(2.) Bank of America , NT & SA vs.

CA
III. TOPIC:
Special Commercial Law - Letters of Credit
IV. STATEMENT OF FACTS:
Bank of America received an Irrevocable Letter of Credit issued by Bank of Ayudhya for the Account of General
Chemicals Ltd., Inc. for the sale of plastic ropes and agricultural files. Under the letter of credit, Bank of America acted
as an advising bank and Inter-Resin Industrial Corp. (IR) acted as the beneficiary. Upon receipt of the letter advice,
Inter- Resin told Bank of America to confirm the letter of credit.
Notwithstanding such instruction, Bank of America failed to confirm the letter of credit. Inter-Resin made a partial
availment of the Letter of Credit after presentment of the required documents to Bank of America. After confirmation of
all the documents Bank of America issued a check in favor of Inter-Resin Industrial Corporation. Bank of America
advised the Bank of Ayudhya of Inter-Resins availment under the letter of credit and asked for the corresponding
reimbursement. Inter-Resin presented documents for the second availment under the same letter of credit. However,
Bank of America stopped the processing of such after they received a telex from Bank of Ayudhya declaring that the
Letter of Credit is fraudulent. Bank of America sued Inter-Resin for the recovery of the first Letter of Credit payment.
V. STATEMENT OF THE CASE:
Bank of America sued Inter-Resin for the recovery of P10,219,093.20, the peso equivalent of the draft for
US$1,320,600.00 on the partial availment of the now disowned letter of credit. On the other hand, Inter-Resin claimed
that not only was it entitled to retain P10,219,093.20 on its first shipment but also to the balance US$1,461,400.00
covering the second shipment.

VI. ISSUE:
1. Whether it has warranted the genuineness and authenticity of the letter of credit and, corollarily, whether it
has acted merely as an advising bank or as a confirming bank.
2. Following the dishonor of the letter of credit by Bank of Ayudhya, whether Bank of America may recover
against Inter-Resin under the draft executed in its partial availment of the letter of credit.

VII. RULING:
1. It cannot seriously be disputed, looking at this case, that Bank of America has, in fact, only been an
advising, not confirming, bank, and this much is clearly evident, among other things, by the provisions of the letter
of credit itself, the petitioner bank's letter of advice, its request for payment of advising fee, and the admission of
Inter-Resin that it has paid the same. That Bank of America has asked Inter-Resin to submit documents required by the
letter of credit and eventually has paid the proceeds thereof, did not obviously make it a confirming bank. The fact,
too, that the draft required by the letter of credit is to be drawn under the account of General Chemicals (buyer) only
means the same had to be presented to Bank of Ayudhya (issuing bank) for payment. It may be significant to recall
that the letter of credit is an engagement of the issuing bank, not the advising bank, to pay the draft.
2. Yes. This kind of transaction is what is commonly referred to as a discounting arrangement. This time, Bank
of America has acted independently as a negotiating bank, thus saving Inter-Resin from the hardship of presenting the
documents directly to Bank of Ayudhya to recover payment. (Inter-Resin, of course, could have chosen other banks
with which to negotiate the draft and the documents.) As a negotiating bank, Bank of America has a right to recourse
against the issuer bank and until reimbursement is obtained, Inter-Resin, as the drawer of the draft, continues to
assume a contingent liability thereon.
While bank of America has indeed failed to allege material facts in its complaint that might have likewise
warranted the application of the Negotiable Instruments Law and possible then allowed it to even go after the
indorsers of the draft, this failure, 32/ nonetheless, does not preclude petitioner bank's right (as negotiating bank) of
recovery from Inter-Resin itself. Inter-Resin admits having received P10,219,093.20 from bank of America on the letter
of credit and in having executed the corresponding draft. The payment to Inter-Resin has given, as aforesaid, Bank of
America the right of reimbursement from the issuing bank, Bank of Ayudhya which, in turn, would then seek
indemnification from the buyer (the General Chemicals of Thailand). Since Bank of Ayudhya disowned the letter of
credit, however, Bank of America may now turn to Inter-Resin for restitution.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial Corporation is ordered to refund
to petitioner Bank of America NT & SA the amount of P10,219,093.20 with legal interest from the filing of the
complaint until fully paid.

(3.) FEATI BANK & TRUST V. CA

III. TOPIC: Letters of Credit - Liability of a notifying bank
IV. STATEMENT OF FACTS:
Bernardo E. Villaluz agreed to sell to the then defendant Axel Christiansen lauan logs. After inspecting the logs,
Christiansen issued purchase order No. 76171. On the arrangements made and upon the instructions of the consignee,
Hanmi Trade Development, Ltd., de Santa Ana, California, the Security Pacific National Bank of Los Angeles, California
issued Irrevocable Letter of Credit available at sight in favor of Villaluz for the total purchase price of the lauan logs.
The letter of credit was mailed to the Feati Bank and Trust Company (now Citytrust) with the instruction to the latter
that it "forward the enclosed letter of credit to the beneficiary." The letter of credit further provided that the draft to be
drawn is on Security Pacific National Bank and that it be accompanied by documents.
After the loading of the logs was completed, Christiansen refused to issue the certification as required in paragraph 4
of the letter of credit, despite several requests made by the private respondent. Because of the absence of the
certification by Christiansen, the Feati Bank and Trust Company refused to advance the payment on the letter of credit.
The letter of credit lapsed on June 30, 1971, (extended, however up to July 31, 1971) without the private respondent
receiving any certification from Christiansen. The persistent refusal of Christiansen to issue the certification prompted
the private respondent to bring the matter before the Central Bank.
Meanwhile, the logs arrived at Inchon, Korea and were received by the consignee, Hanmi Trade Development
Company, to whom Christiansen sold the logs. Hanmi Trade Development Company, on the other hand sold the logs to
Taisung Lumber Company at Inchon, Korea.

V. STATEMENT OF THE CASE:

The Central Bank ruled that any provision in any letter of credit covering log exports requiring certification of buyer's
agent or representative that said logs have been approved for shipment as a condition precedent to negotiation of
shipping documents shall not be allowed.
After trial, the lower court ordered the defendants to pay the plaintiff, jointly and severally. The petitioner filed a notice
of appeal. The Court of Appeals affirmed the decision of the lower court. Hence, this petition for review.

VI. ISSUE:
Whether or not the petitioner is to be held liable under the letter of credit despite non-compliance by the beneficiary
with the terms thereof.

VII. RULING:
It is a settled rule in commercial transactions involving letters of credit that the documents tendered must strictly
conform to the terms of the letter of credit. The tender of documents by the beneficiary (seller) must include all
documents required by the letter. A correspondent bank which departs from what has been stipulated under the letter
of credit, as when it accepts a faulty tender, acts on its own risks and it may not thereafter be able to recover from the
buyer or the issuing bank, as the case may be, the money thus paid to the beneficiary Thus the rule of strict
compliance.
Under the provisions of the U.C.P., the bank may only negotiate, accept or pay, if the documents tendered to it are on
their face in accordance with the terms and conditions of the documentary credit. And since a correspondent bank, like
the petitioner, principally deals only with documents, the absence of any document required in the documentary credit
justifies the refusal by the correspondent bank to negotiate, accept or pay the beneficiary, as it is not its obligation to
look beyond the documents. It merely has to rely on the completeness of the documents tendered by the beneficiary.
In regard to the ruling of the lower court and affirmed by the Court of Appeals that the petitioner is not a notifying
bank but a confirming bank, we find the same erroneous. In this case, the letter merely provided that the petitioner
"forward the enclosed original credit to the beneficiary. Considering the aforesaid instruction to the petitioner by the
issuing bank, the Security Pacific National Bank, it is indubitable that the petitioner is only a notifying bank and not a
confirming bank as ruled by the courts below. Since the petitioner was only a notifying bank, its responsibility was
solely to notify and/or transmit the documentary of credit to the private respondent and its obligation ends there. xxx
As a mere notifying bank, not only does the petitioner not have any contractual relationship with the buyer, it has also
nothing to do with the contract between the issuing bank and the buyer regarding the issuance of the letter of credit.
Finally, even if we assume that the petitioner is a confirming bank, the petitioner cannot be forced to pay the amount
under the letter. As we have previously explained, there was a failure on the part of the private respondent to comply
with the terms of the letter of credit.

VIII. DISPOSITIVE PORTION:

WHEREFORE, the COURT RESOLVED to GRANT the petition and hereby NULLIFIES and SETS ASIDE the decision of the
Court of Appeals dated June 29, 1990. The amended complaint in Civil Case No. 15121 is DISMISSED.
SO ORDERED.

(4.) BPI vs. DE RENY FABRIC INDUSTRIES

III. TOPIC:
Special Commercial Law Letters of Credit
IV. STATEMENT OF FACTS:
De Reny Fabric Industries, Inc. (De Reny) applied for, and was granted, four (4) irrevocable commercial letters of credit
with the Bank of Philippine Islands (BPI). The letter of credits was used to cover the purchase of goods by De Reny
from its American supplier, the J.B. Distributing Company. As each shipment arrived in the Philippines, the De Reny
Fabric Industries, Inc. made partial payments to the Bank amounting to 12,000. Further payments were, however,
subsequently discontinued by the corporation when it became established, as a result of a chemical test conducted by
the National Science Development Board, that the goods that arrived in Manila were colored chalks instead of
dyestuffs. The corporation also refused to take possession of these goods, and for this reason, the Bank caused them
to be deposited with a bonded warehouse paying therefor the amount of P12,609.64 up to the filing of its complaint
with the court.
V. STATEMENT OF THE CASE:
This is an appeal from the decision of the Court of First Instance of Manila ordering the defendants-appellants to pay to
the Bank of the Philippine Islands (hereinafter referred to as the Bank), jointly and severally, the value of the credit it
extended to them in several letters of credit which the Bank opened at the behest of the defendants appellants to
finance their importation of dyestuffs from the United States, which however turned out to be mere colored chalk upon
arrival and inspection thereof at the port of Manila.
VI. ISSUE:
1.

Whether or Not the bank is liable for the loss suffered by defendants-appellants on account of the violation
by their vendor of its prestation

VII. RULING:
1. Even without the stipulation recited above, the appellants cannot shift the burden of loss to the Bank on account of
the violation by their vendor of its prestation. It was uncontrovertibly proven by the Bank during the trial below that
banks, in providing financing in international business transactions such as those entered into by the appellants, do
not deal with the property to be exported or shipped to the importer, but deal only with documents. The existence of a
custom in international banking and financing circles negating any duty on the part of a bank to verify whether what
has been described in letters of credits or drafts or shipping documents actually tallies with what was loaded aboard
ship, having been positively proven as a fact, the appellants are bound by this established usage. They were, after all,
the ones who tapped the facilities afforded by the Bank in order to engage in international business.
Under the terms of their Commercial Letter of Credit Agreements with the Bank, the appellants agreed that the Bank
shall not be responsible for the existence, character, quality, quantity, conditions, packing, value, or delivery of the
property purporting to be represented by documents; for any difference in character, quality, quantity, condition, or
value of the property from that expressed in documents, or for partial or incomplete shipment, or failure or omission
to ship any or all of the property referred to in the Credit, as well as for any deviation from instructions, delay,
default or fraud by the shipper or anyone else in connection with the property the shippers or vendors and ourselves
[purchasers] or any of us. Having agreed to these terms, the appellants have, therefore, no recourse but to comply
with their covenant.

VIII. DISPOSITIVE PORTION:

ACCORDINGLY, the judgment a quo is affirmed, at defendants-appellants' cost. This is without prejudice to the Bank, in
proper proceedings in the court below in this same case proving and being reimbursed additional expenses, if any, it
has incurred by virtue of the continued storage of the goods in question up to the time this decision becomes final and
executory.

(5.) Metropolitan Waterworks V. Daway

III. TOPIC:
SPCL Letter of Credit
IV. STATEMENT OF FACTS:
Maynilad obtained a 20-year concession to manage, repair, refurbish, and upgrade existing Metropolitan Waterworks
and Sewerage System (MWSS) water delivery and sewerage services in Metro Manilas west zone. Maynilad, under the
concession agreement undertook to pay concession fees and itsforeign loans. To secure its obligations, Maynilad was
required under Section 9 of the concession contract to put up a bond, bank guarantee or other security acceptable to
MWSS. Pursuant to this requirement, Maynilad arranged on for a three-year facility with a number of foreign banks led
by Citicorp Intl for the issuance of an irrevocable standby letter of credit (SLC) in the amount of $ 120 million in favor
of MWSS for the full and prompt payment of Maynilads obligations to MWSS. Due to devaluation of the peso and other
business reversals of Maynilad, MWSS filed a notice of early termination of the concession contract. Upon certification
of the non performance of Maynilad obligation, the MWSS moved to collect from Citicorp on the standby letters of
credit issued. Maynilad filed for corporate rehabilitation.
Judge Daway stayed the payment of the letter of credit by
Citicorp pursuant to Sec 6 (b) of Rule 4 of the Interim Rules on Corporate Rehabilitation.
V. STATEMENT OF THE CASE:
On November 17, 2003, the Regional Trial Court (RTC) of Quezon City, Branch 90, made a determination that the
Petition for Rehabilitation with Prayer for Suspension of Actions and Proceedings filed by Maynilad Water Services, Inc.
(Maynilad) conformed substantially to the provisions of Sec. 2, Rule 4 of the Interim Rules of Procedure on Corporate
Rehabilitation (Interim Rules).
VI. ISSUE:
Whether or not the payment of the standby of letter of credit can be stayed by filing of a petition for
rehabilitation.
VII. RULING:
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.
The participating banks obligation under the letter of credit are solidary with respondent Maynilad in that it is
a primary, direct, definite and an absolute undertaking to pay and is not conditioned on the prior exhaustion of the
debtors assets. These are the same characteristics of a surety or solidary obligor. And being solidary, the claims
against them can be pursued separately from and independently of the rehabilitation case.
Issuing banks under the letters of credit are not equivalent to guarantors. The concept of guarantee vis--vis
the concept of an irrevocable letter of credit are inconsistent with each other. The guarantee theory destroys the
independence of the banks responsibility from the contract upon which it was opened and the nature of both
contracts is mutually in conflict with each other. In contracts of guarantee, the guarantors obligation is merely
collateral and it arises only upon the default of the person primarily liable. On the other hand, in an irrevocable letter
of credit, the bank undertakes a primary obligation. We have also defined a letter of credit as an engagement by a
bank or other person made at the request of a customer that the issuer shall honor drafts or other demands of
payment upon compliance with the conditions specified in the credit.
A Standby Letter of Credit is not a guaranty because under a Standby Letter of Credit, the bank undertakes a
primary obligation. On the other hand, a guarantor undertakes a collateral obligation which arises only upon the
debtors default. A Standby Letter of Credit is a primary obligation and not an accessory contract.

VIII. DISPOSITIVE PORTION:

WHEREFORE, the petition for certiorari is granted. The Order of November 27, 2003 of the Regional Trial Court
of Quezon City, Branch 90, is hereby declared NULL AND VOID and SET ASIDE. The status quo Order herein previously
issued is hereby LIFTED. In view of the urgency attending this case, this decision is immediately executory.

(6.) Prudential Bank vs. IAC

III. TOPIC: Letters of Credit- Presentment for acceptance
IV: STATEMENT OF FACTS:
Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile
machineries under a 5-year deferred payment plan. To effect the payment, PRMI applied for a commercial letter of
credit with the Prudential Bank and Trust Company in favor of Nissho. Prudential Bank opened Letter of Credit No. DPP63762 for $128,548.78 Against this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the
Prudential Bank through its correspondent in Japan, the Bank of Tokyo, Ltd. Two of the original drafts were accepted by
PRMI through its president, Anacleto R. Chi, while the others were not. Upon the arrival of the machineries, the
Prudential Bank indorsed the shipping documents to the PRMI which accepted delivery of the same. To enable PRMI to
take delivery of the machineries, it executed, by prior arrangement with the Prudential Bank, a trust receipt, which was
signed by Anacleto R. Chi in his capacity as President of PRMI Company.
At the back of the trust receipt was printed a form to be accomplished by 2 sureties who, by the very terms and
conditions thereof, were to be jointly and severally liable to the Prudential Bank should the PRMI fail to pay the total
amount or any portion of the drafts issued by Nissho and paid for by Prudential Bank. . PRMI was able to take delivery
of the textile machineries and installed the same at its factory site.
V. STATEMENT OF THE CASE:
Chi argued that presentment for acceptance was necessary to make PRMI liable. The trial court ruled that that
presentment for acceptance was an indispensable requisite for Philippine Rayons liability on the drafts to attach. Both
the trial court and the public respondent ruled that Philippine Rayon could be held liable for the two (2) drafts, because
only these appear to have been accepted by the latter after due presentment. The liability for the remaining ten (10)
drafts did not arise because the same were not presented for acceptance. In short, both courts concluded that
acceptance of the drafts by Philippine Rayon was indispensable to make the latter liable thereon.

VI.ISSUE: Whether or not presentment for acceptance was needed in order for PRMI to be liable under the draft.
VII. RULING:
Presentment for acceptance is defined an the production of a bill of exchange to a drawee for acceptance. Acceptance,
however, was not even necessary in the first place because the drafts which were eventually issued were sight drafts.
Even if these were not sight drafts, thereby necessitating acceptance, it would be the Bank (Bank of America) and
not Philippine Rayon which had to accept the same for the latter was not the drawee.
The trial court and the public respondent, therefore, erred in ruling that presentment for acceptance was an
indispensable requisite for Philippine Rayons liability on the drafts to attach. Contrary to both courts pronouncements,
Philippine Rayon immediately became liable upon Bank of Americas payment on the letter of credit. Such is the
essence of the letter of credit issued by the petitioner. A different conclusion would violate the principle upon which
commercial letters of credit are founded because in such a case, both the beneficiary and the issuer, Nissho Company

Ltd. and the petitioner, respectively, would be placed at the mercy of Philippine Rayon even if the latter had already
received the imported machinery and the petitioner had fully paid for it.
In fact, there was no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is
necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL).
In the instant case then, the drawee was necessarily the herein the Bank of America. It was to the latter that the drafts
were presented for payment.
Drafts drawn by the beneficiary need not be presented to the applicant for acceptance before the issuing bank can see
k reimbursement. Once the issuing bank has paid the beneficiary after the latters compliance with
the terms of the letter of credit, the issuing bank becomes entitled to reimbursement.
(Prudential Bank Trust Company vs. IAC, 216 SCRA 257 (1992))

(7.) BANK OF COMMERCE V. SERRANO

III. TOPIC: Letters of Credit
IV. STATEMENT OF FACTS:
Petitioner Bank of Commerce (formerly Boston Bank of the Philippines) is a private domestic banking institution.
Respondent Teresita S. Serrano is the General Manager and Treasurer of Via Moda International, Inc., a domestic
business entity primarily engaged in the import and export of textile materials and fabrics.
Via Moda International, represented by respondent, obtained an export packing loan from petitioner, Bank of
Commerce (BOC)-Diliman, Quezon City Branch, in the amount of US$50,000 secured by a Deed of Assignment over
Irrevocable Transferable Letter of Credit. Respondent Serrano executed in favor of BOC Promissory Note US$50,000
dated May 6, 1994 with maturity date on July 14, 1994. Via Moda then opened a deposit account for the proceeds of
the said loan.
On March 15, 1994, BOC issued to Via Moda, Irrevocable Letter of Credit No in the amount of US$56,735, for the
purchase and importation of fabric and textile products from Tiger Ear Fabric Co. Ltd. of Taiwan. To secure the release
of the goods covered, respondent, in representation of Via Moda, executed Trust Receipt dated April 21, 1994 with due
date on July 20, 1994 for US$55,944.
Under the terms of the trust receipt, Via Moda agreed to hold the goods in trust for BOC as the latters property
and to sell the same for the latters account. In case of sale, the proceeds are to be remitted to the bank as soon as it
is received, but not later than the maturity date. Said proceeds are to be applied to the relative acceptances, with
interest and penalty or in the alternative, to return the goods in case of non-sale.
The goods covered by the trust receipt were shipped by Via Moda to its consignee in New Jersey, USA, who sent
an Export Letter of Credit issued by the Bank of New York, in favor of BOC. The Regional Operations Officer of BOC
signed the export declarations to show consent to the shipment. The proceeds of the entrusted goods sold were not
credited to the trust receipt but, were applied by the bank to the principal, penalties and interest of the export packing
loan. The excess was applied to the trust receipt, leaving a balance.
BOC sent a demand letter to Via Moda to pay the said amount plus interest and penalty charges, or to return the
goods covered by Trust Receipt within 5 days from receipt. However, the demand was not heeded.

V. STATEMENT OF THE CASE:

Serrano was charged with the crime of estafa under Article 315 (b) of the Revised Penal Code in relation to
Presidential Decree No. 115. The Trial Court rendered a judgment in favor of BOC finding Serrano guilty of the crime
charged and order to pay civil liability to the bank. Respondent appealed to the Court of Appeals, the latter reversed
the decision of the lower court. Hence, this review;

VI. ISSUE:
Whether Respondent is jointly and severally liable with Via Moda under the guarantee clause of the Letter of
Credit secured by Trust Receipt

VII. RULING:
No.
Serrano cannot be held civilly liable under the trust receipt since she was not made personally liable nor was
she a guarantor therein. The parties stipulated during the pre-trial that respondent Serrano executed the trust receipt
in representation of Via Moda, Inc., which has a separate personality from Serrano, and petitioner BOC failed to show
sufficient reason to justify the piercing of the veil of corporate fiction. It thus ruled that this was not Serranos personal
obligation but that of Via Moda and there was no basis of finding her solidarily liable with Via Moda.
A letter of credit is a separate document from a trust receipt. While the trust receipt may have been executed
as a security on the letter of credit, still the two documents involve different undertakings and obligations. A letter of
credit is an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts
or other demands for payment upon compliance with the conditions specified in the credit. Through a letter of credit,
the bank merely substitutes its own promise to pay for the promise to pay of one of its customers who in return
promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees
mutually agreed upon. By contrast, a trust receipt transaction is one where the entruster, who holds an absolute title
or security interests over certain goods, documents or instruments, released the same to the entrustee, who executes
a trust receipt binding himself to hold the goods, documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents and instruments with the obligation to turn over to the entruster the
proceeds thereof to the extent of the amount owing to the entruster, or as appears in the trust receipt, or return the
goods, documents or instruments themselves if they are unsold, or not otherwise disposed of, in accordance with the
terms and conditions specified in the trust receipt.

VIII. DISPOSITIVE PORTION:

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated September 28, 2001 and the
Resolution dated January 17, 2002, of the Court of Appeals in CA-G.R. CR No. 24570, are AFFIRMED.

(8.) Reliance Commodities vs Daewoo Industrial

III. TOPIC: Letter of Credit SPCL
IV. Statement of the Facts:
Petitioner and private respondent, on January 9, 1980, entered into a contract of sale, whereby the Daewoo undertook
to deliver to the former 2,000 metric tons of foundry pig iron for the price of US$ 404,000. Pursuant to this contract,
Daewoo shipped from Korea, 2,000 metric tons of foundry pig iron onboard the MS Aurelio III for carriage and delivery
to Manila with Reliance as consignee. Upon its arrival in Manila, the subject cargo was found short of 135.655 metric
tons.
On May 2, 1980, another contract was entered into by the parties for the shipment of another 2,000 metric tons of
foundry pig iron. Daewoo acknowledged the short shipment in the previous contract and to compensate Reliance,
bound itself to reduce the price by US$1 to US$2 per metric ton. However, this contract was not consummated and
was superseded by another contract dated July 31, 1980.

On August 1, 1980, pursuant to the July 31 contract, Reliance applied for a letter of credit in favor of Daewoo
amounting to US$380,600 with the China Banking Corporation. Said application was endorsed to Iron and Steel
authority which was however denied. Reliance was asked to submit purchase orders from end-users to support its
application for the L/C. Reliance however, was only able to raise 900 purchase orders. Daewoo rejected the proposed
L/C because the covered quantity fell short of the contracted tonnage. Daewoo in turn was forced to sell the foundry
pig iron at a lower price to mitigate losses.

V. Statement of the Case;

On September 3, 1980, Reliance through its counsel wrote Daewoo, requesting payment for the short delivery on the
Jan 9 contract. This led to the filing of an action for damages against Daewoo with the trial court. Daewoo, responded
with a counterclaim for failure of Reliance to open the required L/C under the July contract.
Reliance appealed the 2nd part of the trial courts decision finding it guilty of breach of contract. This was affirmed by
the CA.

VI. Issue:
WON the failure of the importer to open a letter of credit on the date agreed upon makes him liable to the exporter for
damages.

VII. Ruling: Yes. The opening of the L/C is not a condition precedent for the birth of the obligation of Reliance to
purchase foundry pig iron from Daewoo. In this case, the parties have reached a meeting of the minds with regard to
the subject matter of the contract, the price thereof and other provisions. The failure of Reliance to open, the
appropriate L/C did not prevent the birth of that contract, and neither did such failure extinguish that contract. The
opening of the L/C in favor of Daewoo was an obligation of Reliance and the performance of that obligation by Reliance
was a condition of enforcement of the reciprocal obligation of Daewoo to ship the subject matter of the contract the
foundry pig iron to Reliance. But the contract itself between Reliance and Daewoo had already sprung into legal
existence and was enforceable.
VIII. Dispositive Portion:
WHEREFORE, in view of the foregoing, the Petition for Review is hereby DENIED for lack of merit and the
decision of the Court of Appeals dated 8 February 1991 is hereby AFFIRMED. Costs against petitioner.

(9) ASIAN TERMINALS, INC. v. PHILAM INSURANCE

III. TOPIC:
Special Commercial Laws Letters of Credit
IV. STATEMENT OF FACTS:
Nichimen Corporation shipped to Universal Motors Corporation (Universal Motors) packages containing brand
new Nissan Pickup Trucks, without engine, tires and batteries, on board the vessel S/S "Calayan Iris" from Japan to
Manila. The shipment, which had a declared value of US$81,368 or P29,400,000 was insured with Philam. Upon arrival
at the port of Manila, it was identified that two packages were dented and broken. Upon further inspection of Universal
Motors, the said cargoes were declared a total loss.

Universal Motors filed a formal claim for damages in the amount of P643,963.84 against Westwind, Asian
Terminal Inc. (ATI) and R.F. Revilla Customs Brokerage, Inc. Such demand remained unheeded; it sought reparation
from and was compensated in the sum of P633,957.15 by Philam. Accordingly, Universal Motors issued a Subrogation
Receipt in favor of Philam.

V. STATEMENT OF THE CASE:

Philam, as subrogee of Universal Motors, filed a Complaint for damages against Westwind, ATI and R.F. Revilla
Customs Brokerage, Inc before the RTC which ruled in favor of Philam. On appeal, the CA affirmed with modification the
ruling of the RTC. It ultimately ruled that Westwind and ATI shall pay Philam, jointly and severally, the amount of
P190,684.48 with interest at the rate of 12% per annum until fully paid, attorneys fees of P47,671 and litigation
expenses.

VI. ISSUE:

Whether or not Philam may claim against Westwind and ATI as a subrogee

VII. RULING: Yes. The Court holds that petitioner Philam has adequately established the basis of its claim against
petitioners ATI and Westwind. Philam, as insurer, was subrogated to the rights of the consignee, Universal Motors
Corporation, pursuant to the Subrogation Receipt executed by the latter in favor of the former. The right of subrogation
accrues simply upon payment by the insurance company of the insurance claim. Petitioner Philams action finds
support in Article 2207 of the Civil Code, which provides as follows:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. x x x.
We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all the
remedies that the insured may have against the third party whose negligence or wrongful act caused the loss. The
right of subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues simply upon
payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It is
designed to promote and accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a
debt by one who, in justice, equity, and good conscience, ought to pay.
*** on the topic letters of credit: the bill of lading for the shipment dated April 15, 1995 provides that Rizal Commercial
Banking Corporation (RCBC) was the consignee while Universal Motors is listed as the notify party. These designations
are in line with the subject shipment being covered by a Letter of Credit which RCBC issued upon the request of
Universal Motors.
A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with
sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he
is paid, and a buyer, who wants to have control of his goods before paying. However, letters of credit are employed by
the parties desiring to enter into commercial transactions, not for the benefit of the issuing bank but mainly for the
benefit of the parties to the original transaction, in these cases, Nichimen Corporation as the seller and Universal
Motors as the buyer. Hence, the latter, as the buyer of the Nissan parts, should be regarded as the person entitled to
delivery of the goods.

VIII. DISPOSITIVE PORTION:

WHEREFORE, the Court AFFIRMS with MODIFICATION the Decision dated October 15,2007 and the Resolution dated
January 11, 2008 of the Court of Appeals in CA-G.R. CV No. 69284 in that the interest rate on the award of P190,684.48
is reduced to 6% per annum from the date of extrajudicial demand, until fully paid.
With costs against the petitioners in G.R. No. 181163 and G.R. No. 181319, respectively.

(11) SCHUBACK VS. COURT OF APPEALS

III. TOPIC: Letters of Credit

IV. STATEMENT OF FACTS:

The respondent, Philippine SJ Industrial Trading (SJ Industrial) made contact with Schuback & Sons Philippines Trading
(SSPT), the petitioner, to purchase bus spare parts in Germany. SJ Industrial submitted a list of the parts he wanted to
purchase and SSPT referred the list to Schuback Hamburg, its trading partner in Germany. After submitting the
quotations and demanding for discounts, SSPT submitted its formal offer.
SJ Industrial informed petitioner of his desire to avail of the prices of the parts and enclosed Purchase Order No. 0101.
It also personally submitted the quantities they wanted to Mr. Dieter Reichert, General Manager of SSPT. The quantities
were written in the same Purchase Order (P.O) previously submitted. At the bottom of said P.O, defendant wrote above
his signature: "NOTE: Above P.O. will include a 3% discount. The above will serve as our initial P.O."
SSPT ordered the items needed from Schuback Hamburg and in turn, it ordered the items from NDK, a supplier of MAN
spare parts in West Germany. Schuback Hamburg sent SSPT a proforma invoice to be used by defendant in applying for
a letter of credit which the respondent acknowledged receipt. An order confirmation was later sent by Schuback
Hamburg to petitioner which was forwarded to and received by respondent.
SSPT reminded SJ Industrial to open the letter of credit to avoid delay in shipment and payment of interest. SJ
Industrial replied that it was having difficulty in securing the following: the required dollar allocations, the letter of
credit, loan and partner-financier, and of how to proceed with the orders.
SSPT reiterated the consequences of the delay of payment; however, respondent replied that he did not make any
valid purchase order and that there was no definite contract between him and petitioner. SSPT explained that there
has been a valid purchase order and suggested that they either proceed with the order or cancel and pay the
cancellation fee of 30%. Despite the demand letters sent to respondent by petitioners counsel, SJ Industrial did not
heed to the demand.

V. STATEMENT OF THE CASE:

SSPT filed a complaint for recovery of actual or compensatory damages, unearned profits, interest, attorney's fees and
costs against SJ Industrial. The trial court ruled in favor of the plaintiff which is why the defendant elevated the case to
the Court of Appeals. The appellate court reversed the decision of the trial court and dismissed the case of the
petitioner. It ruled that there was no perfection of contract since there was no meeting of the minds as to the price.
Hence, this petition.

VI. ISSUE:
(1) Whether or not a contract of sale has been perfected between the parties
(2) Whether or not a contract of sale has been perfected even if defendant failed to open a letter of credit

VII. RULING:
(1) Yes, a contract of sale has been perfected between the parties
Article 1319 of the Civil Code provides that consent is manifested by the meeting of the offer and acceptance
upon the thing and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter offer."
In the case at bar, SJ Industrial informed SSPT of his desire to avail of the prices of the parts and enclose
therewith a Purchase Order. At this stage, a meeting of the minds between vendor and vendee has occurred,
the object of the contract: being the spare parts and the consideration, the price stated in petitioner's offer
dated December 17, 1981 and accepted by the respondent on December 24,1981. The note that SJ Industrial
made on the PO was another indication of acceptance on his part, for by requesting a 3% discount, he
implicitly accepted the price as first offered by the vendor.
(2) Yes, a contract of sale has been perfected even if defendant failed to open a letter of credit. The opening of a
letter of credit in favor of a vendor is only a mode of payment. It is not among the essential requirements of a
contract of sale.
In the case at bar, there was no showing that SSPT reserved title to the goods until SJ Industrial had opened a
letter of credit. Petitioner, in the course of its dealings with private respondent, did not incorporate any
provision declaring their contract of sale without effect until after the fulfilment of the act of opening a letter of
credit.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is GRANTED and the decision of the trial court dated June 13, 1988 is REINSTATED with
modification. SO ORDERED.

(12.) KENG HUA PAPER PRODUCTS vs. CA

III. TOPIC:
Special Commercial Law Letters of Credit
IV. STATEMENT OF FACTS:
Sea-Land Service, a shipping company, is a foreign corporation licensed to do business in the Philippines. On 29 June
1982, SeaLand received at its Hong Kong terminal a sealed container, Container SEAU 67523, containing 76 bales of
unsorted waste paper for shipment to Keng Hua Paper Products, Co. in Manila. A bill of lading to cover the shipment
was issued by Sea-Land. On 9 July 1982, the shipment was discharged at the Manila International Container Port.
Notices of arrival were transmitted to Keng Hua but the latter failed to discharge the shipment from the container
during the free time period or grace period. The said shipment remained inside the Sea-Lands container from the
moment the free time period expired on 29 July 1982 until the time when the shipment was unloaded from the
container on 22 November 1983, or a total of 481 days.
During the 481-day period, demurrage charges accrued. Within the same period, letters demanding payment were
sent by Sea-Land to Keng Hua who, however, refused to settle its obligation which eventually amounted to P67,340.00.
Numerous demands were made on Keng Hua but theobligation remained unpaid; prompting Sea Land to commence
herein civil action for collection and damages.

V. STATEMENT OF THE CASE:

These is a petition assailing the decision of the Court of Appeals promulgated on May 20, 1994 in C.A.-G.R. CV No.
29953 affirming in toto the decision dated September 28, 1990 in Civil Case No. 85-33269 of the Regional Trial Court of
Manila, Branch 21.

VI. ISSUE:
1.

Whether or Not the petitioner had accepted the bill of lading

VII. RULING:
1. Yes. Petitioner admits that it received the bill of lading immediately after the arrival of the shipment. Having
been afforded an opportunity to examine the said document, petitioner did not immediately object to or dissent from
any term or stipulation therein. It was only six months later that petitioner sent a letter to private respondent saying
that it could not accept the shipment. Petitioners inaction for such a long period conveys the clear inference that it
accepted the terms and conditions of the bill of lading. Moreover, said letter spoke only of petitioners inability to use
the delivery permit, i.e. to pick up the cargo, due to the shippers failure to comply with the terms and conditions of the
letter of credit, for which reason the bill of lading and other shipping documents were returned by the banks to the
shipper. The letter merely proved petitioners refusal to pick up the cargo, not its rejection of the bill of lading.
A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which three
parties, namely, the shipper, the carrier, and the consignee undertake specific responsibilities and assume stipulated
obligations. A bill of lading delivered and accepted constitutes the contract of carriage even though not signed,
because the acceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance
of the contract and of all of its terms and conditions of which the acceptor has actual or constructive notice. In a
nutshell, the acceptance of a bill of lading by the shipper and the consignee, with full knowledge of its contents, gives
rise to the presumption that the same was a perfected and binding contract. Section 17 of the bill of lading provided
that the shipper and the consignee were liable for the payment of demurrage charges for the failure to discharge the
containerized shipment beyond the grace period allowed by the tariff rules.

VIII. DISPOSITIVE PORTION:

WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that the legal interest of six percent
per annum shall be computed from September 28, 1990 until its full payment before finality of judgment. The rate of
interest shall be adjusted to twelve percent per annum, computed from the time said judgment became final and
executory until full satisfaction. The award of attorneys fees is DELETED.

(13.) INSULAR BANK V. IAC

III. TOPIC:
Letter of Credit as a separate and independent agreement not an accessory agreement.

IV. STATEMENT OF FACTS:

In 1976 and 1977 spouses Ben S. Mendoza and Juanita M. Mendoza (Mendoza), obtained two (2) loans from Philippine
American Life Insurance Co. (Philam Life) in the total amount of P600,000.00 to finance the construction of their
residential house at Mandaue City.
To secure payment, Philam Life required that amortizations be guaranteed by an irrevocable standby letter of credit
(LCs) of a commercial bank. Thus, the Mendozas contracted with petitioner Insular Bank of Asia and America (IBAA)
for the issuance of two (2) irrevocable standby Letters of Credit in favor of Philam Life for the total amount of
P600,000.00.
These LCs were secured by a real estate mortgage for the same amount on the property of respondent spouses in
favor of IBAA.
On June 1978, the Mendozas failed to pay Philam Life the amortization. Philam Life informed IBAA that it was declaring
both loans as entirely due and demandable and demaded payment of P492,996.30. Because IBAA contested the
propriety of calling in the entire loan, Philam Life desisted and resumed availing of the L/Cs by drawing on them for
five (5) more amortizations.
The Mendozas defaulted again on their amortization due on, Philam Life again informed IBAA that it was declaring the
entire balance outstanding on both loans, including liquidated damages, "immediately due and payable."
IBAA contented that as a mere guarantor of the Mendozas who are the principal debtors, its remaining outstanding
obligation under the two (2) standby L/Cs was only P30,100.60.
The Real Estate mortgage was extrajudicially foreclosed by, and sold at public auction to petitioner IBAA as the lone
and highest bidder.

V. STATEMENT OF THE CASE:

The trial court ruled that IBAA, as surety, was discharged of its liability to the extent of the payment made by the
Mendozas, as the principal debtors, to the creditor, Philam Life.
The Court of Appeals reversed the trial court and ruled instead that IBAAs liability was not reduced by virtue of the
payments made by the MEndozas.

VI. ISSUE:
Whether or not the partial payments made by the principal obligors would have the corresponding effect of reducing
the liability of the petitioner as guarantor or surety under the terms of the standby LCs in question.

VII. RULING:
Unequivocally, the subject standby Letters of Credit secure the payment of any obligation of the Mendozas to Philam
Life including all interests, surcharges and expenses thereon but not to exceed P600,000.00. But while they are a
security arrangement, they are not converted thereby into contracts of guaranty. That would make them ultra vires
rather than a letter of credit, which is within the powers of a bank. The standby L/Cs are, "in effect an absolute
undertaking 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. Being separate and independent agreements, the payments
made by the Mendozas cannot be added in computing IBAA's liability under its own standby letters of credit. Payments
made by the Mendozas directly to Philam Life are in compliance with their own prestation under the loan agreement.
As to the liability of the Mendozas to IBAA, it bears recalling that the Mendozas, upon their application for the opening
and issuance of the Irrevocable Standby Letters of Credit in favor of Philam Life, had executed a Real Estate Mortgage
as security to IBAA for any payment that the latter may remit to Philam Life on the strength of said Letters of Credit;
and that IBAA had recovered from the Mendozas the amount of P432,386.07 when it foreclosed on the mortgaged
property of said spouses in the concept of "principal (unpaid advances under the 2 standby LCs plus interest and
charges)." In addition, IBAA had recovered P255,364.95 representing its clean loans to the Mendozas plus accrued
interest besides the fact that it now has the foreclosed property. As between IBAA and the Mendozas, therefore, there

has been full liquidation. The remaining obligation of P222,000.00 on the loan of the Mendozas, therefore, is now
IBAA's sole responsibility to pay to Philam Life by virtue of its absolute and irrevocable undertaking under the standby
L/Cs. Specially so, since the promissory notes executed by the Mendozas in favor of IBAA authorized the sale of the
mortgaged security "for the purpose of applying their proceeds to x x x payments" of their obligations to IBAA

VIII. DISPOSITIVE PORTION:

WHEREFORE, the Decision of respondent Intermediate Appellate Court, dated 20 December 1985, is hereby MODIFIED.
Petitioner IBAA (now the Philippine Commercial International Bank) shall pay Philippine American Life Insurance
Company the sum of P222,000.00 plus 2% per month as penalty interest from 12 September 1979 until the whole
amount is fully paid, but in no case to exceed P296,294.05, plus P25,000.00 as attorney's fees. No costs.
SO ORDERED.
(14.) Phil. Virginia Tobacco Adm. vs. De los Angeles
III. TOPIC: Letters of Credit-Irrevocability
IV. STATEMENT OF THE FACTS:
Timoteo Sevilla, proprietor and General Manager of the Philippine Associated Resources (PAR) was awarded in a public
bidding the right to import Virginia leaf tobacco for blending purposes and exportation by them of PVTA and farmer's
low-grade tobacco at a rate of one (1) kilo of imported tobacco for every nine (9) kilos of leaf tobacco
actually exported.
Before Sevilla could import the counterpart blending Virginia tobacco, Republic Act No. 4155 was passed and took
effect on June 20, 1964, authorizing the PVTA to grant import privileges at the ratio of 4 to I instead of 9 to 1 and to
dispose of all its tobacco stock at the best price available.
Thus, on September 14, 1965 subject contract which was already amended on December 14, 1963 because of the
prevailing export or world market price under which respondent will be exporting at a loss, was further amended to
grant respondent the privileges under aforesaid law, subject to conditions, one of which is that respondent Sevilla
would open an irrevocable letter of credit No. 6232 with the Prudential Bank and Trust Co. in favor of the PVTA to
secure the payment of said balance, drawable upon the release from the Bureau of Customs of the imported Virginia
blending tobacco.
While Revilla was trying to negotiate the reduction of the procurement cost of the 2,101.479 kilos of PVTA tobacco
already exported which attempt was denied by petitioner and also by the Office of the President, petitioner prepared
two drafts to be drawn against said letter of credit for amounts which have already become due and demandable.

V. STATEMENT OF THE CASE:

Sevilla then filed a complaint for damages with preliminary injunction. The Lower Court dismissed the complaint and
lifted the preliminary injunction issued. Sevilla filed an urgent Motion for Reconsideration.
Pending Resolution, respondent judge issued the assailed Order of July 17, 1967 directing the Prudential Bank & Trust
Co. to make the questioned release of funds from the Letter of Credit. Before petitioner could file a motion for
reconsideration of said order, respondent Sevilla was able to secure the release of P300,000.00 and the rest of the
amount.

VI. ISSUE:
Whether respondent Judge acted without or in excess of jurisdiction or with grave abuse of discretion when he issued
the Order of July 17, 1967, on the ground:
(a) the letter of credit issued by respondent bank is irrevocable; xxx

VII. RULING:
In issuing the Order of July 17, 1967, respondent Judge violated the irrevocability of the letter of credit issued by
respondent Bank in favor of petitioner. An irrevocable letter of credit cannot during its lifetime be cancelled or modified
without the express permission of the beneficiary.
VIII. DISPOSITIVE PORTION:
PREMISES CONSIDERED, the petition is given due course and the assailed Orders of July 17, 1967 and November 3,
1967 and March 16, 1968 are ANNULLED and SET ASIDE; and the preliminary injunctions issued by this Court should
continue until the termination of Case No. Q-10351 on the merits.

(15.) LAND BANK v. MONETS EXPORT AND MFG. CORP.

III. TOPIC:
SPCL Letters of Credit
IV. STATEMENT OF 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, and the third party mortgage executed by Pepita C. Mendigoria.
The credit line agreement was renewed and amended several times until it was increased to P5,000,000.00. Owing to
the continued failure and refusal of Monet, notwithstanding repeated demands, to pay its indebtedness, which have
ballooned to P11,464,246.1910, a complaint for collection of sum of money with prayer for preliminary attachment was
filed by Land Bank with the Regional Trial Court.
Monet and the Tagle spouses alleged that Land Bank failed and refused to collect the receivables on their export letter
of credit against Wishbone Trading Company of Hong Kong in the sum of US$33,434.00, while it made unauthorized
payments on their import letter of credit to Beautilike (H.K.) Ltd. in the amount of US$38,768.40, which seriously
damaged the business interests of Monet.

V. STATEMENT OF THE CASE:

The trial court decided in favor of Monet and the Tagle spouses. Upon appeal, the Court of Appeals (CA) affirmed the
trial courts decision. It found that Land Bank was responsible for the mismanagement of the Wishbone and Beautilike
accounts of Monet. Land Bank's Motion for Reconsideration was subsequently denied by CA.
VI. ISSUES:
1. Whether or not Land Bank failed to protect Monets interest with regard to the unauthorized payment to Beautilike.
2. Whether or not Land Bank is liable for opportunity losses, vis - -vis the Wishbone transaction.
3. Did the RTC and CA err in limiting the obligation of Monet to Land Bank to what was stated on the Schedule of
Amortization from the Loans and Discounts Department of Land bank?

VII. RULING:
1. No. As regards the Beautilike account, the trial court and CA erred in holding that Land Bank failed to protect
Monet's interest when it paid the suppliers despite discrepancies in the shipment vis - -vis the order specifications of
Monet.
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 socalled "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.
Article 3 of the Uniform Customs and Practice (UCP) for Documentary Credits provides that credits, by their nature, are
separate transactions from the sales or other contract(s) on which they may be based and banks are in no way
concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the
credit. Consequently, the undertaking of a bank to pay, accept and pay draft(s) or negotiate and/or fulfill any other
obligation under the credit is not subject to claims or defenses by the applicant resulting from his relationships with
the issuing bank or the beneficiary.
Article 15 of the UCP states that 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, 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.
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. For, 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.
As the issuing bank in the Beautilike transaction involving an import letter of credit, Land Bank 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.
2. Yes, Land Bank is liable for opportunity losses in relation to the Wishbone transaction. The terms and conditions of
the Letter of Credit were substantially complied with by Monet. Land bank did not pursue collection on this despite the
fact that the goods were acceptable merchandise. The trial court correctly considered Land Bank as the attorney-infact of Monet with regard to its export transactions with Wishbone Trading Company.
3. Yes, the trial court and CA erred in limiting the obligation of Monet and Tagle spouses to Land Bank to what was
stated in the "Schedule of Amortization from the Loans and Discounts Department of LANDBANK. The reversible error
committed by both courts partook of the form of over reliance and sole reliance on the figures contained in the said
schedule to the exclusion of other pieces of documentary evidence. The records of the case show that Monet and
Spouses Tagle, in the course of their credit transactions with Land Bank, executed not only one, but several promissory
notes in varying amounts in favor of the bank.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the instant petition is GRANTED. The October 9, 2003 decision and the January 20, 2004 resolution of the
Court of Appeals in CA-G.R. CV No. 57436, are MODIFIED insofar as the award of the counterclaim to the respondents is
concerned. Accordingly, there being no basis to award opportunity costs to the respondents, Monet's Export and
Manufacturing Corporation and the spouses, Vicente V. Tagle, Sr. and Ma. Consuelo G. Tagle, relative to the Beautilike
account, but finding good cause to sustain the award of opportunity costs to the respondents on account of the failure
of the petitioner to diligently perform its duties as the attorney-in-fact of the respondents in the Wishbone Trading
Company account, the amount of opportunity costs granted to the respondents, is REDUCED to US$15,000.00 payable
in Philippine pesos at the official exchange rate when payment is to be made. Insofar as the amount of indebtedness of
the respondents to the petitioner is concerned, the October 9, 2003 decision and the January 20, 2004 resolution of
the Court of Appeals in CA-G.R. CV No. 57436, are SETASIDE. The case is hereby remanded to its court of origin, the
Regional Trial Court of Manila, Branch 49, for the reception of additional evidence as may be needed to determine the
actual amount of indebtedness of the respondents to the petitioner. The trial court is INSTRUCTED to deduct the award
of opportunity losses granted to the respondents, in the amount of US$15,000.00 payable in Philippine pesos at the
official exchange rate when payment is to be made, from the amount ultimately determined as the actual amount of
indebtedness of the respondents to the petitioner. No pronouncement as to costs.

(16.) PACIFIC OXYGEN & ACETYLENE CO. V. CENTRAL BANK

III. TOPIC:
Special Commercial Laws Letters of Credit
IV. STATEMENT OF FACTS:
On September 21, 1961, Pacific Oxygen and Acetylene Co. (Pacific Oxygen) applied for commercial credit (letter of
credit) in the amount of $63,964.00 with the Philippine Trust Company (Philtrust), an agent of the Central Bank, in
favor of an the Independent Engineering Co., Inc., a U.S based corporation, to cover the shipment of a plant. Philtrust
later approved the letter of credit at the free market rate of P3.01875 to every dollar which will expire on February
1962. Thereafter, Pacific Oxygen applied again with the Philtrust for the purchase of forward exchange in the same
amount of $63,964.00 and for the same purpose. Philtrust for its part, applied with the Central Bank for the purchase
of forward exchange in the amount of $63,694.00 to cover its U.S. dollar commitment against the letter of credit
opened under free market rate for the Pacific Oxygen. Central Bank in turn executed a forward exchange contract for
the sale of foreign exchange in the said amount. Thereafter, Central Bank suspended the margin levy and the
Independent Engineering was able to draw two drafts against the letter of credit which were honored by Continental
Illinois National Bank and Trust Company in Chicago, Illiois, a correspondent of Philtrust. Later, Philtrust sent statement
of accounts of importation to Pacific Oxygen, in which 15% margin fee was included amounting to P30,839,49. Pacific
Oxygen paid under protest to the Central Bank but the latter made no action.
V. STATEMENT OF THE CASE:
Pacific Oxygen filed a suit for the recovery of money against the Central Bank to question the validity of the collection
made by the latter, constituting the margin fee for its commercial credit, which was applied in favor of Independent
Engineering Co., Inc. The lower court ruled in favor of Pacific Oxygen that such collection is not valid which prompted
the defendant-appellant Central Bank to appeal before the Supreme Court.
VI. ISSUE: Whether or not the collection of 15% margin fee by Central Bank was valid

VII. RULING:
YES. The collection of 15% margin fee was valid.
Under R.A. No. 2609, Sec.1, . . . the Central Bank, in respect of all sales of foreign exchange by the Central Bank and
its authorized agent banks, shall have authority to establish a uniform margin of not more than 40% over the Bank's
selling rates stipulated by the Monetary Board which margin shall not be changed oftener than once a year except
upon the recommendation of the National Economic Council and the approval of the President. The Monetary Board
shall fix the margin at such rate as it may deem necessary to effectively curtail any excessive demand upon the
international reserve." The language of the law is clear. A margin fee may be collected from "all sales of foreign
exchange by the Central Bank and its authorized agent banks . . . With the categorical finding in the decision
appealed from that the purchase of the forward exchange by the Central Bank, prior to the suspension of the margin
levy, it cannot be denied that deference must be paid to the legal provision calling for a margin fee.

VIII. DISPOSITIVE PORTION:

WHEREFORE, the appealed judgment is reversed. With costs against plaintiff-appellee.

(17.)
ABAD V. CA
III. TOPIC:

Letters of Credit

IV. STATEMENT OF FACTS:

On October 31, 1963, TOMCO, Inc., now known as Southeast Timber Co., Inc., was granted by the PCIB, a domestic
letter of credit for P80,000 in favor of its supplier, Oregon Industries, Inc., to pay for one Skagit Yarder with accessories.
PCIB paid to Oregon Industries the cost of the machinery against a bill of exchange for P80,000, with recourse,
presentment and notice of dishonor waived which matured on January 4, 1964.
TOMCO, Inc. made the required marginal deposit of P28,000, and subsequently delivered to PCIB a trust receipt
acknowledging receipt of the merchandise in trust for the bank, with the obligation "to hold the same in storage" as
property of PCIB, with a right to sell the same for cash provided that the entire proceeds thereof are turned over to the
bank, to be applied against acceptance(s) and any other indebtedness of TOMCO, Inc.
In consideration of the release of the machinery, petitioner Abad signed an undertaking entitled, "Deed of Continuing
Guaranty" appearing on the back of the trust receipt, whereby he promised to pay the obligation jointly and severally
with TOMCO, Inc. Thereafter, no other payment has been made to PCIB.

V. STATEMENT OF THE CASE:

PCIB sued TOMCO, Inc., and Abad with CFI-Manila. The trial court ordered TOMCO, Inc. and Abad to pay jointly and
severally to the bank the sum of P125,766.13 as of August 26, 1970, with interest and other charges until complete
payment is made, plus attorney's fees and costs. Abad appealed to the CA which, in a decision dated November 21,
1975, affirmed in toto the decision of the trial court. The Supreme Court modified the CA ruling and deducted TOMCOs
marginal deposit of P28,000 from the principal amount of P80,000.

VI. ISSUE:
Whether TOMCO's marginal deposit of P28,000 in the possession of the bank should first be deducted from its principal
indebtedness before computing the interest and other charges due.

VII. RULING:
TOMCOs marginal deposit should be set off against his debt, for while TOMCO earns no interest on his marginal
deposit, PCIB, apart from being able to use said deposit for its own purposes, also earns interest on the money it
loaned to TOMCO. It would be onerous to compute interest and other charges on the face value of the letter of credit
which the bank issued, without first crediting or setting off the marginal deposit which TOMCO paid to the bank.
Requiring TOMCO to pay interest on the entire letter of credit without deducting first the marginal deposit, would be a
clear case of unjust enrichment by the bank.

VIII. DISPOSITIVE PORTION:

WHEREFORE, the petition for review is granted. The decision of the Court of Appeals is modified by deducting TOMCO's
marginal deposit of P28,000 from the principal amount of P80,000 covered by its letter of credit. The interests and

other charges of the bank should be computed on the outstanding loan balance of P52,000 only. The decision is
affirmed in other respects, with costs against the respondent Philippine Commercial and Industrial Bank.

(18.) CONSOLIDATED BANK vs. CA

III. TOPIC:
Special Commercial Law Letters of Credit
IV. STATEMENT OF FACTS:
Continental Cement Corp obtained from Consolidated Bank letter of credit used to purchased 500,000 liters of bunker
fuel oil. Respondent Corporation made a marginal deposit to petitioner. A trust receipt was executed by respondent
corporation, with respondent Gregory Lim as signatory. Claiming that respondents failed to turn over the goods or
proceeds, petitioner filed a complaint for sum of money before the RTC of Manila. In their answer, respondents aver
that the transaction was a simple loan and not a trust receipt one, and tht the amount claimed by petitioner did not
take into account payments already made by them. The court dismissed the complaint, CA affirmed the same.
V. STATEMENT OF THE CASE:
The instant petition for review seeks to partially set aside the July 26, 1993 Decision of respondent Court of Appeals in
CA-G.R. CV No. 29950, insofar as it orders petitioner to reimburse respondent Continental Cement Corporation the
amount of P490,228.90 with interest thereon at the legal rate from July 26, 1988 until fully paid. The petition also
seeks to set aside the March 8, 1994 Resolution of respondent Court of Appeals denying its Motion for Reconsideration
VI. ISSUE:
1.

Whether or Not the marginal deposit should not be deducted outright from the amount of the letter of
credit

VII. RULING:
1. No. petitioner argues that the marginal deposit should be considered only after computing the principal plus accrued
interest and other charges. It could be onerous to compute interest and other charges on the face value of the letter of
credit which a bank issued, without first crediting or setting off the marginal deposit which the borrower paid to itcompensation is proper and should take effect by operation of law because the requisited in Art. 1279 are present and
should extinguish both debts to the concurrent
VIII. DISPOSITIVE PORTION:
WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision of the Court of
Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED.

(19.) RIZAL COMMERCIAL BANKING CORPORATION V. ALFA RTW MANUFACTURING CORPORATION, BA

FINANCE CORPORATION,
G.R. No. 133887, November 14, 2001, Sandoval-Gutierrez, J.
FACTS:
Alfa RTW Manufacturing Corporation (Alfa RTW) applied for and was granted by Rizal Commercial Banking
Corporation (RCBC) four (4) Letters of Credit (LCs) to facilitate its purchase of raw materials for its garments business.
On the strength of the LCs, bills of exchange were drawn, and charged to the account of Alfa RTW, et al. In turn, Alfa
RTW executed four (4) Trust Receipts (TRs) in favor of RCBC, and received the raw materials in trust for the bank.
When the obligations became due, RCBC demanded payment from Alfa RTW, but to no avail. RCBC filed a
complaint for sum of money against Alfa RTW, et al. The RTC ruled for RCBC. The CA affirmed the RTC ruling, but
modified it insofar as the monetary award is concerned. RCBC contends that the award is contrary to the stipulations
of the parties regarding interest rates, service charges, and penalties in case of breach.

ISSUE: Whether or not the award should be modified to reflect the stipulations of the parties.

RULING:
Yes. Under a letter of credit-trust receipt transaction, a bank extends to a borrower a loan covered by the letter
of credit, with the trust receipt as security of the loan. A trust receipt is a security transaction intended to aid in
financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except thru utilization, as collateral, of the
merchandise imported or purchased. In contracts contained in trust receipts, the contracting parties may establish
agreements, terms and conditions they may deem advisable, provided they are not contrary to law, morals or public
order.
In this case, the parties stipulated specific amounts of interest, service charges and penalties. Since a contract
is the law between the parties, the obligations arising from contracts should be complied with by the parties. The
courts cannot vary the terms thereof unless the stipulation is contrary to law, morals, good customs, public order, or
public policy.