Manufacturers Bank, etc. vs. Marfasam Co. Inc.

FACTS: Defendant Marfasam Company Inc. (Marfasam) applied for seven Letters of
Credit to Manufacturers Bank and Trust Co. (Manufacturers) in seven separate
transactions for purchase of machines and accessories from various countries. The
application for Letters of Credit Agreement provided:
In consideration of your arranging for the establishment of this commercial letter of credit (hereinafter
referred to as Credit) substantially in accordance with the foregoing, the undersigned hereby jointly
and severally agree to each and all of the following stipulated provisions:
For all drafts under or purporting to be drawn under the credit, to pay to you on demand in the
Philippine currency, the equivalent og the amount of such drafts at the rate of exchange you may fix;

Said applications for Letters of Credit were approved. Consequently, Manufacturers

released the imported machineries and accessories to Marfasam with an agreement
that the latter will merely hold them in trust but may nevertheless sell them and
hand the proceeds to Manufacturers.
Upon failure of Marfasam to pay said Letters of Credits, Manufacturers brought the
present complaint for collection. The lower court rendered judgement dismissing the
5th, 6th, and 7th causes of action (referring to the 5 th, 6th, 7th Letters of Credit) on the
ground that said Letters of Credit were not secured by Trust Receipts. Hence, this
appeal.
ISSUE: WON Marfasam is liable to pay despite the absence of a trust receipt
oversaid Letters of Credit.
HELD: Yes. The abovequoted provision of the application agreement for the letter of
credit was the inducement, the principal consideration which prompted
Manufacturers to approve the corresponding Letters of Credit. From the approval of
the applications and issuance of the Letters of Credit, said condition consequently
becomes a contract binding upon them.
Marfasam is clearly liable under the provisions of the Section 135 of the Negotiable
Instruments Law:
An unconditional promise in writing to accept a bill before it is withdrawn is
deemed an actual acceptance in favour of every person who, upon the faith thereof,
receives the bill for value