(#7) RELIANCE COMMODITIES, INC., petitioner, vs. DAEWOO INDUSTRIAL CO., LTD., respondent. G.R. NO.

L-100831 December 17, 1993

FACTS: On January 1980, Reliance entered into a contract of sale with respondent Daewoo for the delivery and shipment of foundry pig iron for the price of $404,000. Daewoo then caused a delivery of 2,000 metric tons from Korea but upon arrival in Manila, the goods were found to have been short of 135.655 metric tons. Months after, another contract was to be entered into by the parties and there was an acknowledgement by Daewoo of its shortcomings in the previous contract and proposed to reduce the price of the goods. However, this second contract was not consummated and instead, was superseded by another contract dated on 31 July 1980. Among the pertinent provisions of this contract was that Reliance, to secure payment to Daewoo, was to open a Letter of Credit with a bank. However, upon application of Reliance, the same was denied, because of the fact that Reliance had already exceeded its foreign exchange allocation for that year, The bank then directed Reliance to raise purchase orders for 2000 metric tons of the goods, but it failed to do so, having only raised 900 metric tons. Daewoo was then forced to sell the goods at lower prices to cut losses. Thereafter, Reliance, through counsel, wrote a letter requesting payment of the shortage in the delivery of the first contract. When Daewoo did not answer, Reliance filed a case for damages with the trial court. Daewoo then filed a counterclaim for damages because of alleged breach of contract for failure of Reliance to open a L/C pursuant to their latest agreement. The trial court ruled that (1) Daewoo was liable for the shortage in the first contract and (2) Reliance was liable for breach of contract for failure to open a L/C. Reliance then appealed to the CA which ruled that the trial court ruled correctly, because of the fact that when Reliance entered into the third contract involving the L/C, it already knew that it had exceeded its foreign exchange allocation for the year. Thus, Reliance filed the Petition to the CA contending that the contract was not perfected since the opening of the L/C was a condition precedent, and because it was never granted, there is no room for damages. ISSUE: WON the failure of Reliance to open a L/C pursuant to their contract made it liable for damages HOLD: Yes, Reliance is liable for breach of contract, and thus, damages. The SC cites the case of Bank of America v. CA, wherein L/C was defined as financial device developed by merchants as a convenient and safe way of transaction, ensuring payment and delivery of goods. SC also mentioned the three relationships involved in an L/C: (1) bank and beneficiary, (2) bank and account party and (3) beneficiary and account party. The L/C provided for in that contract was the mode or mechanism by which payment was to be effected by Reliance of the price of the pig iron. In undertaking to accept or pay the drafts presented to it by the beneficiary according to the tenor of an L/C, and only later on being reimbursed by the account party, the issuing bank in effect extends a loan to the account party. This loan feature, combined with the bank's undertaking to accept the beneficiary's drafts drawn on the bank, constitutes the L/C as a mode of payment. Reliance knew from the beginning that it would have been very difficult to open the L/C because of the fact of its exceeding FEA. Thus, it should be held liable for breach of contract. We believe and so hold that failure of a buyer seasonably to furnish an agreed letter of credit is a breach of he contract between buyer and seller. Where the buyer fails to open a letter of credit as stipulated, the seller or exporter is entitled to claim damages for such breach.

(#8) RODZSSEN SUPPLY CO. INC., petitioner vs. FAR EAST BANK &TRUST CO., respondent G.R. NO. 109807, May 9, 2001
FACTS: Petitioner Rodzssen opened a L/C with respondent Far East Bank in favor of Ekman and Company, Inc. for the delivery of 5 hydraulic loaders. This 30-day L/C had an expiration date of February 15, 1979 but this was extended by stipulation to October 15, 1979. Ekman was able to deliver 3 of the loaders on March 1979 before the expiration of the L/C. The amount of P114,000 was duly paid for by petitioner to the bank. However, with regard to the remaining 2 loaders, it was disputed that these were delivered after the expiration of the L/C but nonetheless was received by Rodzssen from Ekman. The amount of P76,000 was paid by Far East and when it tried to collect the amount from Rodzssen, the latter refused saying that the L/C was already expired and Far East should not have paid Ekman. The trial court ruled saying that, despite the expiration of the L/C, petitioner was still liable to pay Far East and such defense of expiration of the L/C was estopped because the loaders were offered to be returned only 3 years after they were openly accepted and delivered by Ekman. Upon appeal to the CA, it affirmed the judgment of the trial court on the basis of preventing unjust enrichment of petitioner when it received the goods without paying the respondent bank. Hence, the petition was filed by Rodzssen. ISSUE: (1) WON respondent should a pay a L/C which has long expired; (2) WON the lower courts were correct in concluding that there was a consummated sale; and (3) WON there should be payment of the 2 loaders despite expiration HOLD: (1) NO. The subject Letter of Credit had become invalid upon the lapse of the period fixed therein. Thus, respondent should not have paid Ekman; it was not obliged to do so. In the same vein, of no moment was Ekman's presentation, within the prescribed period, of all the documents necessary for collection, as the Letter of Credit had already expired and had in fact been cancelled; (2) YES. There was a consummated sale between the two parties, and recovery of payment of the said amount is not based on the L/C but rather on Art. 2142 of the NCC which provides that 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."; (3) YES. As already established, the payment of the two loaders is just and proper, since there was also neglect on the part of petitioner to properly reject the goods upon delivery; instead, they readily accepted the goods. They are now stopped from disclaiming liability. (NOTE: SC mentions the case of Eastern Shipping Lines v. CA, where it was held that the payment of 6% when an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. Although the sum of money involved in this case was payable to a bank, the present factual milieu clearly shows that it was not a loan or forbearance of money. Thus, pursuant to established jurisprudence and Article 2009 of the Civil Code, petitioner is bound to pay interest at 6 percent per annum.)