) for the purchase of five hydraulic loaders. The first three hydraulic loaders were received
by the petitioner before the expiry of LOC and respondent paid Ekman. The remaining two hydraulic
loaders were received by the petitioner after the expiry of LOC/contract but respondent still paid
Ekman. Petitioner refused to pay respondent. Respondent filed a case. Petitioner answered by way of
affirmative defense that respondent had no cause of action being allegedly in bad faith and breach of
contract. The trial court and Court of Appeals ruled in favor of respondent to recover from the cost of
two hydraulic loaders.

ISSUE:

Whether or not the respondent is entitled of reimbursement from petitioner for its payment out of
mutual negligence.

RULING:

YES. Petitioner should pay respondent bank the amount the latter expended for the equipment
belatedly delivered by Ekman and voluntarily received and kept by petitioner. Respondent bank’s right
to seek recovery from petitioner is anchored, not upon the inefficacious Letter of Credit, but on Article
2142 of the Civil Code which reads: “Certain lawful, voluntary and unilateral acts give rise to the juridical
relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense
of another.” When both parties to a transaction are mutually negligent in the performance of their
obligations, the fault of one cancels the negligence of the other and, as in this case, their rights and
obligations may be determined equitably under the law proscribing unjust enrichment.

ABAD VS. CA
181 SCRA 191 (1990)

MWSS vs. HON. DAWANG

432 SCRA 559

Instruments Law – Liabilities of Parties – Forgery – Negligence of Drawer

Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB. When
it was still called NAWASA, MWSS made a special arrangement with PNB so that it may
have personalized checks to be printed by Mesina Enterprises. These personalized checks
were the ones being used by MWSS in its business transactions.
From March to May 1969, MWSS issued 23 checks to various payees in the aggregate
amount of P320,636.26. During the same months, another set of 23 checks containing the
same check numbers earlier issued were forged. The aggregate amount of the forged
checks amounted to P3,457,903.00. This amount was distributed to the bank accounts of
three persons: Arturo Sison, Antonio Mendoza, and Raul Dizon.
MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB refused. The
trial court ruled in favor of MWSS but the Court of Appeals reversed the trial court’s
decision.
ISSUE: Whether or not PNB should restore the said amount.
Issue: Whether or not the payment of the standby of letter of credit can be stayed by filing of a petition for
rehabilitation
No. The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to the the standby letter
of credit issued by the bank as the former prohibition is on the enforcement of claims against guarantors
or sureties of the debtors whose obligations are not solidary with the debtor.
HELD: No. MWSS is precluded from setting up the defense of forgery. It has been proven
that MWSS has been negligent in supervising the printing of its personalized checks. It
failed to provide security measures and coordinate the same with PNB. Further, the
signatures in the forged checks appear to be genuine as reported by the National Bureau of
Investigation so much so that the MWSS itself cannot tell the difference between the forged
signature and the genuine one. The records likewise show that MWSS failed to provide
appropriate security measures over its own records thereby laying confidential records open
to unauthorized persons. Even if the twenty-three (23) checks in question are considered
forgeries, considering the MWSS’s gross negligence, it is barred from setting up the
defense of forgery under Section 23 of the Negotiable Instruments Law.
The Supreme Court further emphasized that forgery cannot be presumed. It must be
established by clear, positive, and convincing evidence. This was not done in the present
case.

TRANSFIELD INC. VS. LUZON HYDRO

443 SCRA 307 (2004)

The independent nature of the letter of credit may be: (a) independence in toto where the
credit is independent from the justification aspect and is a separate obligation from the
underlying agreement like for instance a typical standby; or (b) independence may be only as
to the justification aspect like in a commercial letter of credit or repayment standby, which is
identical with the same obligations under the underlying agreement. In both cases the
payment may be enjoined if in the light of the purpose of the credit the payment of the credit
would constitute fraudulent abuse of the credit.

Facts: Transfield Philippines (Transfield) entered into a turn-key contract with Luzon
Hydro Corp. (LHC).Under the contract, Transfield were to construct a hydro-electric
plants in Benguet and Ilocos. Transfield was given the sole responsibility for the design,
construction, commissioning, testing and completion of the Project. The contract
provides for a period for which the project is to be completed and also allows for the
extension of the period provided that the extension is based on justifiable grounds such
as fortuitous event. In order to guarantee performance by Transfield, two stand-by
letters of credit were required to be opened. During the construction of the plant,
Transfield requested for extension of time citing typhoon and various disputes delaying
the construction. LHC did not give due course to the extension of the period prayed for
but referred the matter to arbitration committee. Because of the delay in the construction
of the plant, LHC called on the stand-by letters of credit because of default. However,
the demand was objected by Transfield on the ground that there is still pending
arbitration on their request for extension of time.

Issue: Whether or not LHC can collect from the letters of credit despite the pending
arbitration case

Held: Transfield’s argument that any dispute must first be resolved by the parties,
whether through negotiations or arbitration, before the beneficiary is entitled to call on
the letter of credit in essence would convert the letter of credit into a mere guarantee.

The independent nature of the letter of credit may be: (a) independence in toto where
the credit is independent from the justification aspect and is a separate obligation from
the underlying agreement like for instance a typical standby; or (b) independence may
be only as to the justification aspect like in a commercial letter of credit or repayment
standby, which is identical with the same obligations under the underlying agreement. In
both cases the payment may be enjoined if in the light of the purpose of the credit the
payment of the credit would constitute fraudulent abuse of the credit.

Jurisprudence has laid down a clear distinction between a letter of credit and a
guarantee in that the settlement of a dispute between the parties is not a pre-requisite
for the release of funds under a letter of credit. In other words, the argument is
incompatible with the very nature of the letter of credit. If a letter of credit is drawable
only after settlement of the dispute on the contract entered into by the applicant and the
beneficiary, there would be no practical and beneficial use for letters of credit in
commercial transactions.

The engagement of the issuing bank is to pay the seller or beneficiary of the credit once
the draft and the required documents are presented to it. The so-called “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. Under this principle, banks assume
no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification
or legal effect of any documents, or for the general and/or particular conditions
stipulated in the documents or superimposed thereon, nor do they assume any liability
or responsibility for the description, quantity, weight, quality, condition, packing, delivery,
value or existence of the goods represented by any documents, or for the good faith or
acts and/or omissions, solvency, performance or standing of the consignor, the carriers,
or the insurers of the goods, or any other person whomsoever.
BANK OF COMMERCE VS. SERRANO
451 SCRA 484 (2005)

LAND BANK vs. MONET’S EXPORT

453 SCRA 173 (2005) G.R. No. 161865

he issuing bank in the transaction involving an import letter of credit, is independent from its
function as an agent of the same transaction. As the issuer of the letter of credit, it only deals
in documents and it is not involved in the contract between the parties. However, a party’s
liability is mitigated as the bank failed to exercised the required diligence in its function as a
collection agent of the same transaction.

Facts: 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
Vicente V. Tagle, Sr. and Ma. Consuelo G. Tagle. The credit line agreement was
renewed and amended several times until it was increased to P5,000,000.00.
Subsequently, Monet appointed Land Bank as an assignor to demand, collect and
receive the proceeds of the export letters of credit of their clients at a oan value of 80%.

One of Monet’s, Wishbone Trading Company of Hong Kong (Wishbone), drew the
amount of US$38,768.40 on the letter of credit. However, Landbank was not able to
collect from Wishbone.

Monet alleged as a consequence that they are not liable for the letter of credit as Land
Bank failed and refused to collect the receivables on their export letter of credit against
Wishbone.

Issue: Whether or not the failure of Landbank to collect from Wishbone Trading
Company of Hong Kong absolves Monet from liability

Held: Monet is still liable notwithstanding Lanbank’s failure to collect.

Land Bank that, as the issuing bank in the transaction involving an import letter of credit,
is independent from its function as an agent of the spouses. As the issuer of the 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.
ONG vs CA 124 SCRA 578 (1983)

The engagement of the issuing bank is to pay the seller or beneficiary of the credit once
the draft and the required documents are presented to it. The so-called “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.

However, Monet’s liabilities are mitigated as the bank failed to exercised the required
diligence in its collection. 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.