SCHUBACK & SONS VS. CA November 11, 1993 G.R. No.

105387 FACTS: On October 16, 1981, defendant submitted to plaintiff the list of bus spare parts he wanted to purchase to its counterpart in Hamburg. Plaintiff sent an offer on the items listed. On December 4, 1981, defendant informed plaintiff that he preferred genuine to replacement parts, and requested a 15% discount. On December 17, plaintiff submitted its formal offer. On December 24, defendant submitted a purchase order, and submitted the quantity on December 29. Plaintiff immediately ordered the items from Schuback Hamburg, which thereafter ordered the same from NDK, a supplier in Germany. Plaintiff sent a pro-forma invoice to be used in applying for letter of credit. On February 16, 1982, plaintiff reminded defendant to open a letter of credit to avoid delay in shipment. Defendant mentioned the difficulty he was encountering in procuring the same. Plaintiff continued receiving invoices and partial deliveries from NDK. On October 18, 1982, plaintiff again reminded the defendant to open a letter of credit. Defendant replied that he did not make a valid purchase order and that there was no definite contract between him and the plaintiff. Plaintiff sent a rejoinder explaining that there is a valid Purchase Order and suggesting that defendant either proceed with the order and open a letter of credit or cancel the order and pay the cancellation fee of 30% of F.O.B. value, or plaintiff will endorse the case to its lawyers. Demand letters sent to defendant by plaintiff's counsel dated March 22, 1983 and June 9, 1983 were to no avail. Consequently, petitioner filed a complaint for recovery of actual or compensatory damages, unearned profits, interest, attorney's fees and costs against private respondent. Issue: Whether or not a contract of sale has been perfected between the parties Held: Article 1319 of the Civil Code states: "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." The facts presented to us indicate that consent on both sides has been manifested. The offer by petitioner was manifested on December 17, 1981 when petitioner submitted its proposal containing the item number, quantity, part number, description, the unit price and total to private respondent. On December 24, 1981, private respondent informed petitioner of his desire to avail of the prices of the parts at that time and simultaneously enclosed its 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.

MWSS v. Hon. Daway 432 SCRA 559 (2004) FACTS:

- MWSS granted Maynilad a 20- year period to manage, operate, repair, decommission and refurbish the existing MWSS water delivery and sewerage services in the west zone service area, for which Maynilad undertook to pay the corresponding concession fees on the date agreed upon in the said agreement which consisted of the payments of MWSS foreign loans. To secure the concessionaires performance of its obligation under the Concession Agreement, Maynilad was required to put up a bond, bank guarantee or other security acceptable to MWSS.- In compliance with this requirement, Maynilad arranged for a 3 year facility with a number of foreign banks, led by Citicorp International Limited for the issuance of an irrevocable Standby Letter of Credit for the full and prompt performance of Maynilads obligations under MWSS.- As a result, of the depreciation of the Philippine Peso against US dollar, Maynilad incurred losses and issued a force majeure notice and unilaterally suspend payment of the concession fees.- In an effort to salvage the concession agreement, the parties entered into a Memorandum of Agreement wherein Maynilad was allowed to recover foreign exchange losses under a formula agreed upon between them.- Maynilad filed again another force majeure notice and since MWSS could not agree with the terms of the notice, the same was referred to the Appeals Panel for arbitration.- New term was agreed upon.- Prior to that Maynilad had filed a petition for rehabilitation.- RTC issued an order staying the enforcement of the claims and stopping payment of liabilities, because it is underrehabilitation. It effectively stopped the commencing process of payment by the bank to MWSS.When MWSS demanded payment and commenced drawing on the irrevocable standby letter of credit, another order was issued by the RTC declaring such act of MWSS as violative of stay order earlier issued.- Aggrieved, MWSS filed this petition for review by way of certiorari under rule 65. ISSUE: -Whether or not Court has the authority to issue order enjoining MWSS from proceeding against the Stand-by Letterof Credit. HELD: Letters of credit are in effect absolute undertakings to pay the money advanced or the amount for which credit is given on the faith of the instrument; they are primary obligations and not accessory contracts and while they are security arrangements, they are not converted into contracts of guaranty. Letters of credit were developed for the purpose of insuring to a seller payment of a definite amount upon the presentation of documents and is thus a commitment by the issuer that the party in whose favor it is issued and who can collect upon it will have his credit against the applicant of the letter, duly paid in the amount specified in the letter. They are in effect absolute undertakings to pay the money advanced or the amount for which credit is given on the faith of the instrument.

They are primary obligations and not accessory contracts and while they are security arrangements, they are not converted thereby into contracts of guaranty. What

distinguishes letters of credit from other accessory contracts is the engagement of the issuing bank to pay the seller once draft and other required shipping documents are presented to it. They are definite undertakings to pay at sight once the documents stipulated therein are presented. The obligation of the banks issuing letters of credit are solidary with that of the person or entity requesting for its issuance, the same being a direct, primary, absolute and definite undertaking to pay the beneficiary upon the presentation of the set of documents required therein.- Being a solidary obligation, the letter of credit is excluded from the jurisdiction of the rehabilitation and therefore in enjoining MWSS from proceeding against the Standby Letters of Credit to which it had a clear right under the law and the terms of said Standby Letter of credit, Hon. Daway acted in excess of his jurisdiction

Feati Bank & Trust Co. v. Court of Appeals 196 SCRA 576 , G.R. NO. 94209, April 30, 1991 FACTS: In this case, Bernardo Villaluz agreed to sell to Axel Christiansen 2,000 cubic meters of lauan logs at $27.00 per cubic meter FOB. On the arrangements made and upon the instructions of consignee, Hanmi Trade Development, Ltd., the Security Pacific National Bank of Los Angeles, California issued an irrevocable letter of credit available at sight in favor of Villaluz for the sum of $54,000.00, 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 also provided that the draft to be drawn is on Security Pacific National Bank and that it be accompanied by certain documents. The logs were thereafter loaded on a vessel but Christiansen refused to issue the certification required in paragraph 4 of the letter of credit, despite repeated requests by the private respondent. The logs however were still shipped and received by consignee, to whom Christiansen sold the logs. 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 until such credit lapsed. Since the demands by Villaluz for Christiansen to execute the certification proved futile, he filed an action for mandamus and specific performance against Christiansen and Feati Bank and Trust Company before the Court of First Instance of Rizal. Christiansen however left the Philippines and Villaluz filed an amended complaint making Feati Bank and Trust Company solidarily liable with Christiansen. Trial court held that Christiansen and Feati Bank were liable, the latter for refusing to negotiate the letter of credit in the absence of Christiansens certification considering that the letter of credit is irrevocable. Trial court said that Security Pacific National Bank, the issuing bank, undertook by the terms of the letter of credit that the same shall be honored upon presentment. On the other hand, the notifying bank, Feati Bank, by accepting the instructions from the issuing bank, itself assumed the very same undertaking as the issuing bank under the terms of

the letter of credit. The Court of Appeals affirmed the decision of the trial court thus this petition for review.

ISSUE: The principal issue in this case is whether or not a correspondent bank is to be held liable under the letter of credit despite non-compliance by the beneficiary with the terms thereof. HELD: The Supreme Court held that Feati Bank is not liable. It is 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. We have heretofore held that these letters of credit are to be strictly complied with, which documents and shipping documents must be followed as stated in the letter. There is no discretion in the bank or trust company to waive any requirements. The terms of the letter constitutes an agreement between the purchaser and the bank. In the absence of any specific provision governing the legal complexities arising from transactions involving letters of credit in the Philippines, the Supreme Court applied the Uniform Customs and Practice for Documentary Credit (UCP) in lieu of Article 2 of the Code of Commerce that in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by the usages and customs generally observed.

Under the UCP, an irrevocable credit is a definite undertaking on the part of the issuing bank and constitutes the engagement of that bank to the beneficiary and bona fide holders of drafts drawn and/or documents presented thereunder, that the provisions for payment, acceptance or negotiation contained in the credit will be duly fulfilled, provided that all the terms and conditions of the credit are complied with. An irrevocable credit may be advised to a beneficiary through another bank (the advising bank) without engagement on the part of that bank, but when an issuing bank authorizes or requests another bank to confirm its irrevocable credit and the latter does so, such confirmation constitutes a definite undertaking of the confirming bank. Under the foregoing provisions, 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 Feati Bank, 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. SC also ruled out the contentions that Feati Bank is a trustee and guarantor.