SPCL - LETTER OF CREDIT- CASE DIGEST I. FACTS: Four irrevocable letters of credit were applied to PI b!

! DE RE"# FA RIC I"D$STRIES %DRFI& for t'e purc'ase of various colors of d!estuffs fro( )* * DISTRI $TI"G+ a, A(erica, supplier* PI approved a,d e-ecuted t'e sa(e wit' t'e correspo,di,. Letter of Credit %L/C& A.ree(e,t* PI i,troduced as evide,ce a provisio, u,der t'e 5$,ifor( Custo(s a,d Practices for Co((ercial Docu(e,tar! Credits6* BPI vs. DE RENY FABRIC INDUSTRIES Also+ DRFI ca,,ot s'ift t'e burde, of loss to PI o, accou,t of t'e ve,dor1s prestatio,* PI u,disputedl! prove, b! PI t'at i, providi,. fi,a,ci,. i, i,ter,atio,al busi,ess tra,sactio,s suc' as t'at e,tered i,to wit' DRFI+ ba,0s do ,ot deal wit' t'e propert! to be e-ported or s'ipped to t'e i(porter+ but deal o,l! wit' docu(e,ts*

L/Cs were forwarded b! PI to its Correspo,de,t a,0 %C & i, t'e $*S* I, t'is set-up C s'all pa! t'e purc'ase price to t'e supplier )* * DISTRI $TI"G upo, t'e latter1s prese,tatio, of re2uired docu(e,ts* )* * DISTRI $TI"G did prese,t t'e docu(e,ts a,d C paid t'e(* T'e proble( arose w'e, DRFI+ upo, t'e arrival of s'ip(e,t i, 3a,ila+ discovered t'at t'ose delivered o,l! co,tai,ed colored c'al0s* DRFI stopped t'e pa!(e,t of issued L/Cs to PI o, t'e .rou,d t'at it is C of PI 'as t'e respo,sibilit! to c'ec0 first if w'at is to be s'ipped co,for( to w'at was stipulated u,der L/C* ISSUE: 4O" t'e applica,t DRFI ca, s'ift t'e burde, of loss to issui,. ba,0 PI o, accou,t of t'e violatio, b! t'e seller-be,eficiar! )* * DISTRI $TI"G1s prestatio,* HELD: SC ruled i, t'e ,e.ative* DRFI 'as to co(pl! wit' L/C a.ree(e,t w'ic' states t'at t'e ba,0 s'all ,ot be respo,sible for t'e 5e-iste,ce+ c'aracter+ 2ualit!+ 2ua,tit!+ co,ditio,s+ pac0i,.+ value+ or deliver! of t'e propert!6*

T'e use of t'e sa(e as evide,ce was 7ustified b! t'e Article 8 of t'e Code of Co((erce 5I, t'e abse,ce of a,! particular provisio, i, t'e COC+ co((ercial tra,sactio,s s'all be .over,ed b! usa.e a,d custo(s6* $,der t'e evide,ce prese,ted+ it was stated t'at 5i, docu(e,tar! credit operatio,s+ all parties co,cer,ed deal i, docu(e,ts ,ot i, .oods* Pa!(e,t+ ,e.otiatio, or accepta,ce a.ai,st docu(e,ts i, accorda,ce wit' t'e ter(s a,d co,ditio,s of credit b! t'e ba,0 aut'ori9ed to do so+ bi,ds t'e part! .ivi,. t'e aut'ori9atio, to ta0e up t'e docu(e,ts a,d rei(burse t'e ba,0 (a0i,. pa!(e,t+ ,e.otiatio, a,d accepta,ce6* T'e e-iste,ce of a custo( i, i,ter,atio,al ba0i,. a,d fi,a,ci,. circles ,e.ati,. a,! dut! o, t'e part of t'e ba,0 to verif! w'et'er w'at 'as bee, described i, t'e L/Cs+ drafts or s'ippi,. docu(e,ts actuall! tallied wit' w'at 'as bee, loaded aboard a s'ip*

DIA"A A IGAIL 3* DIESTRO

SECTIO" :-

;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST a,0 is ,ot re2uired to i,vesti.ate if t'e co,tract u,derl!i,. credit 'as bee, fulfilled or ,ot* DRFI is bou,d b! t'e establis'ed usa.e*

II.

PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION (PVTA) vs. DE LOS ANGELES

FACTS: DIA"A A IGAIL 3* DIESTRO SECTIO" :-

Respo,de,t Ti(oteo Sevilla+ proprietor a,d Ge,eral 3a,a.er of t'e P'ilippi,e Associated Resources %PAR& to.et'er wit' two ot'er e,tities+ ,a(el!+ t'e "atio,wide A.roI,dustrial Develop(e,t Corp* a,d t'e Co,solidated A.ro-Producers I,c* were awarded i, a public biddi,. t'e ri.'t to i(port >ir.i,ia leaf tobacco for ble,di,. purposes a,d e-portatio, b! t'e( of P>TA a,d far(er?s low-.rade tobacco* Subse2ue,tl!+ t'e ot'er two e,tities assi.,ed t'eir ri.'ts to P>TA a,d respo,de,t re(ai,ed t'e o,l! private e,tit! accorded t'e privile.e* I, t'eir co,tract respo,de,t Sevilla purc'ased fro( petitio,er a,d actuall! e-ported 8+;<;*=@< 0ilos of tobacco+ pa!i,. t'e P>TA t'e su( of P8+=A8+B:A*C< a,d leavi,. a bala,ce of P:+@;:+B<A*B;* efore respo,de,t Sevilla could i(port t'e cou,terpart ble,di,. >ir.i,ia tobacco+ Republic Act "o* =;CC was passed a,d too0 effect o, )u,e 8<+ ; BD=+ aut'ori9i,. t'e P>TA to .ra,t i(port privile.es at t'e ratio of = to ; i,stead of B to ; a,d to dispose of all its tobacco stoc0 at t'e best price available* Sub7ect co,tract w'ic' was alread! a(e,ded because of t'e prevaili,. e-port or world (ar0et price u,der w'ic' respo,de,t will be e-porti,. at a lossE furt'er a(e,ded to .ra,t respo,de,t t'e privile.es u,der aforesaid law+ sub7ect to t'e followi,. co,ditio,sF %;& t'at o, t'e 8+;<;*=@< 0ilos alread! purc'ased+ a,d e-ported+ t'e purc'ase price of about P:*<< a 0ilo was (ai,tai,edE %8& t'at t'e u,paid bala,ce of P:+@;:+B<A*B; was to be li2uidated b! pa!i,. P>TA t'e su( of P=*<< for ever! 0ilo of i(ported >ir.i,ia ble,di,. tobacco a,dE %:& that respondent Sevilla would open an irrevocable letter of credit No. 6232 with the Prudential Bank and Trust Co. in favor of the PVT to secure the pa!"ent of said balance# drawable upon the release fro" the Bureau of ;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST Custo"s of the i"ported Vir$inia blendin$ tobacco. 4'ile respo,de,t was tr!i,. to ,e.otiate t'e reductio, of t'e procure(e,t cost w'ic' atte(pt was de,ied+ petitio,er prepared two drafts to be draw, a.ai,st said letter of credit for a(ou,ts w'ic' 'ave alread! beco(e due a,d de(a,dable* Respo,de,t t'e, filed a co(plai,t for da(a.es wit' preli(i,ar! i,7u,ctio, a.ai,st t'e petitio,er i, t'e a(ou,t of PC+<<<+<<<*<<* Petitio,er filed a, a,swer wit' cou,terclai(+ ad(itti,. t'e e-ecutio, of t'e co,tract* It alle.ed 'owever t'at respo,de,t+ violated t'e ter(s t'ereof b! causi,. t'e issua,ce of t'e preli(i,ar! i,7u,ctio, to preve,t t'e for(er fro( drawi,. fro( t'e letter of credit for a(ou,ts due a,d pa!able a,d t'us caused petitio,er additio,al da(a.e of DG per a,,u(* P'ilippi,e >ir.i,ia Tobacco Ad(i,istratio, see0s to a,,ul a,d set aside Orders of respo,de,t )ud.e of t'e Court of First I,sta,ce of Ri9al+ ra,c' I> %Hue9o, Cit!& i, Civil Case "o* H-;<:C; a,d pra!s t'at t'e 4rit of Preli(i,ar! I,7u,ctio, %t'at (a! be& issued b! t'is Court e,7oi,i,. e,force(e,t of t'e aforesaid Orders be (ade per(a,e,t* AS PRA#ED FOR+ t'e Prude,tial a,0 I Trust Co(pa,! is 'ereb! directed to release a,d deliver to t'e 'erei, plai,tiff+ Ti(oteo A* Sevilla+ t'e a(ou,t of PA<<+<<<*<< i, its custod! represe,ti,. t'e (ar.i,al deposit of t'e Letters of Credit w'ic' said ba,0 'as issued i, favor of t'e defe,da,t+ upo, fili,. b! t'e plai,tiff of a bo,d i, t'e u( of PA<<+<<<*<<+ to a,swer for w'atever da(a.e t'at t'e defe,da,t P>TA a,d t'e Prude,tial a,0 I Trust Co(pa,! (a! suffer b! reaso, of t'is order* DIA"A A IGAIL 3* DIESTRO SECTIO" :-

ISSUE: 4O" t'e court ca, order a, Issui,. a,0 to release t'e fu,ds pertai,i,. to t'e irrevocable L/Cs i, favor of t'e applica,t* HELD: T'e petitio, is i(pressed wit' (erit*

I, issui,. t'e Order of )ul! ;@+ ;BD@+ respo,de,t )ud.e violated t'e irrevocabilit! of t'e letter of credit issued b! respo,de,t a,0 i, favor of petitio,er* A, irrevocable letter of credit careta0er*8 duri,. its lifeti(e be ca,celled or (odified 4it'out t'e e-press per(issio, of t'e Co,se2ue,tl!+ if t'e fi,di,. a.ricult'e trial o, t'e (erits is t'at respo,de,t Sevilla 'as alle.ed u,paid bala,ce due t'e petitio,er+ suc' u,paid obli.atio, would be u,secured* T'e sole ob7ect of a preli(i,ar! i,7u,ctio, is to preserve t'e status 2uo u,til t'e (erit ca, be 'eard* It is t'e last actual peaceable u,co,tested status w'ic' precedes t'e pe,di,. co,trovers! * I,7ur! is co,sidered irreparable if it is of suc' co,sta,t a,d fre2ue,t recurre,ce t'at ,o fair or reaso,able redress ca, be 'ad t'erefor i, a court of law %Allu,dorff v* Abra'a,so,+ :A P'il* CAC& or w'ere t'ere is ,o sta,dard c+irre,c! w'ic' t'eir a(ou,t ca, be (easured wit' reaso,able accurac!+ t'at is+ it is ,ot susceptible of (at'e(atical co(putatio, %SSC v* a!o,a+ et al*+ L-;:CCC+ 3a! :<+ ;BD8&* A,! alle.ed da(a.e suffered or (i.'t possibl! be suffered b! respo,de,t Sevilla refers to e-pected profits a,d clai(ed b! 'i( i, t'is co(plai,t as da(a.es i, t'e a(ou,t of FI>E 3illio, Pesos %PC+<<<+<<<*<<&+ a da(a.e t'at ca, be (easured+ susceptible of (at'e(atical co(putatio,+ ,ot ;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST irreparable+ ,or do t'e! ,ecessitate t'e issua,ce of t'e Order of "ove(ber :+ ;BD@* Co,versel!+ t'ere is trut' i, petitio,er?s clai( t'at it will suffer .reater da(a.e t'a, t'at suffered b! respo,de,t Sevilla if t'e Order of "ove(ber :+ ;BD@ is ,ot a,,ulled* Petitio,er?s stoc0 if ,ot (ade available to ot'er parties will re2uire ware'ouse stora.e a,d servici,. fees i, t'e a(ou,t of P=+@<=+8:D*<< !earl! or (ore t'a, PB+<<<*<<<*<< i, two !ears ti(e* Orders are A""$LLED a,d SET ASIDEE a,d t'e preli(i,ar! i,7u,ctio,s s'ould co,ti,ue u,til t'e ter(i,atio, of Case

III. FACTS:

INSULAR BANK OF ASIA & AMERICA (IBAA)vs. IAC

PJILA3LIFE %be,eficiar!& .ra,ted 8 loa,s to SPS* 3E"DOKA %applica,t& to fi,a,ce t'e co,structio, of t'eir 'ouse* T'is tra,sactio, is u,der a(orti9atio,s over a period of C !ears* PJILA3LIFE re2uired t'at t'e a(orti9atio,s be .uara,teed b! a, irrevocable sta,db! L/C %SLOC& of a co((ercial ba,0* SPS* 3E"DOKA applied to I AA %issui,. ba,0& for t'e issua,ce of 8 SLOCs i, favor of PJILA3LIFE for t'e total a(ou,t of PD<<+<<<* SLOCs were also secured b! a real estate (ort.a.e for t'e sa(e a(ou,t over t'e propert! of SPS* 3E"DOKA*

DIA"A A IGAIL 3* DIESTRO

SECTIO" :-

;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST SPS* 3E"DOKA failed to pa! t'eir first a(orti9atio, so PJILA3LIFE draw, o, t'e SLOC fro( I AA* Later+ upo, a,ot'er default i, a(orti9atio, pa!(e,t+ PJILA3LIFE de(a,ded t'e e,tire a(ou,t of SLOC fro( I AA* I AA refused to pa! u,der t'e SLOCS o, t'e .rou,d t'at SPS* 3E"DOKA1s partial pa!(e,ts e,titled t'e( to refu,d w'ic' 'as t'e effect of reduci,. t'eir liabilit! as a .uara,tor* O, t'e ot'er 'a,d+ PJILA3LIFE a,d SPS* 3E"DOKA disa.ree o, t'e .rou,d t'at I AA 'as a, ori.i,al a,d pri(ar! obli.atio, u,der t'e SLOCS w'ic' ca,,ot be reduced b! t'e pa!(e,ts (ade b! t'e SPS* ISSUE: 4O" liabilit! of Issui,. a,0 ca, be reduced b! partial pa!(e,ts re,dered b! t'e applica,t to t'e be,eficiar! as a .uara,tor* HELD: SC ruled i, t'e ,e.ative* I, co,strui,. t'e ter(s of a Letter of Credit+ as i, ot'er co,tracts+ it is t'e i,te,tio, of t'e parties t'at (ust .over,*

P'ila( Life i,cludi,. all i,terests+ surc'ar.es a,d e-pe,ses t'ereo, but ,ot to e-ceed PD<<+<<<*<<* ut w'ile t'e! are a securit! arra,.e(e,t+ t'e! are ,ot co,verted t'ereb! i,to co,tracts of .uara,t!* T'at would (a0e t'e( ultra vires rat'er t'a, a letter of credit+ w'ic' is wit'i, t'e powers of a ba,0 %Sectio, @=LeM+ RA ::@+ Ge,eral a,0i,. Act&* T'e sta,db! L/Cs are+ Ni, effect a, absolute u,derta0i,. to pa! t'e (o,e! adva,ced or t'e a(ou,t for w'ic' credit is .ive, o, t'e fait' of t'e i,stru(e,t*6 T'e! are pri(ar! obli.atio,s a,d ,ot accessor! co,tracts* ei,. separate a,d i,depe,de,t a.ree(e,ts+ t'e pa!(e,ts (ade b! t'e 3e,do9as ca,,ot be added i, co(puti,. I AA?s liabilit! u,der its ow, sta,db! letters of credit* Pa!(e,ts (ade b! t'e 3e,do9as directl! to P'ila( Life are i, co(plia,ce wit' t'eir ow, prestatio, u,der t'e loa, a.ree(e,ts* A,d alt'ou.' t'ese pa!(e,ts could result i, t'e reductio, of t'e actual a(ou,t w'ic' could ulti(atel! be collected fro( I AA+ t'e latter?s separate u,derta0i,. u,der its L/Cs re(ai,s* ot' t'e Trial Court a,d t'e Appellate Court fou,d+ as a fact+ t'at t'ere still re(ai,s a bala,ce o, t'e loa,+ Pursua,t to its absolute u,derta0i,. u,der t'e L/Cs+ t'erefore+ I AA ca,,ot escape t'e obli.atio, to pa! P'ila( Life for t'is u,e-pe,ded bala,ce* T'e Appellate Court fou,d it to be P888+<<<*<<+ arrived at b! t'e Trial Court a,d adopted b! t'e Appellate Court+ as followsF

Letters of credit a,d co,tracts for t'e issua,ce of suc' letters are sub7ect to t'e sa(e rules of co,structio, as are ordi,ar! co((ercial co,tracts* T'e! are to receive a reaso,able a,d ,ot a tec',ical co,structio, a,d alt'ou.' usa.e a,d custo( ca,,ot co,trol e-press ter(s i, letters of credit+ t'e! are to be co,strued wit' refere,ce to all t'e surrou,di,. facts a,d circu(sta,ces+ to t'e particular a,d ofte, var!i,. ter(s i, w'ic' t'e! (a! be e-pressed+ t'e circu(sta,ces a,d i,te,tio, of t'e parties to t'e(+ a,d t'e usa.es of t'e particular trade of busi,ess co,te(plated* $,e2uivocall!+ t'e sub7ect sta,db! Letters of Credit secure t'e pa!(e,t of a,! obli.atio, of t'e 3e,do9as to DIA"A A IGAIL 3* DIESTRO SECTIO" :-

As fou,d b! t'e Appellate Court+ 'owever+ t'e a(ou,t pa!able s'ould ,ot e-ceed P8BD+8B=+<C %PD<<+<<<*<< less P:<:+@<C*BC+ t'e total a(ou,t ;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST fou,d b! t'e Appellate Court to 'ave bee, paid b! I AA to P'ila( Life&*

>ILLAL$K t'e, filed a, actio, for (a,da(us a.ai,st CJRISTIA"SE" a,d FEATI A"O* ut si,ce CJRISTIA"SE" left t'e P'ilippi,es+ i, a, a(e,ded co(plai,t+ FEATI was alle.ed to be solidaril! liable wit' CJIRSTIA"SE"*

IV. FACTS:

FEATI BANK & TRUST CO. vs. CA

CJRISTIA"SE" issued a purc'ase order to bu! certai, t!pe of lo.s fro( >ILLAL$K for t'e price of 8@ dollars per cubic (eter FO * CJRISTIA"SE" sold t'e lo.s to JA"3I TRADE OF CALIFOR"IA %JA"3I& JA"3I i,structed t'e SEC$RIT# PACIFIC A"O OF CALIFOR"IA %SP C& to issue irrevocable L/C i, favor of >ILLAL$K* SP C t'e, (ailed t'e irrevocable L/C to its correspo,de,t ba,0 FEATI A"O i,structi,. t'e sa(e to forward t'e e,closed letter to be,eficiar! >ILLAL$K* $,der t'e L/C a.ree(e,t+ t'e draft is to be draw, to SP C a,d t'at it s'all be acco(pa,ied b! certai, docu(e,ts* O,e of t'e docu(e,ts re2uired is t'e certificatio, b! CJRISTIA"SE" %direct bu!er& t'at t'e .oods were i, .ood order co,ditio,* ut upo, loadi,. of t'e lo.s a,d its i,spectio,+ CJRISTIA"SE" refused to issue t'e sa(e*

ISSUE: 4O" FEATI A"O s'ould be 'eld solidaril! liable wit' CJIRSTIA"SE" for latter1s ,o,-co(plia,ce wit' t'e re2uired docu(e,ts u,der t'e L/C HELD: "O* It is a settled rule i, co((ercial tra,sactio,s i,volvi,. letters of credit t'at t'e docu(e,ts te,dered (ust strictl! co,for( to t'e ter(s of t'e letter of credit*

T'e te,der of docu(e,ts b! t'e be,eficiar! %seller& (ust i,clude all docu(e,ts re2uired b! t'e letter* A correspo,de,t ba,0 w'ic' departs fro( w'at 'as bee, stipulated u,der t'e letter of credit+ as w'e, it accepts a fault! te,der+ acts o, its ow, ris0s a,d it (a! ,ot t'ereafter be able to recover fro( t'e bu!er or t'e issui,. ba,0+ as t'e case (a! be+ t'e (o,e! t'us paid to t'e be,eficiar! T'us t'e rule of strict co(plia,ce* I, t'e $,ited States+ co((ercial tra,sactio,s i,volvi,. letters of credit are .over,ed b! t'e rule of strict co(plia,ce* I, t'e P'ilippi,es+ t'e sa(e 'olds true* T'e sa(e rule (ust also be followed* $,der t'e fore.oi,. provisio,s of t'e $*C*P*+ t'e ba,0 (a! o,l! ,e.otiate+ accept or pa!+ if t'e docu(e,ts te,dered to it are o, t'eir face i, accorda,ce wit' t'e ter(s a,d co,ditio,s of t'e docu(e,tar! credit* A,d si,ce a correspo,de,t ba,0+ li0e t'e petitio,er+ pri,cipall! deals o,l! ;ST SE3ESTER A# 8<;:-8<;=

"evert'eless+ t'e lo.s were s'ipped a,d received b! JA"3I as its co,si.,ee* 4it' abse,ce of t'e certificatio,+ FEATI A"O refused to adva,ce t'e pa!(e,t o, t'e L/C u,til t'e credit lapsed* DIA"A A IGAIL 3* DIESTRO SECTIO" :-

SPCL - LETTER OF CREDIT- CASE DIGEST wit' docu(e,ts+ t'e abse,ce of a,! docu(e,t re2uired i, t'e docu(e,tar! credit 7ustifies t'e refusal b! t'e correspo,de,t ba,0 to ,e.otiate+ accept or pa! t'e be,eficiar!+ as it is ,ot its obli.atio, to loo0 be!o,d t'e docu(e,ts* It (erel! 'as to rel! o, t'e co(plete,ess of t'e docu(e,ts te,dered b! t'e be,eficiar!* Also+ I, re.ard to t'e ruli,. of t'e lower court a,d affir(ed b! t'e Court of Appeals t'at t'e petitio,er is ,ot a ,otif!i,. ba,0 but a co,fir(i,. ba,0+ we fi,d t'e sa(e erro,eous* T'e trial court appears to 'ave overloo0ed t'e fact t'at a, irrevocable credit is ,ot s!,o,!(ous wit' a co,fir(ed credit* A, irrevocable credit refers to t'e duratio, of t'e letter of credit* 4'at is si(pl! (ea,s is t'at t'e issui,. ba,0 (a! ,ot wit'out t'e co,se,t of t'e be,eficiar! %seller& a,d t'e applica,t %bu!er& revo0e 'is u,derta0i,. u,der t'e letter* T'e issui,. ba,0 does ,ot reserve t'e ri.'t to revo0e t'e credit* O, t'e ot'er 'a,d+ a co,fir(ed letter of credit pertai,s to t'e 0i,d of obli.atio, assu(ed b! t'e correspo,de,t ba,0* I, t'is case+ t'e correspo,de,t ba,0 .ives a, absolute assura,ce to t'e be,eficiar! t'at it will u,derta0e t'e issui,. ba,0?s obli.atio, as its ow, accordi,. to t'e ter(s a,d co,ditio,s of t'e credit* %A.ba!a,i+ Co((ercial Laws of t'e P'ilippi,es+ >ol* ;+ pp* A;-A:& Je,ce+ t'e (ere fact t'at a letter of credit is irrevocable does ,ot ,ecessaril! i(pl! t'at t'e correspo,de,t ba,0 i, accepti,. t'e i,structio,s of t'e issui,. ba,0 'as also co,fir(ed t'e letter of credit* I, co((ercial tra,sactio,s i,volvi,. letters of credit+ t'e fu,ctio,s assu(ed b! a correspo,de,t ba,0 are DIA"A A IGAIL 3* DIESTRO SECTIO" :-

classified accordi,. to t'e obli.atio,s ta0e, up b! it* I, case of a ,otif!i,. ba,0+ t'e correspo,de,t ba,0 assu(es ,o liabilit! e-cept to ,otif! a,d/or tra,s(it to t'e be,eficiar! t'e e-iste,ce of t'e letter of credit* A ,e.otiati,. ba,0+ o, t'e ot'er 'a,d+ is a correspo,de,t ba,0 w'ic' bu!s or discou,ts a draft u,der t'e letter of credit* Its liabilit! is depe,de,t upo, t'e sta.e of t'e ,e.otiatio,* If before ,e.otiatio,+ it 'as ,o liabilit! wit' respect to t'e seller but after ,e.otiatio,+ a co,tractual relatio,s'ip will t'e, prevail betwee, t'e ,e.otiati,. ba,0 a,d t'e seller* I, t'e case of a co,fir(i,. ba,0+ t'e correspo,de,t ba,0 assu(es a direct obli.atio, to t'e seller a,d its liabilit! is a pri(ar! o,e as if t'e correspo,de,t ba,0 itself 'ad issued t'e letter of credit* I, t'is case+ t'e letter (erel! provided t'at t'e petitio,er Nforward t'e e,closed ori.i,al credit to t'e be,eficiar!*N It is i,dubitable t'at t'e petitio,er is o,l! a ,otif!i,. ba,0 a,d ,ot a co,fir(i,. ba,0 as ruled b! t'e courts below* If t'e petitio,er was a co,fir(i,. ba,0+ t'e, a cate.orical declaratio, s'ould 'ave bee, stated i, t'e letter of credit t'at t'e petitio,er is to 'o,or all drafts draw, i, co,for(it! wit' t'e letter of credit* Si,ce t'e petitio,er was o,l! a ,otif!i,. ba,0+ its respo,sibilit! was solel! to ,otif! a,d/or tra,s(it t'e docu(e,tar! of credit to t'e private respo,de,t a,d its obli.atio, e,ds t'ere* T'e ,otif!i,. ba,0 (a! su..est to t'e seller its willi,.,ess to ,e.otiate+ but t'is fact alo,e does ,ot i(pl! t'at t'e ;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST ,otif!i,. ba,0 pro(ises to accept t'e draft draw, u,der t'e docu(e,tar! credit* A ,otif!i,. ba,0 is ,ot a priv! to t'e co,tract of sale betwee, t'e bu!er a,d t'e seller+ its relatio,s'ip is o,l! wit' t'at of t'e issui,. ba,0 a,d ,ot wit' t'e be,eficiar! to w'o( 'e assu(es ,o liabilit!* It follows t'erefore t'at w'e, t'e petitio,er refused to ,e.otiate wit' t'e private respo,de,t+ t'e latter 'as ,o cause of actio, a.ai,st t'e petitio,er for t'e e,force(e,t of 'is ri.'ts u,der t'e letter* T'e loa, a.ree(e,t is (ore reaso,abl! classified as a, isolated tra,sactio, i,depe,de,t of t'e docu(e,tar! credit* 4'et'er t'erefore t'e petitio,er is a ,otif!i,. ba,0 or a ,e.otiati,. ba,0+ it ca,,ot be 'eld liable* Abse,t a,! defi,itive proof t'at it 'as co,fir(ed t'e letter of credit or 'as actuall! ,e.otiated wit' t'e private respo,de,t+ t'e refusal b! t'e petitio,er to accept t'e te,der of t'e private respo,de,t is 7ustified* I, re.ard to t'e fi,di,. t'at t'e petitio,er beca(e a Ntrustee i, relatio, to t'e plai,tiff %private respo,de,t& as t'e be,eficiar! of t'e letter of credit+N t'e sa(e 'as ,o le.al basis* A trust 'as bee, defi,ed as t'e Nri.'t+ e,forceable solel! i, e2uit!+ to t'e be,eficial e,7o!(e,t of propert! t'e le.al title to w'ic' is vested to a,ot'er*N %AB C*)*S* @;8& T'e co,cept of a trust presupposes t'e e-iste,ce of a specific propert! w'ic' 'as bee, co,ferred upo, t'e perso, for t'e be,efit of a,ot'er* I, order t'erefore for t'e trust t'eor! of t'e private respo,de,t to be sustai,ed+ t'e petitio,er s'ould 'ave 'ad i, its possessio, a su( of (o,e! as specific fu,d adva,ced to it b! t'e issui,. ba,0 a,d to be 'eld i, trust b! DIA"A A IGAIL 3* DIESTRO SECTIO" :-

it i, favor of t'e private respo,de,t* T'is does ,ot obtai, i, t'is case* T'e (ere ope,i,. of a letter of credit+ it is to be ,oted+ does ,ot i,volve a specific appropriatio, of a su( of (o,e! i, favor of t'e be,eficiar!* It o,l! si.,ifies t'at t'e be,eficiar! (a! be able to draw fu,ds upo, t'e letter of credit up to t'e desi.,ated a(ou,t specified i, t'e letter* It does ,ot co,ve! t'e ,otio, t'at a particular su( of (o,e! 'as bee, specificall! reserved or 'as bee, 'eld i, trust* 4'at actuall! tra,spires i, a, irrevocable credit is t'at t'e correspo,de,t ba,0 does ,ot receive i, adva,ce t'e su( of (o,e! fro( t'e bu!er or t'e issui,. ba,0* O, t'e co,trar!+ w'e, t'e correspo,de,t ba,0 accepts t'e te,der a,d

pa!s t'e a(ou,t stated i, t'e letter+ t'e (o,e! t'at it doles out co(es ,ot fro( a,! particular fu,d t'at 'as bee, adva,ced b! t'e issui,. ba,0+ rat'er it .ets t'e (o,e! fro( its ow, fu,ds a,d t'e, later see0s rei(burse(e,t fro( t'e issui,. ba,0* Gra,ti,. t'at a trust 'as bee, created+ still+ t'e petitio,er (a! ,ot be co,sidered a trustee* As t'e petitio,er is o,l! a ,otif!i,. ba,0+ its accepta,ce of t'e i,structio,s of t'e issui,. ba,0 will ,ot create estoppel o, its part resulti,. i, t'e accepta,ce of t'e trust* Precisel!+ as a ,otif!i,. ba,0+ its o,l! obli.atio, is to ,otif! t'e private respo,de,t of t'e e-iste,ce of t'e letter of credit* Jow t'e, ca, suc' create estoppel w'e, t'at is its o,l! dut! u,der t'e lawP 4e also fi,d erro,eous t'e state(e,t of t'e Court of Appeals t'at t'e petitio,er Nacted as a .uara,tor of t'e issui,. ba,0 a,d i, effect also of t'e latter?s pri,cipal or clie,t+ i*e*+ Ja,s A-el C'ristia,se,*N ;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST It is a fu,da(e,tal rule t'at a, irrevocable credit is i,depe,de,t ,ot o,l! of t'e co,tract betwee, t'e bu!er a,d t'e seller but also of t'e credit a.ree(e,t betwee, t'e issui,. ba,0 a,d t'e bu!er* %See Oi,.do( of Swede, v* "ew #or0 Trust Co*+ BD "*#*S* 8d @@B L;B=BM&* T'e relatio,s'ip betwee, t'e bu!er %C'ristia,se,& a,d t'e issui,. ba,0 %Securit! Pacific "atio,al a,0& is e,tirel! i,depe,de,t fro( t'e letter of credit issued b! t'e latter* T'e co,tract betwee, t'e two 'as ,o beari,. as to t'e ,o,-co(plia,ce b! t'e bu!er wit' t'e a.ree(e,t betwee, t'e latter a,d t'e seller* T'eir co,tract is si(ilar to t'at of a co,tract of services %to ope, t'e letter of credit& a,d ,ot t'at of a.e,c! as was i,ti(ated b! t'e Court of Appeals* T'e u,7ustified refusal t'erefore b! C'ristia,se, to issue t'e certificatio, u,der t'e letter of credit s'ould ,ot li0ewise be c'ar.ed to t'e issui,. ba,0* As a (ere ,otif!i,. ba,0+ ,ot o,l! does t'e petitio,er ,ot 'ave a,! co,tractual relatio,s'ip wit' t'e bu!er+ it 'as also ,ot'i,. to do wit' t'e co,tract betwee, t'e issui,. ba,0 a,d t'e bu!er re.ardi,. t'e issua,ce of t'e letter of credit*

default of t'e perso, pri(aril! liable* O, t'e ot'er 'a,d+ i, a, irrevocable credit t'e ba,0 u,derta0es a pri(ar! obli.atio,* %See "atio,al a,0 of Ea.le Pass+ Te- v* A(erica, "atio,al a,0 of Sa, Fra,cisco+ 8A8 F* @: L;B88M& T'e relatio,s'ip betwee, t'e issui,. ba,0 a,d t'e ,otif!i,. ba,0+ o, t'e co,trar!+ is (ore si(ilar to t'at of a, a.e,c! a,d ,ot t'at of a .uara,tee* It (a! be observed t'at t'e ,otif!i,. ba,0 is (erel! to follow t'e i,structio,s of t'e issui,. ba,0 w'ic' is to ,otif! or to tra,s(it t'e letter of credit to t'e be,eficiar!* %See Oro,(a, v* Public "atio,al a,0 of "ew #or0+ supra&* Its co((it(e,t is o,l! to ,otif! t'e be,eficiar!* It does ,ot u,derta0e a,! assura,ce t'at t'e issui,. ba,0 will perfor( w'at 'as bee, (a,dated to or e-pected of it* As a, a.e,t of t'e issui,. ba,0+ it 'as o,l! to follow t'e i,structio,s of t'e issui,. ba,0 a,d to it alo,e is it obli.ated a,d ,ot to bu!er wit' w'o( it 'as ,o co,tractual relatio,s'ip* I, fact t'e ,otif!i,. ba,0+ eve, if t'e seller te,ders all t'e docu(e,ts re2uired u,der t'e letter of credit+ (a! refuse to ,e.otiate or accept t'e drafts draw, t'ereu,der a,d it will still ,ot be 'eld liable for its o,l! e,.a.e(e,t is to ,otif! a,d/or tra,s(it to t'e seller t'e letter of credit* Fi,all!+ eve, if we assu(e t'at t'e petitio,er is a co,fir(i,. ba,0+ t'e petitio,er ca,,ot be forced to pa! t'e a(ou,t u,der t'e letter* As we 'ave previousl! e-plai,ed+ t'ere was a failure o, t'e part of t'e private respo,de,t to co(pl! wit' t'e ter(s of t'e letter of credit*

T'e t'eor! of .uara,tee relied upo, b! t'e Court of Appeals 'as to ,ecessaril! fail* T'e co,cept of .uara,tee vis%a%vis t'e co,cept of a, irrevocable credit are i,co,siste,t wit' eac' ot'er* I, t'e first place+ t'e .uara,tee t'eor! destro!s t'e i,depe,de,ce of t'e ba,0?s respo,sibilit! fro( t'e co,tract upo, w'ic' it was ope,ed* I, t'e seco,d place+ t'e ,ature of bot' co,tracts is (utuall! i, co,flict wit' eac' ot'er* I, co,tracts of .uara,tee+ t'e .uara,tor?s obli.atio, is (erel! collateral a,d it arises o,l! upo, t'e DIA"A A IGAIL 3* DIESTRO SECTIO" :-

V. FACTS:

PRUDENTIAL BANK & TRUST CO. V. IAC

;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST P'ilippi,e Ra!o, 3ills %PR3- A& e,tered i,to a co,tract wit' "ISSJIO Co* of )apa, %S & for t'e i(portatio, of te-tile (ac'i,eries u,der a C-!ear deferred pa!(e,t pla,* PR3 applied for co((ercial letter wit' PR$DE"TIAL A"O i, favor of "ISSJIO* It was later approved* PR$DE"TIAL A"O t'rou.' its correspo,de,t ba,0 i, )apa,+ paid "ISSJIO+ after t'e latter draw, a,d issued drafts a.ai,st t'e letter of credit* PR$DE"TIAL A"O i,dorsed t'e s'ippi,. docu(e,ts to PR3 upo, arrival of t'e (ac'i,eries* To be able to ta0e t'e deliver! of t'e (ac'i,eries+ PR3 e-ecuted+ b! prior arra,.e(e,t wit' t'e PR$DE"TIAL A"O+ a trust receipt si.,ed b! A,acleto R* C'i i, 'is capacit! as preside,t of PR3* PR3 obtai,ed t'e deliver! a,d 'ad t'e (ac'i,eries i,stalled i, its factor! site* ut later+ PR3 ceased its operatio,s a,d t'e (ac'i,eries were sold to AIC Develop(e,t Corporatio, P$R$DE"TIAL A"O filed a, actio, to collect t'e pri,cipal a(ou,t because PR31s obli.atio, u,der t'e L/C re(ai,ed u,paid* Lower Court Ruli,.F I,sofar as t'e a(ou,t i,volved i, t'e draft w'ic' was ,ot prese,ted a,d accepted b! PR3+ PR$DE"TIAL A"O was ,ot 7ustified to u,ilaterall! pa! to "ISSJIO* ISSUE: ;* 4O" prese,t(e,t for accepta,ce of t'e drafts was i,dispe,sable before PR3 ca, be 'eld liable t'ereo,* 8* 4'et'er P'ilippi,e Ra!o, is liable o, t'e basis of t'e trust receiptE :* 4'et'er private respo,de,t C'i is 7oi,tl! a,d severall! liable wit' P'ilippi,e Ra!o, for t'e obli.atio, sou.'t to be e,forced a,d if ,ot+ w'et'er 'e (a! be co,sidered a .uara,torE i, t'e latter situatio,+ w'et'er t'e case s'ould 'ave bee, dis(issed o, t'e .rou,d of lac0 of DIA"A A IGAIL 3* DIESTRO SECTIO" :-

cause of actio, as t'ere was ,o prior e-'austio, of P'ilippi,e Ra!o,?s properties*

HELD: A letter of credit is defi,ed as a, e,.a.e(e,t b! a ba,0 or ot'er perso, (ade at t'e re2uest of a custo(er t'at t'e issuer will 'o,or drafts or ot'er de(a,ds for pa!(e,t upo, co(plia,ce wit' t'e co,ditio,s specified i, t'e credit* T'rou.' a letter of credit+ t'e ba,0 (erel! substitutes its ow, pro(ise to pa! for o,e of its custo(ers w'o i, retur, pro(ises to pa! t'e ba,0 t'e a(ou,t of fu,ds (e,tio,ed i, t'e letter of credit plus credit or co((it(e,t fees (utuall! a.reed upo,* I, t'e i,sta,t case t'e,+ t'e drawee was ,ecessaril! t'e 'erei, petitio,er* It was to t'e latter t'at t'e drafts were prese,ted for pa!(e,t* I, fact+ t'ere was ,o ,eed for accepta,ce as t'e issued drafts are si.'t drafts* Prese,t(e,t for accepta,ce is ,ecessar! o,l! i, t'e cases e-pressl! provided for i, Sectio, ;=: of t'e "e.otiable I,stru(e,ts Law %"IL&* ;: T'e said sectio, readsF

Sec* ;=:* &hen present"ent for acceptance "ust be "ade* Q Prese,t(e,t for accepta,ce (ust be (adeF %a& 4'ere t'e bill is pa!able after si.'t+ or i, a,! ot'er case+ w'ere prese,t(e,t for accepta,ce is ,ecessar! i, order to fi- t'e (aturit! of t'e i,stru(e,tE or %b& 4'ere t'e bill e-pressl! stipulates t'at it s'all be prese,ted for accepta,ceE or %c& 4'ere t'e bill is draw, pa!able elsew'ere t'a, at t'e reside,ce or place of busi,ess of t'e drawee* ;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST I, ,o ot'er case is prese,t(e,t for accepta,ce ,ecessar! i, order to re,der a,! part! to t'e bill liable* Obviousl! t'e,+ si$ht drafts do ,ot re2uire prese,t(e,t for accepta,ce* Corollaril!+ t'e! are+ pursua,t to Sectio, @ of t'e "IL+ pa!able o, de(a,d* Sectio, @ providesF

t'at prese,t(e,t for accepta,ce was a, i,dispe,sable re2uisite for P'ilippi,e Ra!o,?s liabilit! o, t'e drafts to attac'* Co,trar! to bot' courts? pro,ou,ce(e,ts+ P'ilippi,e Ra!o, i((ediatel! beca(e liable t'ereo, upo, petitio,er?s pa!(e,t t'ereof* Suc' is t'e esse,ce of t'e letter of credit issued b! t'e petitio,er* A differe,t co,clusio, would violate t'e pri,ciple upo, w'ic' co((ercial letters of credit are fou,ded because i, suc' a case+ bot' t'e be,eficiar! a,d t'e issuer+ "iss'o Co(pa,! Ltd* a,d t'e petitio,er+ respectivel!+ would be placed at t'e (erc! of P'ilippi,e Ra!o, eve, if t'e latter 'ad alread! received t'e i(ported (ac'i,er! a,d t'e petitio,er 'ad full! paid for it* T'e trial court a,d t'e public respo,de,t li0ewise erred i, disre.ardi,. t'e trust receipt a,d i, ,ot 'oldi,. t'at P'ilippi,e Ra!o, was liable t'ereo,*

Sec* @* &hen pa!able on de"and* Q A, i,stru(e,t is pa!able o, de(a,d Q %a& 4'e, so it is e-pressed to be pa!able o, de(a,d+ or at si.'t+ or o, prese,tatio,E or %b& I, w'ic' ,o ti(e for pa!(e,t i, e-pressed* 4'ere a, i,stru(e,t is issued+ accepted+ or i,dorsed w'e, overdue+ it is+ as re.ards t'e perso, so issui,.+ accepti,.+ or i,dorsi,. it+ pa!able o, de(a,d* Para.rap' A of t'e Trust Receipt w'ic' readsF N3!/our liabilit! for pa!(e,t at (aturit! of a,! accepted draft+ bill of e-c'a,.e or i,debted,ess s'all ,ot be e-ti,.uis'ed or (odifiedN does ,ot+ co,trar! to t'e 'oldi,. of t'e public respo,de,t+ co,te(plate prior accepta,ce b! P'ilippi,e Ra!o,+ but b! t'e petitio,er* Accepta,ce+ 'owever+ was ,ot eve, ,ecessar! i, t'e first place because t'e drafts w'ic' were eve,tuall! issued were si.'t drafts A,d eve, if t'ese were ,ot si.'t drafts+ t'ereb! ,ecessitati,. accepta,ce+ it would be t'e petitio,er Q a,d ,ot P'ilippi,e Ra!o, Q w'ic' 'ad to accept t'e sa(e for t'e latter was ,ot t'e drawee* Prese,t(e,t for accepta,ce is defi,ed a, t'e productio, of a bill of e-c'a,.e to a drawee for accepta,ce* T'e trial court a,d t'e public respo,de,t+ t'erefore+ erred i, ruli,. DIA"A A IGAIL 3* DIESTRO SECTIO" :-

$,der P*D* "o* ;;C+ ot'erwise 0,ow, a, t'e Trust Receipts Law+ Na,! tra,sactio, b! a,d betwee, a perso, referred to i, t'is Decree as t'e e,truster+ a,d a,ot'er perso, referred to i, t'is Decree as t'e e,trustee+ w'ereb! t'e e,truster+ w'o ow,s or 'olds absolute title or securit! i,terests? over certai, specified .oods+ docu(e,ts or i,stru(e,ts+ releases t'e sa(e to t'e possessio, of t'e e,trustee upo, t'e latter?s e-ecutio, a,d deliver! to t'e e,truster of a si.,ed docu(e,t called t'e Ntrust receiptN w'erei, t'e e,trustee bi,ds 'i(self to 'old t'e desi.,ated .oods+ docu(e,ts or i,stru(e,ts i, trust for t'e e,truster a,d to sell or ot'erwise dispose of t'e .oods+ docu(e,ts or i,stru(e,ts wit' t'e obli.atio, to tur, over to t'e e,truster t'e proceeds t'ereof to t'e e-te,t of t'e a(ou,t owi,. to t'e ;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST e,truster or as appears i, t'e trust receipt or t'e .oods+ i,stru(e,ts t'e(selves if t'e! are u,sold or ,ot ot'erwise disposed of+ i, accorda,ce wit' t'e ter(s a,d co,ditio,s specified i, t'e trusts receipt+ or for ot'er purposes substa,tiall! e2uivale,t to a,! o,e of t'e followi,.F * * *N It is alle.ed i, t'e co(plai,t t'at private respo,de,ts N,ot o,l! 'ave presu(abl! put said (ac'i,er! to .ood use a,d 'ave profited b! its operatio, a,d/or dispositio, but ver! rece,t i,for(atio, t'at %sic& reac'ed plai,tiff ba,0 t'at defe,da,ts alread! sold t'e (ac'i,er! covered b! t'e trust receipt to #upa,.co Cotto, 3ills+N a,d t'at Nas trustees of t'e propert! covered b! t'e trust receipt+ * * * a,d t'erefore acti,. i, fiduciar! %sic& capacit!+ defe,da,ts 'ave willfull! violated t'eir dut! to accou,t for t'e w'ereabouts of t'e (ac'i,er! covered b! t'e trust receipt or for t'e proceeds of a,! lease+ sale or ot'er dispositio, of t'e sa(e t'at t'e! (a! 'ave (ade+ ,otwit'sta,di,. de(a,ds t'ereforE defe,da,ts 'ave fraudule,tl! (isapplied or co,verted to t'eir ow, use a,! (o,e! reali9ed fro( t'e lease+ sale+ a,d ot'er dispositio, of said (ac'i,er!*N 8: 4'ile t'ere is ,o specific pra!er for t'e deliver! to t'e petitio,er b! P'ilippi,e Ra!o, of t'e proceeds of t'e sale of t'e (ac'i,er! covered b! t'e trust receipt+ suc' relief is covered b! t'e .e,eral pra!er for Nsuc' furt'er a,d ot'er relief as (a! be 7ust a,d e2uitable o, t'e pre(ises*N 8= A,d alt'ou.' it is true t'at t'e petitio,er co((e,ced a cri(i,al actio, for t'e violatio, of t'e Trust Receipts Law+ ,o le.al obstacle preve,ted it fro( e,forci,. t'e civil liabilit! arisi,. out of t'e trust+ receipt i, a separate civil actio,* $,der Sectio, ;: of t'e Trust Receipts Law+ t'e failure of a, e,trustee to tur, over t'e proceeds of t'e sale of DIA"A A IGAIL 3* DIESTRO SECTIO" :-

.oods+ docu(e,ts or i,stru(e,ts covered b! a trust receipt to t'e e-te,t of t'e a(ou,t owi,. to t'e e,truster or as appear i, t'e trust receipt or to retur, said .oods+ docu(e,ts or i,stru(e,ts if t'e! were ,ot sold or disposed of i, accorda,ce wit' t'e ter(s of t'e trust receipt s'all co,stitute t'e cri(e of estafa+ pu,is'able u,der t'e provisio,s of Article :;C+ para.rap' ;%b& of t'e Revised Pe,al Code* 8C $,der Article :: of t'e Civil Code+ a civil actio, for da(a.es+ e,tirel! separate a,d disti,ct fro( t'e cri(i,al actio,+ (a! be brou.'t b! t'e i,7ured part! i, cases of defa(atio,+ fraud a,d p'!sical i,7uries* Estafa falls u,der fraud* 4e also co,clude+ for t'e reaso, 'erei,after discussed+ a,d ,ot for t'at adduced b! t'e public respo,de,t+ t'at private respo,de,t C'i?s si.,ature i, t'e dorsal portio, of t'e trust receipt did ,ot bi,d 'i( solidaril! wit' P'ilippi,e Ra!o,* Petitio,er i,sists t'at b! virtue of t'e clear wordi,. of t'e state(e,t+ specificall! t'e clause N* * * we 7oi,tl! a,d severall! a.ree a,d u,derta0e * * *+N a,d t'e co,cludi,. se,te,ce o, e-'austio,+ C'i?s liabilit! t'erei, is solidar!* Our ow, readi,. of t'e 2uestio,ed solidar! .uara,t! clause !ields ,o ot'er co,clusio, t'a, t'at t'e obli.atio, of C'i is o,l! t'at of a $uarantor* T'is is furt'er bolstered b! t'e last se,te,ce w'ic' spea0s of waiver of e-'austio,+ w'ic'+ ,evert'eless+ is i,effective i, t'is case because t'e space t'erei, for t'e part! w'ose propert! (a! ,ot be e-'austed was ,ot filled up* $,der Article 8<CA of t'e Civil Code+ t'e defe,se of e-'austio, %e-cussio,& (a! be raised b! a .uara,tor before 'e (a! be 'eld liable for t'e obli.atio,* Petitio,er li0ewise

;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST ad(its t'at t'e 2uestio,ed provisio, is a solidar! $uarant! clause+ t'ereb! clearl! disti,.uis'i,. it fro( a co,tract of suret!* It+ 'owever+ described t'e .uara,t! as solidar! betwee, t'e .uara,torsE t'is would 'ave bee, correct if two %8& .uara,tors 'ad si.,ed it* T'e clause Nwe 7oi,tl! a,d severall! a.ree a,d u,derta0eN refers to t'e u,derta0i,. of t'e two %8& parties w'o are to si., it or to t'e liabilit! e-isti,. betwee, t'e(selves* It does ,ot refer to t'e u,derta0i,. betwee, eit'er o,e or bot' of t'e( o, t'e o,e 'a,d a,d t'e petitio,er o, t'e ot'er wit' respect to t'e liabilit! described u,der t'e trust receipt* Elsewise stated+ t'eir liabilit! is ,ot divisible as betwee, t'e(+ i*e*+ it ca, be e,forced to its full e-te,t a.ai,st a,! o,e of t'e(* A,d ,ow to t'e ot'er .rou,d relied upo, b! t'e petitio,er as basis for t'e solidar! liabilit! of C'i+ ,a(el! t'e cri(i,al proceedi,.s a.ai,st t'e latter for t'e violatio, of P*D* "o* ;;C* Petitio,er clai(s t'at because of t'e said cri(i,al proceedi,.s+ C'i would be a,swerable for t'e civil liabilit! arisi,. t'erefro( pursua,t to Sectio, ;: of P*D* "o* ;;C* Public respo,de,t re7ected t'is clai( because suc' civil liabilit! presupposes prior co,victio, as ca, be .lea,ed fro( t'e p'rase Nwit'out pre7udice to t'e civil liabilit! arisi,. fro( t'e cri(i,al offe,se*N ot' are wro,.* Corporatio,s+ part,ers'ips+ associatio,s a,d ot'er 7uridical e,tities ca,,ot be put i, 7ail* Jowever+ it is t'ese e,tities w'ic' are (ade liable for t'e civil liabilit! arisi,. fro( t'e cri(i,al offe,se* T'is is t'e i(port of t'e clause Nwit'out pre7udice to t'e civil liabilities arisi,. fro( t'e cri(i,al offe,se*N A,d+ as 4e stated earlier+ si,ce t'at violatio, of a trust receipt co,stitutes fraud u,der Article :: of t'e Civil Code+ petitio,er was acti,. well wit'i, its ri.'ts i, fili,. a, i,depe,de,t civil actio, to e,force t'e civil liabilit! DIA"A A IGAIL 3* DIESTRO SECTIO" :-

arisi,. t'erefro( a.ai,st P'ilippi,e Ra!o,* Jowever+ C'i?s liabilit! is li(ited to t'e pri,cipal obli.atio, i, t'e trust receipt plus all t'e accessories t'ereof i,cludi,. 7udicial costsE

VI.

BANK OF AMERICA V. COURT OF APPEALS

FACTS: A, irrevocable letter of credit was issued b! A"O OF A#$DJ#A of T'aila,d upo, applicatio, b! GE"ERAL CJE3ICALS of T'aila,d % A& i, favor of I"TER RESI" I,dustrial Corporatio, %S & for t'e purc'ase of certai, plastic ropes a,d a.ricultural resi,* Irrevocable L/C was (ailed b! A"O OF A#$DJ#AJ to A"O OF A3ERICA* A"O OF A3ERICA ,otified I"TER RESI" of t'e L/C* I"TER RESI" re2uested A"O OF A3ERICA to co,fir( t'e L/C but t'e latter refused w'ile o,e of its e(plo!ees e-plai,ed t'at t'ere is ,o ,eed for t'at because t'e L/C is .e,ui,e* A"O OF A3ERICA issed ;<*83 to respo,d to I"TER RESI"1s first avail(e,t upo, bei,. satisfied of t'e latter1s sub(itted docu(e,ts* ut A"O OF A3ERCA refused to process t'e seco,d avail(e,t upo, bei,. i,for(ed b! a,0 of A!ud'!a t'at t'e L/C was fraudule,t a,d disow,ed b! t'e latter* A"O OF A3ERICA filed a, actio, a.ai,st I"TER RESI" for t'e recover! of su( of (o,e! t'at it .ave u,der t'e first availe(e,t* Jowever+ lower court ruled i, favor of I"TER RESI" a,d affir(ed b! CA* ;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST ISSUES: ;* 4O" A"O OF A3ERICA 'as warra,ted t'e .e,ui,e,ess a,d aut'e,ticit! of t'e letter of credit a,d+ corollaril!+ w'et'er it 'as acted (erel! as a, advisi,. ba,0 or as a co,fir(i,. ba,0E 8* 4O" a,0 of A(erica (a! recover a.ai,st I,ter-Resi, u,der t'e draft e-ecuted i, its partial avail(e,t of t'e letter of credit* A HELD: T'e first issue raised wit' t'e petitio,er+ i*e*+ t'at it 'as i, t'is i,sta,ce (erel! bee, advisi,. ba,0+ is outri.'tl! re7ected b! I,ter-Resi, a,d is t'us sou.'t to be discarded for 'avi,. bee, raised o,l! o, appeal* 4e ca,,ot a.ree* T'e crucial poi,t of dispute i, t'is case is w'et'er u,der t'e Nletter of credit+N a,0 of A(erica 'as i,curred a,! liabilit! to t'e Nbe,eficiar!N t'ereof+ a, issue t'at lar.el! is depe,de,t o, t'e ba,0?s participatio, i, t'at tra,sactio,E as a (ere advisi,. or ,otif!i,. ba,0+ it would ,ot be liable+ but as a co,fir(i,. ba,0+ 'ad t'is bee, t'e case+ it could be co,sidered as 'avi,. i,curred t'at liabilit!* It ca,,ot seriousl! be disputed+ loo0i,. at t'is case+ t'at a,0 of A(erica 'as+ i, fact+ o,l! bee, a, advisi,.+ ,ot co,fir(i,.+ ba,0+ a,d t'is (uc' is clearl! evide,t+ a(o,. ot'er t'i,.s+ b! t'e provisio,s of t'e letter of credit itself+ t'e petitio,er ba,0?s letter of advice+ its re2uest for pa!(e,t of advisi,. fee+ a,d t'e ad(issio, of I,ter-Resi, t'at it 'as paid t'e sa(e* T'at a,0 of A(erica 'as as0ed I,terResi, to sub(it docu(e,ts re2uired b! t'e letter of credit a,d eve,tuall! 'as paid t'e proceeds t'ereof+ did ,ot obviousl! (a0e it a co,fir(i,. ba,0* T'e fact+ too+ t'at t'e draft re2uired b! t'e letter of credit is to be draw, DIA"A A IGAIL 3* DIESTRO SECTIO" :-

u,der t'e accou,t of Ge,eral C'e(icals %bu!er& o,l! (ea,s t'e sa(e 'ad to be prese,ted to a,0 of A!ud'!a %issui,. ba,0& for pa!(e,t* It (a! be si.,ifica,t to recall t'at t'e letter of credit is a, e,.a.e(e,t of t'e issui,. ba,0+ ,ot t'e advisi,. ba,0+ to pa! t'e draft* Article ;A of t'e $*C*P* states t'atF N a,0s assu(e ,o liabilit! or respo,sibilit! for t'e co,se2ue,ces arisi,. out of t'e dela! a,d/or loss i, tra,sit of a,! (essa.es+ letters or docu(e,ts+ or for dela!+ (utilatio, or ot'er errors arisi,. i, t'e tra,s(issio, of a,! teleco((u,icatio, * * *N As advisi,. ba,0+ a,0 of A(erica is bou,d o,l! to c'ec0 t'e Nappare,t aut'e,ticit!N of t'e letter of credit+ w'ic' it did* 8B Clarif!i,. its (ea,i,.+ 4ebster?s "i,t' "ew Colle.iate Dictio,ar! :< e-plai,s t'at t'e word NAPPARE"T su..ests appeara,ce to u,aided se,ses t'at is ,ot or (a! ,ot be bor,e out b! (ore ri.orous e-a(i,atio, or .reater 0,owled.e*N 3a! a,0 of A(erica t'e, recover w'at it 'as paid u,der t'e letter of credit w'e, t'e correspo,di,. draft for partial avail(e,t t'ereu,der a,d t'e re2uired docu(e,ts were later ,e.otiated wit' it b! I,ter-Resi,P T'e a,swer is !es* T'is 0i,d of tra,sactio, is w'at is co((o,l! referred to as a discou,ti,. arra,.e(e,t* T'is ti(e+ a,0 of A(erica 'as

acted i,depe,de,tl! as a ,e.otiati,. ba,0+ t'us savi,. I,ter-Resi, fro( t'e 'ards'ip of prese,ti,. t'e docu(e,ts directl! to a,0 of A!ud'!a to recover pa!(e,t* %I,ter-Resi,+ of course+ could 'ave c'ose, ot'er ba,0s wit' w'ic' to ,e.otiate t'e draft a,d t'e docu(e,ts*& As a ,e.otiati,. ba,0+ a,0 of A(erica 'as a ri.'t to recourse a.ai,st t'e issuer ba,0 a,d u,til rei(burse(e,t is obtai,ed+ I,terResi,+ as t'e drawer of t'e draft+ ;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST co,ti,ues to assu(e a co,ti,.e,t liabilit! t'ereo,* T'e pa!(e,t to I,ter-Resi, 'as .ive,+ as aforesaid+ a,0 of A(erica t'e ri.'t of rei(burse(e,t fro( t'e issui,. ba,0+ a,0 of A!ud'!a w'ic'+ i, tur,+ would t'e, see0 i,de(,ificatio, fro( t'e bu!er %t'e Ge,eral C'e(icals of T'aila,d&* Si,ce a,0 of A!ud'!a disow,ed t'e letter of credit+ 'owever+ a,0 of A(erica (a! ,ow tur, to I,ter-Resi, for restitutio,* T'e additio,al .rou,d raised b! t'e petitio,er+ i*e*+ t'at I,ter-Resi, se,t waste i,stead of its products+ is reall! of ,o co,se2ue,ce* I, t'e operatio, of a letter of credit+ t'e i,volved ba,0s deal o,l! wit' docu(e,ts a,d ,ot o, .oods described i, t'ose docu(e,ts*
:=

I, fi,e+ we 'old t'at Q First+ .ive, t'e factual fi,di,.s of t'e courts below+ we co,clude t'at petitio,er a,0 of A(erica 'as acted (erel! as a notif!in$ bank a,d did ,ot assu(e t'e respo,sibilit! of a confir"in$ bankE a,d Seco,d+ petitio,er ba,0+ as a ne$otiatin$ bank+ is e,titled to recover o, I,ter-Resi,?s partial avail(e,t as be,eficiar! of t'e letter of credit w'ic' 'as bee, disow,ed b! t'e alle.ed issuer ba,0*

VII. FACTS:

RODZSEN SUPPLY V. FAR EAST BANK & TRUST CO.

RODKSE" applied for do(estic L/C fro( FAR EAST A"O i, favor of DIA"A A IGAIL 3* DIESTRO SECTIO" :;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST EO3A" to fi,a,ce t'e purc'ase of C u,its of '!draulic loaders* T'e L/C will e-pire so(eti(e i, Februar! but it was e-te,ded u,til October %about ;< (o,t's& T'e first batc' of loaders were delivered b! EO3A" o, ti(e a,d FAR EAST paid it* T'e seco,d batc' was delivered be!o,d t'e e-piratio, of t'e L/C* Despite t'e late deliver! %C (o,t's dela!&+ FAR EAST still paid EO3A" upo, its prese,tatio, of stipulated docu(e,ts* FAR EAST t'e, de(a,ded RODKSE" for rei(burse(e,t* RODKSE" refused+ i,stead+ it offered to retur, 'e last batc' of loaders* ISSUE: 4O" RODKSE" ca, refuse to pa! FAR EAST despite its pa!(e,t be!o,d t'e e-piratio, of L/C* HELD: "O* e t'at was it (a!+ 4e a.ree wit' CA t'at RODSKE" s'ould pa! respo,de,t FAR EAST for t'e a(ou,t t'e latter e-pe,ded for t'e e2uip(e,t belatedl! delivered b! EO3A" a,d volu,taril! receipt a,d 0ept b! RODSKE"* FAR EAST ri.'t to recover! is a,c'ored ,ot upo, t'e i,efficacious L/C but o, Article 8;=8+ "CC* Certai, lawful+ volu,tar! a,d u,ilateral acts .ive rise to t'e 7uridical relatio, of 2uasi-co,tract to t'e e,d t'at ,o o,e s'all be u,7ustl! e,ric'ed or be,efitted at t'e e-pe,se of a,ot'er* E2uitable co,sideratio,s be'oove us to allow recover!*

True+ it erred i, pa!i,. EO3A" but RODKSE" is ,ot wit'out fault i, t'e tra,sactio,* It 'ad volu,taril! received a,d 0ept t'e loaders si,ce October ;B@B* Alt'ou.' RODKSE" clai(ed t'at it accepted t'e deliver! because it was bou,d to receive it u,der t'e co(pa,!1s trust receipt arra,.e(e,t wit' FAR EAST* Gra,ti,. t'at it is bou,d b! suc' arra,.e(e,t+ we ,ote its u,e-plai,ed i,actio, for al(ost = !ears wit' re.ard to t'e status of t'e ow,ers'ip a,d possessio, of t'e loaders* Also+ it o,l! for(ali9ed its retur, of t'e 8 pieces of e2uip(e,t o,l! after FAR EAST de(a,ded pa!(e,t+ w'ic' 'appe,ed : !ears after t'e deliver!* 4'e, bot' parties to t'e tra,sactio, are (utuall! ,e.li.e,t i, t'e perfor(a,ce of t'eir obli.atio,s+ t'e fault of o,e ca,cels t'e ,e.li.e,ce of t'e ot'er* I, t'is case t'e ri.'ts a,d obli.atio,s (a! be deter(i,ed e2uitabl! u,der t'e law proscribi,. u,7ust e,ric'(e,t* A, I w'ic' paid t'e be,eficiar! of a, e-pired L/C ca, recover pa!(e,t fro( a, A w'ic' obtai,ed t'e .oods fro( t'e be,eficiar! to preve,t u,7ust e,ric'(e,t*

DIA"A A IGAIL 3* DIESTRO

SECTIO" :-

;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST ope, a L/C so it also awarded da(a.ed i, favor of DAE4OO* ISSUE: 4O" RELIA"CE is liable for breac' of co,tract* HELD: 4e a.ree wit' t'e Court of Appeals t'at Relia,ce a,d Daewoo+ 'avi,. reac'ed Na (eeti,. of (i,dsN i, respect of t'e sub7ect (atter of t'e co,tract %8<<< (etric to,s of fou,dr! pi. iro, wit' a specified c'e(ical co(positio,&+ t'e price t'ereof %$S S:A<+D<<*<<&+ a,d ot'er pri,cipal provisio,s+ Nt'e! 'ad a perfected co,tract*N T'e failure of Relia,ce to ope,+ t'e appropriate L/C did ,ot preve,t t'e birt' of t'at co,tract+ a,d ,eit'er did suc' failure e-ti,.uis' t'at co,tract * T'e L/C provided for i, t'at co,tract was t'e (ode or (ec'a,is( b! w'ic' pa!(e,t was to be effected b! Relia,ce of t'e price of t'e pi. iro,* I, u,derta0i,. to accept or pa! t'e drafts prese,ted to it b! t'e be,eficiar! accordi,. to t'e te,or of a, L/C+ a,d o,l! later o, bei,. rei(bursed b! t'e accou,t part!+ t'e issui,. ba,0 i, effect e-te,ds a loa, to t'e accou,t part!* T'is loa, feature+ co(bi,ed wit' t'e ba,0?s u,derta0i,. to accept t'e be,eficiar!?s drafts draw, o, t'e ba,0+ co,stitutes t'e L/C as a (ode of pa!(e,t* Lo.icall!+ before t'e issui,. ba,0 ope, a, L/C+ it will ta0e steps to e,sure t'at it would i,deed be rei(bursed w'e, t'e ti(e co(es* efore a, L/C ca, be ope,ed+ specific le.al re2uire(e,ts (ust be co(plied wit'* T'e Ce,tral a,0 of t'e P'ilippi,es 'as establis'ed t'e followi,. re2uire(e,ts for ope,i,. a letter of creditF i(porters s'all sub(it to t'e co((ercial ba,0 t'e followi,. docu(e,tsF ;ST SE3ESTER A# 8<;:-8<;=

VIII.

RELIANCE COMMODITIES, INC. V. DAE OO INDUSTRIAL CO.

FACTS: RELIA"CE % A& a,d DAE4OO %S & e,tered i,to two co,tract of sale for t'e s'ip(e,t a,d deliver! of fou,dr! pi. iro, provided t'at a L/C s'all cover t'eir seco,d tra,sactio,* $,der t'e first co,tract Daewoo fell s'ort of certai, (etric to,s* $,der t'e seco,d co,tract+ t'e 8+<<< (etric to,s was co(pletel! delivered b! Daewoo* ut upo, RELIA"CE1s applicato, for L/C+ it was de,ied b! t'e CJI"A A"OI"G CORP* because it 'as e-ceeded its forei., e-c'a,.e allocatio,* ecause of suc'+ DAE4OO was forced to sell t'e fou,dr! pi. iro,s to a,ot'er bu!er at a lower price* RELIA"CE filed a, actio, for da(a.es a.ai,st DAE4OO for t'e recover! of P88DOR represe,ti,. t'e value of t'e s'ort deliver! of (ore t'a, ;:C (etric to,s of fou,dr! pi. iro, u,der t'eir first co,tract* DAE4OO filed a cou,terclai( alle.i,. t'at RELIA"CE was .uilt! of breac' of co,tract for its failure to ope, a L/C u,der t'e seco,d co,tract* TC ruled t'at RELIA"CE is e,titled to s'ort deliver! price a,d ordered DAE4OO to pa! t'e a(ou,t* $T it also 'eld t'at RELIA"CE is liable for breac' of co,tract for its failure to DIA"A A IGAIL 3* DIESTRO SECTIO" :-

SPCL - LETTER OF CREDIT- CASE DIGEST a& t'e dul! acco(plis'ed L/C applicatio,E b& fir( offer/profor"a i,voice w'ic' s'all co,tai, i,for(atio, o, t'e specific 2ua,tit! of t'e i(portatio,+ u,it cost a,d total cost+ co(plete descriptio,/specific atio, of t'e co((odit! a,d t'e P'ilippi,e Sta,dard Co((odit! Classificatio, statistical codeE c& per"its'clearances fro" the appropriate $overn"ent a$encies# whenever applicable( a,d d& dul! acco(plis'ed I(port E,tr!

securit!+ i,ter,atio,al co((it(e,ts+ a,d develop(e,t/ratio,ali9atio, of local i,dustr!*N T'e petitio,er i, t'e i,sta,t case e,tered i,to a tra,sactio, to i(port fou,dr! pi. iro,+ a re.ulated co((odit!* I, respect of t'e i(portatio, of t'is particular co((odit!+ t'e Iro, a,d Steel Aut'orit! %ISA& is t'e .over,(e,t a.e,c! desi.,ated to issue t'e per(it or cleara,ce* Prior to t'e issua,ce of suc' per(it or cleara,ce+ ISA as0s t'e bu!er/i(porter to co(pl! wit' particular re2uire(e,ts+ suc' as to s'ow t'e availabilit! of forei., e-c'a,.e allocatio,s* T'e issua,ce of a, L/C beco(es+ a(o,. ot'er t'i,.s+ a, i,dicatio, of co(plia,ce b! t'e bu!er/i(porter wit' 'is ow, .over,(e,t?s re.ulatio,s relati,. to i(ports a,d to pa!(e,t t'ereof* T'e records s'ows t'at t'e ope,i,. of t'e L/C i, t'e i,sta,t case beca(e ver! difficult because Relia,ce 'ad e-'austed its dollar allocatio,* Relia,ce 0,ew t'at it 'ad alread! e-ceeded its dollar allocatio, for t'e !ear ;BA< w'e, it e,tered i,to t'e :; )ul! ;BA< tra,sactio, wit' Daewoo* As a rule+ w'e, t'e i(porter 'as e-ceeded its forei., e-c'a,.e allocatio,+ 'is applicatio, would be de,ied* Jowever+ ISA could reco,sider suc' applicatio, o, a case to case basis*

Declaratio, %IED& for( w'ic' s'all serve as basis for pa!(e,t of adva,ce duties as re2uired u,der PD ;AC:* ;; %E(p'asis supplied& T'e ,eed for per(its or cleara,ces fro( appropriate .over,(e,t a.e,cies arises w'e, re.ulated co((odities are to be i(ported* Certai, co((odities are classified as Nre.ulated co((oditiesN for purposes of t'eir i(portatio,+ Nfor reaso,s of public 'ealt' a,d safet!+ ,atio,al DIA"A A IGAIL 3* DIESTRO SECTIO" :-

T'us+ i, t'e i,sta,t case+ ISA re2uired Relia,ce to support its applicatio, b! sub(itti,. purc'ase orders fro( e,dusers for t'e sa(e 2ua,tit! t'e latter wis'ed to i(port* As earlier ,oted+ Relia,ce was able to prese,t purc'ase

orders for o,l! B<< (etric to,s of t'e sub7ect pi. iro,* For 'avi,. e-ceeded its forei., e-c'a,.e allocatio, before it e,tered ST ; SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST i,to t'e :; )ul! ;BA< co,tract wit' Daewoo+ petitio,er Relia,ce ca, 'old o,l! itself respo,sible* for 'avi,. failed to secure e,d-users purc'ase orders e2uivale,t to 8+<<< (etric to,s+ o,l! Relia,ce s'ould be 'eld respo,sible* Daewoo re7ected Relia,ce?s proposed reduced to,,a.e* It 'ad t'e ri.'t to de(a,d co(plia,ce wit' t'e ter(s of t'e basic co,tract a,d 'ad ,o dut! to accept a,! u,ilateral (odificatio, of t'at co,tract* 4e believe a,d so 'old t'at failure of a bu!er seaso,abl! to fur,is' a, a.reed letter of credit is a breac' of t'e co,tract betwee, bu!er a,d seller* 4'ere t'e bu!er fails to ope, a letter of credit as stipulated+ t'e seller or e-porter is e,titled to clai( da(a.es for suc' breac'* Da(a.es for failure to ope, a co((ercial credit (a!+ i, appropriate cases+ i,clude t'e loss of profit w'ic' t'e seller would reaso,abl! 'ave (ade 'ad t'e tra,sactio, bee, carried out* ;B Petitio, for Review is 'ereb! DE"IED*

FACTS: TO3OCO I,c* purc'ased to OREGO" I,dustries a S0a.it #arder wit' accessories* TO3OCO applied for do(estic L/C a,d .ra,ted b! P'ilippi,e Co((ercial a,0 %PC & i, favor of OREGO"* TO3OCO si.,ed a,d delivered to PC a trust receipt re,deri,. t'e re2uired (ar.i,al deposit* At t'e bac0 of t'e trust receipt+ it was stipulated b! Ra(o, A AD %.uara,tor& t'at 'e is 7oi,tl! a,d severall! liable t'ereo, wit' TO3OCO* PC t'e, paid OREGO" for t'e (ac'i,eries* ut ,o ot'er pa!(e,t was (ade eit'er b! TO3OCO or A AD to PC * PC sued t'e(* TO3OCO did ,ot de,! it liabilit! but it averred t'at i,as(uc' as it paid 3D to PC i, a(ou,t of 8AO+ it s'ould be deducted fro( its pri,cipal obli.atio,+ leavi,. o,l! a bala,ce of C8O* Lower court ordered bot' TO3OCO a,d A AD to pa! PC * A AD appealed+ alle.i,. t'at t'e 3D (ade (ust be first deducted before co(puti,. t'eir bala,ce* If ,ot+ PC will u,7ustl! e,ric' t'e(selves* ISSUE: 4O" 3D (ust first be deducted fro( t'e e,tire i,debted,ess before co(puti,. ot'er c'ar.es* HELD: T'e petitio, is i(pressed wit' (erit* T'e ,ature a,d (erca,tile usa.e of a trust receipt was e-plai,ed i, t'e case of P" vs* Ge,eral Accepta,ce I Fi,a,ce Corporatio,+ et al*+ G*R* "o* L:<@C;+ 8= 3a! ;BAA a,d >i,tola vs* I,sular a,0 of Asia a,d A(erica+ ;C< SCRA C@A+ as followsF 5* * * * A trust receipt is co,sidered as a securit! tra,sactio, i,te,ded to aid i, fi,a,ci,. i(porters a,d retail dealers w'o do ,ot 'ave sufficie,t fu,ds or resources to fi,a,ce t'e i(portatio, or purc'ase of (erc'a,dise+ a,d w'o (a! ,ot be able to ac2uire credit e-cept t'rou.' utili9atio,+ as collateral ST ; SE3ESTER A# 8<;:-8<;=

I!.

ABAD v. CA SECTIO" :-

DIA"A A IGAIL 3* DIESTRO

SPCL - LETTER OF CREDIT- CASE DIGEST of t'e (erc'a,dise i(ported or purc'ased+ *** * T'e ba,0 does ,ot beco(e t'e real ow,er of t'e .oods* It is (erel! t'e 'older of a securit! title for t'e adva,ces it 'ad (ade to t'e i(porter* T'e .oods t'e i(porter 'ad purc'ased t'rou.' t'e ba,0 fi,a,ci,.+ re(ai, t'e i(porter?s propert! a,d 'e 'olds it at 'is ow, ris0* T'e trust receipt arra,.e(e,t does ,ot co,vert t'e ba,0 i,to a, i,vestorE it re(ai,s a le,der a,d creditor* T'is is so because t'e ba,0 'ad previousl! e-te,ded a loa, w'ic' t'e letter of credit represe,ts to t'e i(porter+ a,d b! t'at loa,+ t'e i(porter s'ould be t'e real ow,er of t'e .oods* If u,der t'e trust receipt+ t'e ba,0 is (ade to appear as t'e ow,er+ it was but a, artificial e-pedie,t+ (ore of a le.al fictio, t'a, fact+ for if it were so+ it could dispose of t'e .oods i, a,! (a,,er it wa,ts+ w'ic' it ca,,ot do+ 7ust to .ive co,siste,c! wit' t'e purpose of t'e trust receipt of .ivi,. a stro,.er securit! for t'e loa, obtai,ed b! t'e i(porter* To co,sider t'e ba,0 as t'e true ow,er fro( t'e i,ceptio, of t'e tra,sactio, would be to disre.ard t'e loa, feature i,volved* * * * . letter of credit%trust receipt arran$e"ent is endowed with its own distinctive features and characteristics. )nder that set%up# a bank e*tends a loan covered b! the letter of credit# with the trust receipt as a securit! for the loan. +n other words# the transaction involves a loan feature represented b! the letter of credit# and a securit! feature which is in the coverin$ trust receipt. . . . . A trust receipt+ t'erefore+ is a securit! a.ree(e,t+ pursua,t to w'ic' a ba,0 ac2uires a Nsecurit! i,terestN i, t'e .oods* It secures a, i,debted,ess a,d t'ere ca, be ,o suc' t'i,. as securit! i,terest t'at secures ,o obli.atio,* T'e (ar.i,al deposit re2uire(e,t is a Ce,tral a,0 (easure to cut off e-cess curre,c! li2uidit! w'ic' would create i,flatio,ar! pressure* It is a DIA"A A IGAIL 3* DIESTRO SECTIO" :-

collateral securit! .ive, b! t'e debtor+ a,d is supposed to be retur,ed to 'i( upo, 'is co(plia,ce wit' 'is secured obli.atio,* Co,se2ue,tl!+ t'e ba,0 pa!s ,o i,terest o, t'e (ar.i,al deposit+ u,li0e a, ordi,ar! ba,0 deposit w'ic' ear,s i,terest i, t'e ba,0* As a (atter of fact+ t'e (ar.i,al deposit re2uire(e,t for letters of credit 'as bee, disco,ti,ued+ e-cept i, t'ose cases w'ere t'e applica,t for a letter of credit is ,ot 0,ow, to t'e ba,0 or does ,ot (ai,tai, a .ood credit sta,di,. t'erei,* It is o,l! fair t'e, t'at t'e i(porter?s (ar.i,al deposit %if o,e was (ade+ as i, t'is case&+ s'ould be set off a.ai,st 'is debt+ for w'ile t'e i(porter ear,s ,o i,terest o, 'is (ar.i,al deposit+ t'e ba,0+ apart fro( bei,. able to use said deposit for its ow, purposes+ also ear,s i,terest o, t'e (o,e! it loa,ed to t'e i(porter* It would be o,erous to co(pute i,terest a,d ot'er c'ar.es o, t'e face value of t'e letter of credit w'ic' t'e ba,0 issued+ wit'out first crediti,. or setti,. off t'e (ar.i,al deposit w'ic' t'e i(porter paid to t'e ba,0* Co(pe,satio, is proper a,d s'ould ta0e effect b! operatio, of law because t'e re2uisites i, Article ;8@B of t'e Civil Code are prese,t a,d s'ould e-ti,.uis' bot' debts to t'e co,curre,t a(ou,t %Art* ;8B<+ Civil Code&* Alt'ou.' Abad is o,l! a suret!+ 'e (a! set up co(pe,satio, as re.ards w'at t'e creditor owes t'e pri,cipal debtor+ TO3CO %Art* ;8A<+ Civil Code&* It is ,ot farfetc'ed to assu(e t'at t'e ba,0 used TO3CO?s (ar.i,al deposit to partiall! fu,d t'e PA<+<<< letter of credit it issued to TO3CO+ 'e,ce+ t'e i,terests a,d ot'er c'ar.es o, said letter of credit s'ould be levied o,l! o, t'e bala,ce of PC8+<<< w'ic' was t'e portio, t'at was actuall! fu,ded or loa,ed b! t'e ba,0 fro( its ow, ;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST fu,ds* Re2uiri,. t'e i(porter to pa! i,terest o, t'e e,tire letter of credit wit'out deducti,. first 'i( (ar.i,al deposit+ would be a clear case of u,7ust e,ric'(e,t b! t'e ba,0* Petitio, for review is .ra,ted*

!.

CONSOLIDATED BANK & TRUST CO. V. COURT OF APPEALS

FACTS: CO"TI"E"TAL Ce(e,t Corp* a,d Gre.or! T* LI3 obtai,ed fro( CO"SOLIDATED A"O a,d Trust Co* a L/C* CO"TI"E"TAL paid a 3D of P:8<OR to CO"SOLIDATED A"O* L/C was used for t'e purc'ase about C<<O liters of bu,0er fuel oil fro( PETROPJIL Corp* w'ic' t'e latter delivered to CO"TI"E"TAL1s pla,t i, ulaca,* To support t'e tra,sactio,+ a trust receipt was e-ecuted b! CO"TI"E"TAL wit' LI3 as its si.,ator!* Later+ CO"SOLIDATED A"O filed a co(plai,t for su( of (o,e! wit' applicatio, for preli(i,ar! attac'(e,t clai(i,. t'at CO"TI"E"TAL a,d LI3 failed to tur, over t'e .oods covered b! t'e trust receipt or t'e proceeds t'ereof* I, a,swer+ CO"TI"E"TAL a,d LI3 averred t'at t'e tra,sactio, betwee, t'e( was a si(ple loa, a,d ,ot a trust receipt tra,sactio, A"D t'at t'e a(ou,t clai(ed b! CO"SOLIDATED A"O fro( t'e( did ,ot ta0e i,to accou,t pa!(e,ts alread! (ade b! t'e( %3D&* Also+ LI3 de,ied perso,al liabilit! i, t'e tra,sactio,* DIA"A A IGAIL 3* DIESTRO SECTIO" :;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST ISSUE: ;* 4O" t'e 3D (ust be deducted first* 8* 4O" t'e tra,sactio, is o,e of si(ple loa, or t'at of trust receipt* HELD: T'e petitio, (ust be de,ied* CO"SOLIDATED A"O1s co,te,tio, t'at t'e (ar.i,al deposit (ade b! CO"TI"E"TAL s'ould ,ot be deducted outri.'t fro( t'e a(ou,t of t'e letter of credit is u,te,able* Petitio,er ar.ues t'at t'e (ar.i,al deposit s'ould be co,sidered o,l! after co(puti,. t'e pri,cipal plus accrued i,terests a,d ot'er c'ar.es* Jowever+ to sustai, petitio,er o, t'is score would be to cou,te,a,ce a clear case of u,7ust e,ric'(e,t+ for w'ile a (ar.i,al deposit ear,s ,o i,terest i, favor of t'e debtor-depositor+ t'e ba,0 is ,ot o,l! able to use t'e sa(e for its ow, purposes+ i,terest-free+ but is also able to ear, i,terest o, t'e (o,e! loa,ed to respo,de,t Corporatio,* I,deed+ it would be o,erous to co(pute i,terest a,d ot'er c'ar.es o, t'e face value of t'e letter of credit w'ic' t'e petitio,er issued+ wit'out first crediti,. or setti,. off t'e (ar.i,al deposit w'ic' t'e respo,de,t Corporatio, paid to it* Co(pe,satio, is proper a,d s'ould ta0e effect b! operatio, of law because t'e re2uisites i, Article ;8@B of t'e Civil Code are prese,t a,d s'ould e-ti,.uis' bot' debts to t'e co,curre,t a(ou,t*i Je,ce+ t'e i,terests a,d ot'er c'ar.es o, t'e sub7ect letter of credit s'ould be co(puted o,l! o, t'e bala,ce of PDA;+<@C*B:+ w'ic' was t'e portio, actuall! loa,ed b! t'e ba,0 to respo,de,t Corporatio,* Petitio,er 'as also failed to co,vi,ce us t'at its tra,sactio, wit' respo,de,t Corporatio, is reall! a trust receipt tra,sactio, i,stead of (erel! a si(ple loa,+ as fou,d b! t'e lower court a,d t'e Court of Appeals* SECTIO" : T'e rece,t case of Colinares v. Court of ppealsii appears to be fours2uare wit' t'e facts obtai,i,. i, t'e case at bar* T'ere+ we fou,d t'at i,as(uc' as t'e debtor received t'e .oods sub7ect of t'e trust receipt before t'e trust receipt itself was e,tered i,to+ t'e tra,sactio, i, 2uestio, was a si(ple loa, a,d ,ot a trust receipt a.ree(e,t* Prior to t'e date of e-ecutio, of t'e trust receipt+ ow,ers'ip over t'e .oods was alread! tra,sferred to t'e debtor* T'is situatio, is i,co,siste,t wit' w'at ,or(all! obtai,s i, a pure trust receipt tra,sactio,+ w'erei, t'e .oods belo,. i, ow,ers'ip to t'e ba,0 a,d are o,l! released to t'e i(porter i, trust after t'e loa, is .ra,ted* I, t'e case at bar+ as i, Colinares+ t'e deliver! to respo,de,t Corporatio, of t'e .oods sub7ect of t'e trust receipt occurred lo,. before t'e trust receipt itself was e-ecuted* 3ore specificall!+ deliver! of t'e bu,0er fuel oil to respo,de,t Corporatio,1s ulaca, pla,t co((e,ced o, )ul! @+ ;BA8 a,d was co(pleted b! )ul! ;B+ ;BA8* Furt'er+ t'e oil was used up b! respo,de,t Corporatio, i, its ,or(al operatio,s b! Au.ust+ ;BA8* O, t'e ot'er 'a,d+ t'e sub7ect trust receipt was o,l! e-ecuted ,earl! two (o,t's after full deliver! of t'e oil was (ade to respo,de,t Corporatio,+ or o, Septe(ber 8+ ;BA8* T'e da,.er i, c'aracteri9i,. a si(ple loa, as a trust receipt tra,sactio, was e-plai,ed i, Colinares+ to witF T'e Trust Receipts Law does ,ot see0 to e,force pa!(e,t of t'e loa,+ rat'er it pu,is'es t'e dis'o,est! a,d abuse of co,fide,ce i, t'e 'a,dli,. of (o,e! or .oods to t'e pre7udice of a,ot'er re.ardless of w'et'er t'e latter is t'e ow,er* Jere+ it is cr!stal clear t'at o, t'e part of Petitio,ers t'ere was ,eit'er dis'o,est! ,or abuse of co,fide,ce i, t'e 'a,dli,. of (o,e! to t'e pre7udice of P C* Petitio,ers co,ti,uall! ;ST SE3ESTER A# 8<;:-8<;=

DIA"A A IGAIL 3* DIESTRO

SPCL - LETTER OF CREDIT- CASE DIGEST e,deavored to (eet t'eir obli.atio,s+ as s'ow, b! several receipts issued b! P C ac0,owled.i,. pa!(e,t of t'e loa,* T'e practice of ba,0s of (a0i,. borrowers si., trust receipts to facilitate collectio, of loa,s a,d place t'e( u,der t'e t'reats of cri(i,al prosecutio, s'ould t'e! be u,able to pa! it (a! be u,7ust a,d i,e2uitable+ if ,ot repre'e,sible* Suc' a.ree(e,ts are co,tracts of ad'esio, w'ic' borrowers 'ave ,o optio, but to si., lest t'eir loa, be disapproved* T'e resort to t'is sc'e(e leaves poor a,d 'apless borrowers at t'e (erc! of ba,0s+ a,d is pro,e to (isi,terpretatio,+ as 'ad 'appe,ed i, t'is case* Eve,tuall!+ P C s'owed its true colors a,d ad(itted t'at it was o,l! after collectio, of t'e (o,e!+ as (a,ifested b! its Affidavit of Desista,ce* Si(ilarl!+ respo,de,t Corporatio, ca,,ot be said to 'ave bee, dis'o,est i, its deali,.s wit' petitio,er* "eit'er 'as it bee, s'ow, t'at it 'as evaded pa!(e,t of its obli.atio,s* I,deed+ it co,ti,uall! e,deavored to (eet t'e sa(e+ as s'ow, b! t'e various receipts issued b! petitio,er ac0,owled.i,. pa!(e,t o, t'e loa,* Certai,l!+ t'e pa!(e,t of t'e su( of P;+A:8+;CA*:A o, a loa, wit' a pri,cipal a(ou,t of o,l! PDA;+<@C*B: ,e.ates a,! bad.e of dis'o,est!+ abuse of co,fide,ce or (is'a,dli,. of fu,ds o, t'e part of respo,de,t Corporatio,+ w'ic' are t'e .rava(e, of a trust receipt violatio,* Furt'er(ore+ respo,de,t Corporatio, is ,ot a, i(porter w'ic' ac2uired t'e bu,0er fuel oil for re-saleE it ,eeded t'e oil for its ow, operatio,s* 3ore i(porta,tl!+ at ,o ti(e did title over t'e oil pass to petitio,er+ but directl! to respo,de,t Corporatio, to w'ic' DIA"A A IGAIL 3* DIESTRO SECTIO" :-

t'e oil was directl! delivered lo,. before t'e trust receipt was e-ecuted* T'e fact t'at ow,ers'ip of t'e oil belo,.ed to respo,de,t Corporatio,+ t'rou.' its Preside,t+ Gre.or! Li(+ was ac0,owled.ed b! petitio,er1s ow, accou,t officer o, t'e wit,ess sta,d+ ! all i,dicatio,s+ t'e,+ it is appare,t t'at t'ere was reall! ,o trust receipt tra,sactio, t'at too0 place* Evide,tl!+ respo,de,t Corporatio, was re2uired to si., t'e trust receipt si(pl! to facilitate collectio, b! petitio,er of t'e loa, it 'ad e-te,ded to t'e for(er* Fi,all!+ we are ,ot co,vi,ced t'at respo,de,t Gre.or! T* Li( a,d 'is spouse s'ould be perso,all! liable u,der t'e sub7ect trust receipt* Petitio,er1s ar.u(e,t t'at respo,de,t Corporatio, a,d respo,de,t Li( a,d 'is spouse are o,e a,d t'e sa(e ca,,ot be sustai,ed* T'e tra,sactio,s sued upo, were clearl! e,tered i,to b! respo,de,t Li( i, 'is capacit! as E-ecutive >ice Preside,t of respo,de,t Corporatio,* 4e stress t'e 'or,boo0 law t'at corporate perso,alit! is a s'ield a.ai,st perso,al liabilit! of its officers* T'us+ we a.ree t'at respo,de,ts Gre.or! T* Li( a,d 'is spouse ca,,ot be (ade perso,all! liable si,ce respo,de,t Li( e,tered i,to a,d si.,ed t'e co,tract clearl! i, 'is official capacit! as E-ecutive >ice Preside,t* T'e perso,alit! of t'e corporatio, is separate a,d disti,ct fro( t'e perso,s co(posi,. it*iii Petitio, for Review is DE"IED*

;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST it co,te,ded t'at Corporatio, Re'abilitatio, pro'ibited suc'* !I. M SS v. DA AY ISSUE: ;* 4O" t'e rules o, corporate re'abilitatio, bar recover! of t'e SLOC* 8* 4O" SLOC is a .uara,t!* FACTS: 34SS .ra,ted 3A#"ILAD a 8<-!ear Co,cessio, A.ree(e,t to (a,a.e a,d repair e-isti,. 34SS water deliver! a,d sewera.e i, t'e 4est Ko,e Service Area As a co,cessio,are+ 3A#"ILAD u,dertoo0 to pa! co,cessio, fees %pa!(e,t for t'e ri.'t .ive, b! t'e .over,(e,t& o, dates a.reed upo, w'ic' co,sisted (ostl! of forei., loa,s of 34SS* 3A#"ILAD was re2uired u,der t'eir co,cessio, a.ree(e,t %SEC* DB& to put up a bo,d+ ba,0 .uara,tee or ot'er securit! acceptable to 34SS to secure its obli.atio,* 3A#"ILAD t'e, arra,.ed a :-!ear facilit! wit' a ,u(ber of forei., ba,0s led b! CITICORP I,t1l Ltd* for t'e issua,ce of irrevocable SLOC i, favor of 34SS for its full a,d pro(pt co(plia,ce* To be able to recover losses it alle.edl! i,curred a,d will be i,curri,. as a result of peso depreciatio, a.ai,st $S dollar+ 3A#"ILAD re2uested 34SS for a (ec'a,is(* 34SS de,ied t'e re2uest so 3A#"ILAD issued a Force 3a7eure "otice a,d u,ilaterall! suspe,ded t'e pa!(e,t of co,cessio, fees u,der t'eir a.ree(e,t* 3OA was t'e, e,tered i,to betwee, 34SS a,d 3A#"ILAD i, order to save t'e co,cessio, a.ree(e,t w'erei, it allowed 3A#"ILAD to recover its losses* ut a,ot'er Force 3a7eure "otice was filed b! 3A#"ILAD to w'ic' 34SS ca,,ot a.ree a,!(ore* It was said t'at peso depreciatio, caused 3A#"ILAD to file ,otice of earl! ter(i,atio, of t'eir a.ree(e,t* 34SS t'e, filed a ,otice to CITICORP t'at it will draw SBA3 o, t'e SLOC* ut at t'at ti(e+ 3A#"ILAD was curre,tl! u,der.oi,. re'abilitatio, so DIA"A A IGAIL 3* DIESTRO SECTIO" :-

HELD: First+ t'e clai( is ,ot o,e a.ai,st t'e debtor but a.ai,st a, e,tit! t'at respo,de,t 3a!,ilad 'as procured to a,swer for its ,o,-perfor(a,ce of certai, ter(s a,d co,ditio,s of t'e Co,cessio, A.ree(e,t+ particularl! t'e pa!(e,t of co,cessio, fees* Seco,dl!+ Sec* D %b& of Rule = of t'e I,teri( Rules does ,ot e,7oi, t'e e,force(e,t of all clai(s a.ai,st .uara,tors a,d sureties+ "#$ %&'( $)%s* +',-.s ,/,-&s$ /#,0,&$%0s ,&1 s#0*$-*s 2)% ,0* &%$ s%'-1,0-'( '-,"'* 2-$) $)* 1*"$%0. Respo,de,t 3a!,ilad1s clai( t'at t'e ba,0s are ,ot solidaril! liable wit' t'e debtor does ,ot fi,d support i, 7urisprude,ce* 4e 'eld i, ,eati Bank - Trust Co"pan! v. Court of ppeals; t'at t'e co,cept of .uara,tee vis%.%vis t'e co,cept of a, irrevocable letter of credit are i,co,siste,t wit' eac' ot'er* I, co,tracts of .uara,tee+ t'e .uara,tor1s obli.atio, is (erel! collateral a,d it arises o,l! upo, t'e default of t'e perso, pri(aril! liable* O, t'e ot'er 'a,d+ i, a, irrevocable letter of credit+ t'e ba,0 u,derta0es a pri(ar! obli.atio,* 4e 'ave also defi,ed a letter of credit as a, e,.a.e(e,t b! a ba,0 or ot'er perso, (ade at t'e re2uest of a custo(er t'at t'e issuer s'all 'o,or drafts or ot'er de(a,ds of pa!(e,t upo, co(plia,ce wit' t'e co,ditio,s specified i, t'e credit* Letters of credit are i, effect absolute
1

;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST u,derta0i,.s to pa! t'e (o,e! adva,ced or t'e a(ou,t for w'ic' credit is .ive, o, t'e fait' of t'e i,stru(e,t* T'e! are pri(ar! obli.atio,s a,d ,ot accessor! co,tracts a,d w'ile t'e! are securit! arra,.e(e,ts+ t'e! are ,ot co,verted t'ereb! i,to co,tracts of .uara,t!* 4'at disti,.uis'es letters of credit fro( ot'er accessor! co,tracts+ is t'e e,.a.e(e,t of t'e issui,. ba,0 to pa! t'e seller o,ce t'e draft a,d ot'er re2uired s'ippi,. docu(e,ts are

T'e pro'ibitio, u,der Sec D %b& of Rule = of t'e I,teri( Rules does ,ot appl! to 'erei, petitio,er as t'e pro'ibitio, is o, t'e e,force(e,t of clai(s a.ai,st .uara,tors or sureties of t'e debtors w'ose obli.atio,s are ,ot solidar! wit' t'e debtor* T'e participati,. ba,0s1 obli.atio, are solidar! wit' respo,de,t 3a!,ilad i, t'at it is a pri(ar!+ direct+ defi,ite a,d a, absolute u,derta0i,. to pa! a,d is ,ot co,ditio,ed o, t'e prior e-'austio, of t'e debtor1s assets* T'ese are t'e sa(e c'aracteristics of a suret! or solidar! obli.or* ei,. solidar!+ t'e clai(s a.ai,st t'e( ca, be pursued separatel! fro( a,d i,depe,de,tl! of t'e re'abilitatio, case+ as 'eld i, Traders /o!al Bank v. Court of ppealsD a,d reiterated i, Philippine Bloo"in$ 0ills# +nc. v. Court of ppeals+@ w'ere we said t'at propert! of t'e suret! ca,,ot be ta0e, i,to custod! b! t'e re'abilitatio, receiver %SEC& a,d said suret! ca, be sued separatel! to e,force 'is liabilit! as suret! for t'e debts or obli.atio,s of t'e debtor* T'e debts or obli.atio,s for w'ic' a suret! (a! be liable i,clude future debts+ a, a(ou,t w'ic' (a! ,ot be 0,ow, at t'e ti(e t'e suret! is .ive,*

prese,ted to it*8 T'e! are defi,ite u,derta0i,.s to pa! at si.'t o,ce t'e docu(e,ts stipulated t'erei, are prese,ted* 4e 'ave accepted+ i, ,eati Bank and Trust Co"pan! v. Court of ppeals: a,d Bank of "erica NT - S v. Court of ppeals+= to t'e e-te,t t'at t'e! are perti,e,t+ t'e applicatio, i, our 7urisdictio, of t'e i,ter,atio,al credit re.ulator! set of rules 0,ow, as t'e $,ifor( Custo(s a,d Practice for Docu(e,tar! Credits %$*C*P& issued b! t'e I,ter,atio,al C'a(ber of Co((erce+ w'ic' we said i, Bank of the Philippine +slands v. Ner!C was 7ustified u,der Art* 8 of t'e Code of Co((erce+ w'ic' statesF 5Acts of co((erce+ w'et'er t'ose w'o e-ecute t'e( be (erc'a,ts or ,ot+ a,d w'et'er specified i, t'is Code or ,ot s'ould be .over,ed b! t'e provisio,s co,tai,ed i, itE i, t'eir abse,ce+ b! t'e usa.es of co((erce .e,erall! observed i, eac' placeE a,d i, t'e abse,ce of bot' rules+ b! t'ose of t'e civil law*6
2

T'e ter(s of t'e Irrevocable Sta,db! Letter of Credit do ,ot s'ow t'at t'e obli.atio,s of t'e ba,0s are ,ot solidar! wit' t'ose of respo,de,t 3a!,ilad* O, t'e co,trar!+ it is issued at t'e re2uest of a,d for t'e accou,t of 3a!,ilad 4ater Services+ I,c*+ i, favor of t'e 3etropolita, 4aterwor0s a,d Sewera.e S!ste(+ as a bo,d for t'e full a,d pro(pt perfor(a,ce of t'e obli.atio,s b! t'e co,cessio,aire u,der t'e Co,cessio, A.ree(e,tA a,d 'erei, petitio,er is aut'ori9ed b! t'e ba,0s to draw o, it b! t'e si(ple act of deliveri,. to t'e a.e,t a writte,
6

DIA"A A IGAIL 3* DIESTRO

SECTIO" :-

;ST SE3ESTER A# 8<;:-8<;=

SPCL - LETTER OF CREDIT- CASE DIGEST certificatio, substa,tiall! i, t'e for( A,,e- 5 6 of t'e Letter of Credit* It provides furt'er i, Sec* D+ t'at for as lo,. as t'e Sta,db! Letter of Credit is valid a,d subsisti,.+ t'e a,0s s'all 'o,or a,! writte, Certificatio, (ade b! 34SS i, accorda,ce wit' Sec* 8+ of t'e Sta,db! Letter of Credit re.ardless of t'e date o, w'ic' t'e eve,t .ivi,. rise to suc' 4ritte, Certificatio, arose*B T'e public respo,de,t+ t'erefore+ e-ceeded 'is 7urisdictio,+ i, 'oldi,. t'at 'e was co(pete,t to act o, t'e obli.atio, of t'e ba,0s u,der t'e Letter of Credit u,der t'e ar.u(e,t t'at t'is was ,ot a solidar! obli.atio, wit' t'at of t'e debtor* ei,. a solidar! obli.atio,+ t'e letter of credit is e-cluded fro( t'e 7urisdictio, of t'e re'abilitatio, court a,d t'erefore i, e,7oi,i,. petitio,er fro( proceedi,. a.ai,st t'e SLOC to w'ic' it 'ad a clear ri.'t u,der t'e law a,d t'e ter(s of said SLOC* Petitio, for certiorari is GRA"TED*

DIA"A A IGAIL 3* DIESTRO

SECTIO" :-

;ST SE3ESTER A# 8<;:-8<;=

!II. TRANSFIELD PHILIPPINES INC. V. LUZON HYDRO CORP. FACTS: TRA"SFIELD a,d L$KO" J#DRO e,tered i,to a tur, 0e! co,tract* TRA"SFIELD is t'e co,tractor for @B (e.awatt '!dro electric power a,d .ive, t'e sole power a,d discretio, for t'e co,structio, of t'e pro7ect To secure t'e obli.atio, of TRA"SFIELD+ it ope,ed 8 SLOC fro( A"K A"O a,d S C i, favor of L$KO" J#DRO* ut later o,+ so(e circu(sta,ces preve,ted TRA"SFIELD to co(plete t'e pro7ect*

TRA"SFIELD re2uested L$KO" J#DRO for e-te,sio,s but it was de,ied* As TRA"SFIELD defaulted o, its obli.atio,+ L$KO" J#DRO served ,otice to TRA"SFIELD t'at it will .o after t'e securit! ba,0s* To preve,t t'is+ TRA"FIELD filed a, i,7u,ctio,* ut t'e TC ruled t'at L$KO" J#DRO was allowed to draw o, t'e securities for li2uidated da(a.es bei,. a, i,depe,de,t co,tract*

It furt'er ruled t'at ba,0s are (ere custodia, of t'e fu,ds a,d as suc' t'e! are obli.ated to tra,sfer it to t'e be,eficiar!* TRA"SFIELD appealed co,te,di,. t'at it is pre(ature for L$KO" J#DRO to draw a.ai,st SLOC because t'e issue is ,ot !et resolved wit' re.ard to its default* OTOJ+ L$KO" J#DRO averred t'at securities are i,depe,de,t fro( t'e (ai, co,tract betwee, t'e as s'ow, i, t'e face of t'e SLOCs* It provided t'at t'e ba,ls 'ave ,o respo,sibilit! to i,vesti.ate t'e aut'e,ticit! or accurac! of

t'e certificate of t'e declara,t1s capacit! or e,title(e,t to so certif!* ISSUES: 4O" L$KO" J#DRO (a! draw a.ai,st t'e SLOC re.ardless of t'e pe,di,. issue o, t'e (ai, co,tract* HELD: At t'e core of t'e prese,t co,trovers! is t'e applicabilit! of t'e 5i,depe,de,ce pri,ciple6 a,d 5fraud e-ceptio, rule6 i, letters of credit* T'us+ a discussio, of t'e ,ature a,d use of letters of credit+ also referred to si(pl! as 5credits+6 would provide a better perspective of t'e case*

 T'ere are t'ree si.,ifica,t differe,ces betwee, co((ercial a,d sta,db! credits* First+ co((ercial credits i,volve t'e pa!(e,t of (o,e! u,der a co,tract of sale* Suc' credits beco(e pa!able upo, t'e prese,tatio, b! t'e seller-be,eficiar! of docu(e,ts t'at s'ow 'e 'as ta0e, affir(ative steps to co(pl! wit' t'e sales a.ree(e,t* I, t'e sta,db! t!pe+ t'e credit is pa!able upo, certificatio, of a part!?s ,o,perfor(a,ce of t'e a.ree(e,t* T'e docu(e,ts t'at acco(pa,! t'e be,eficiar!?s draft te,d to s'ow t'at t'e applica,t 'as ,ot perfor(ed* T'e be,eficiar! of a co((ercial credit (ust de(o,strate b! docu(e,ts t'at 'e 'as perfor(ed 'is co,tract* T'e be,eficiar! of t'e sta,db! credit (ust certif! t'at 'is obli.or 'as ,ot perfor(ed t'e co,tract* L:8M T'us+ t'e e,.a.e(e,t of t'e issui,. ba,0 is to pa! t'e seller or be,eficiar! of t'e credit o,ce t'e draft a,d t'e re2uired docu(e,ts are prese,ted to it* T'e so-called 5i,depe,de,ce pri,ciple6 assures t'e seller or t'e be,eficiar! of pro(pt pa!(e,t i,depe,de,t of a,! breac' of t'e (ai, co,tract a,d precludes t'e issui,. ba,0 fro( deter(i,i,. w'et'er t'e (ai, co,tract is actuall! acco(plis'ed or ,ot* $,der t'is pri,ciple+ ba,0s assu(e ,o liabilit! or respo,sibilit! for t'e for(+ sufficie,c!+ accurac!+ .e,ui,e,ess+ falsificatio, or le.al effect of a,! docu(e,ts+ or for t'e .e,eral a,d/or particular co,ditio,s stipulated i, t'e docu(e,ts or superi(posed t'ereo,+ ,or do t'e! assu(e a,! liabilit! or respo,sibilit! for t'e descriptio,+ 2ua,tit!+ wei.'t+ 2ualit!+ co,ditio,+ pac0i,.+ deliver!+ value or e-iste,ce of t'e .oods represe,ted b! a,! docu(e,ts+ or for t'e .ood fait' or acts a,d/or o(issio,s+ solve,c!+ perfor(a,ce or sta,di,. of t'e co,si.,or+ t'e carriers+ or t'e i,surers of t'e .oods+ or a,! ot'er perso, w'o(soever* L:BM Give, t'e ,ature of letters of credit+ petitio,er1s ar.u(e,tQt'at it is o,l! t'e issui,. ba,0 t'at (a! i,vo0e t'e i,depe,de,ce pri,ciple o, letters of creditQdoes ,ot i(press t'is Court* To sa! t'at t'e i,depe,de,ce pri,ciple (a! o,l! be i,vo0ed b! t'e issui,. ba,0s would re,der ,u.ator! t'e purpose for w'ic' t'e letters of credit are used i, co((ercial tra,sactio,s* As it is+ t'e i,depe,de,ce doctri,e wor0s to t'e be,efit of bot' t'e issui,. ba,0 a,d t'e be,eficiar!* Letters of credit are e(plo!ed b! t'e parties desiri,. to e,ter i,to co((ercial tra,sactio,s+ ,ot for t'e be,efit of t'e issui,. ba,0 but (ai,l! for t'e be,efit of t'e parties to t'e ori.i,al tra,sactio,s* 4it' t'e letter of credit fro( t'e issui,. ba,0+ t'e part! w'o applied for a,d obtai,ed it (a! co,fide,tl! prese,t t'e letter of credit to t'e be,eficiar! as a securit! to co,vi,ce t'e be,eficiar! to e,ter i,to t'e busi,ess tra,sactio,* O, t'e ot'er 'a,d+ t'e ot'er part! to t'e busi,ess tra,sactio,+ i.e.+ t'e be,eficiar! of t'e letter of credit+ ca, be rest assured of bei,. e(powered to call o, t'e letter of credit as a securit! i, case t'e co((ercial tra,sactio, does ,ot pus' t'rou.'+ or t'e applica,t fails to perfor( 'is part of t'e tra,sactio,* It is for t'is reaso, t'at t'e part! w'o is e,titled to t'e proceeds of t'e letter of credit is appropriatel! called 5be,eficiar!*6 Petitio,er1s ar.u(e,t t'at a,! dispute (ust first be resolved b! t'e parties+ w'et'er t'rou.' ,e.otiatio,s or arbitratio,+ before t'e be,eficiar! is e,titled to call o, t'e letter of credit i, esse,ce would co,vert t'e letter of credit i,to a (ere .uara,tee* )urisprude,ce 'as laid dow, a clear disti,ctio, betwee, a letter of credit a,d a .uara,tee i, t'at t'e settle(e,t of a dispute betwee, t'e parties is ,ot a pre-re2uisite for t'e release of fu,ds u,der a letter of credit* I, ot'er words+ t'e ar.u(e,t is i,co(patible wit' t'e ver! ,ature of t'e letter of credit* If a letter

of credit is drawable o,l! after settle(e,t of t'e dispute o, t'e co,tract e,tered i,to b! t'e applica,t a,d t'e be,eficiar!+ t'ere would be ,o practical a,d be,eficial use for letters of credit i, co((ercial tra,sactio,s* "e-t+ petitio,er i,vo0es t'e 5fraud e-ceptio,6 pri,ciple* It avers t'at LJC1s call o, t'e Securities is wro,.ful because it fraudule,tl! (isreprese,ted to A"K a,0 a,d S C t'at t'ere is alread! a breac' i, t'e Tur,0e! Co,tract 0,owi,. full! well t'at t'is is !et to be deter(i,ed b! t'e arbitral tribu,als* It asserts t'at t'e 5fraud e-ceptio,6 e-ists w'e, t'e be,eficiar!+ for t'e purpose of drawi,. o, t'e credit+ fraudule,tl! prese,ts to t'e co,fir(i,. ba,0+ docu(e,ts t'at co,tai,+ e-pressl! or b! i(plicatio,+ (aterial represe,tatio,s of fact t'at to 'is 0,owled.e are u,true* I, suc' a situatio,+ petitio,er i,sists+ i,7u,ctio, is reco.,i9ed as a re(ed! available to it* Citi,. Dola,1s treatise o, letters of credit+ petitio,er ar.ues t'at t'e i,depe,de,ce pri,ciple is ,ot wit'out li(its a,d it is i(porta,t to fas'io, t'ose li(its i, li.'t of t'e pri,ciple1s purpose+ w'ic' is to serve t'e co((ercial fu,ctio, of t'e credit* If it does ,ot serve t'ose fu,ctio,s+ applicatio, of t'e pri,ciple is ,ot warra,ted+ a,d t'e co((o,law pri,ciples of co,tract s'ould appl!* It is wort'! of ,ote t'at t'e propriet! of LJC1s call o, t'e Securities is lar.el! i,tertwi,ed wit' t'e fact of default w'ic' is t'e self-sa(e issue pe,di,. resolutio, before t'e arbitral tribu,als* To be able to declare t'e call o, t'e Securities wro,.ful or fraudule,t+ it is i(perative to resolve+ a(o,. ot'ers+ w'et'er petitio,er was i, fact .uilt! of dela! i, t'e perfor(a,ce of its obli.atio,* $,fortu,atel! for petitio,er+ t'is Court is ,ot called upo, to rule upo, t'e issue of defaultQsuc' issue 'avi,. bee, sub(itted b! t'e parties to t'e 7urisdictio, of t'e arbitral tribu,als pursua,t to t'e ter(s e(bodied i, t'eir a.ree(e,t*L=@M HEREFORE+ t'e i,sta,t petitio, is DE"IED+ wit' costs a.ai,st petitio,er*

!III. BANK OF COMMERCE V SERRANO FACTS: >IA 3ODA as represe,ted b! SERRA"O obtai,ed a, e-port pac0i,. loa, fro( A"O OF CO33ERCE T'e loa, was secured b! a deed of assi.,(e,t over a, irrevocable tra,sferable letter of credit* Serra,o t'e, e-ecuted a pro(isor! ,ote i, favor of A"O OF CO33ERCE* >IA 3ODA ope,ed a, irrevocable L/C for t'e purc'ase a,d i(portatio, of fabric a,d te-tile porducts fro( ti.er ear fabric* A trust receipt was e-ecuted to secure t'e purc'ase $,der t'e trust receipt+ >IA 3ODA a.reed to 'old t'e .oods i, trust i, favor of SERRA"O as >IA 3ODA1s propert! to sell t'e sa(e for t'e latter1s accou,t* Later+ >IA 3ODA s'ipped t'e .oods covered b! t'e trust receipt to its co,si.,ee i( "ew )erse!+ $SA* T'e co,si.,ee t'e, se,t a, E-port Letter of Credit issued b! A"O OF "E4#ORO i, favor of A"O OF CO33ERCE*

 T'e REG1L OPERATIO"S OFFICER of OC si.,ed t'e e-port declaratio,s to s'ow co,se,t to t'e s'ip(e,ts A"O OF CO33ERCE de(a,ded >IA 3ODA to pa! t'e(* ut t'e latter refused* >IA 3ODA was c'ar.ed wit' estafa u,der Art* :;C RPC i, rel* to PD ;;C* TC fou,d Tererisita Serra,o .uilt! of estafa* S'e appealed a,d later ac2uitted $T bou,d b! t'e court to be liable wit' respect to t'e loa, secured b! a trust receipt* ISSUE: ;* 4JETJER RESPO"DE"T IS )OI"TL# A"D SE>ERALL# LIA LE 4ITJ >IA 3ODA $"DER TJE G$ARA"TEE CLA$SE OF LC "O* L CK-B=<<C;M %ETJI IT A& SEC$RED # TR$ST RECEIPT "O* LB=-8888;M %ETJI IT C&* ;8 8* 4JETJER TJE CO$RT OF APPEALS CO33ITTED A RE>ERSI LE ERROR I" DELETI"G TJE CI>IL LIA ILIT# OF RESPO"DE"T SERRA"O I" ITS DECISIO" HELD: Petitio,er co,te,ds t'at t'e Court of Appeals (ade a (a,ifestl! (ista0e, i,fere,ce fro( its fi,di,.s or a (isappre'e,sio, of facts a,d overloo0ed a vital piece of evide,ce o, record+ particularl!+ t'e Guara,tee Clause of t'e Letter of Credit secured b! t'e Trust Receipt* Petitio,er furt'er alle.es t'at t'e said Guara,tee Clause provides t'at t'e liabilit! of respo,de,t is 7oi,t a,d solidar!E 'e,ce+ s'e s'ould be 'eld liable o, t'e obli.atio,* A letter of credit is a separate docu(e,t fro( a trust receipt* 4'ile t'e trust receipt (a! 'ave bee, e-ecuted as a securit! o, t'e letter of credit+ still t'e two docu(e,ts i,volve differe,t u,derta0i,.s a,d obli.atio,s* A letter of credit is a, e,.a.e(e,t b! a ba,0 or ot'er perso, (ade at t'e re2uest of a custo(er t'at t'e issuer will 'o,or drafts or ot'er de(a,ds for pa!(e,t upo, co(plia,ce wit' t'e co,ditio,s specified i, t'e credit*

T'rou.' a letter of credit+ t'e ba,0 (erel! substitutes its ow, pro(ise to pa! for t'e pro(ise to pa! of o,e of its custo(ers w'o i, retur, pro(ises to pa! t'e ba,0 t'e a(ou,t of fu,ds (e,tio,ed i, t'e letter of credit plus credit or co((it(e,t fees (utuall! a.reed upo,*;=

! co,trast+ a trust receipt tra,sactio, is o,e w'ere t'e e,truster+ w'o 'olds a, absolute title or securit! i,terests over certai, .oods+ docu(e,ts or i,stru(e,ts+ released t'e sa(e to t'e e,trustee+ w'o e-ecutes a trust receipt bi,di,. 'i(self to 'old t'e .oods+ docu(e,ts or i,stru(e,ts i, trust for t'e e,truster a,d to sell or ot'erwise dispose of t'e .oods+ docu(e,ts a,d i,stru(e,ts wit' t'e obli.atio, to tur, over to t'e e,truster t'e proceeds t'ereof to t'e e-te,t of t'e a(ou,t owi,. to t'e e,truster+ or as appears i, t'e trust receipt+ or retur, t'e .oods+ docu(e,ts or i,stru(e,ts t'e(selves if t'e! are u,sold+ or ,ot ot'erwise disposed of+ i, accorda,ce wit' t'e ter(s a,d co,ditio,s specified i, t'e trust receipt* ;C

 Jowever+ t'e 2uestio, of t'e liabilit! of respo,de,t based o, t'e Guara,tee Clause of t'e Letter of Credit+ was ,ot raised eit'er at t'e trial court or before t'e Court of Appeals* A 2uestio, t'at was ,ever raised i, t'e courts below ca,,ot be allowed to be raised for t'e first ti(e o, appeal wit'out offe,di,. basic rules of fair pla!+ 7ustice a,d due process* Suc' a, issue was ,ot brou.'t to t'e fore eit'er i, t'e trial court or t'e appellate court+ a,d would 'ave bee, disre.arded b! t'e latter tribu,al for t'e reaso,s previousl! stated* 4it' (ore reaso,+ t'e sa(e does ,ot deserve co,sideratio, b! t'is Court*;D
O, t'e second issue+ t'e Court of Appeals 'eld t'at respo,de,t Serra,o ca,,ot be 'eld civill! liable u,der t'e trust receipt si,ce s'e was ,ot (ade perso,all! liable ,or was s'e a .uara,tor t'erei,* T'e parties stipulated duri,. t'e pre-trial t'at respo,de,t Serra,o e-ecuted t'e trust receipt i, represe,tatio, of >ia 3oda+ I,c*+ w'ic' 'as a separate perso,alit! fro( Serra,o+ a,d petitio,er OC failed to s'ow sufficie,t reaso, to 7ustif! t'e pierci,. of t'e veil of corporate fictio,* It t'us ruled t'at t'is was ,ot Serra,o1s perso,al obli.atio, but t'at of >ia 3oda a,d t'ere was ,o basis of fi,di,. 'er solidaril! liable wit' >ia 3oda* ;@ 4ort'! of (e,tio, at t'is poi,t is t'e Court of Appeals1 fi,di,. t'at t'ere was ,o (isappropriatio, or co,versio, b! t'e respo,de,t of t'e proceeds of t'e sale i, t'e .oods+ sub7ect of t'e trust receipt si,ce t'e proceeds were actuall! received b! petitio,er but t'e latter applied t'e sa(e to >ia 3oda1s ot'er obli.atio,s u,der t'e e-port pac0i,. loa,* It furt'er stated t'at suc' applicatio, of pa!(e,t to a,ot'er obli.atio, was do,e b! petitio,er o, its ow, a,d s'ould ,ot create a cri(i,al liabilit! o, t'e part of respo,de,t w'o did ,ot ta0e part ,or 'ad a,! 0,owled.e t'ereof* It is o, t'is pre(ise t'at t'e respo,de,t was ac2uitted of t'e cri(e c'ar.ed*;A I,cide,tall!+ petitio,er ur.ed t'is Court to review t'e factual fi,di,.s of t'e case due to co,tradictor! fi,di,.s of t'e trial court a,d t'e Court of Appeals arisi,. fro( (isappreciatio, of facts b! t'e Court of Appeals* Suc' plea (ust be re7ected*l1vvphi2.net It is a well establis'ed rule t'at i, a, appeal via certiorari+ o,l! 2uestio,s of law (a! be raised+;B a,d we fi,d petitio,er1s aver(e,ts i,sufficie,t to disre.ard t'is well-e,tre,c'ed rule* T'is Court does ,ot+ of itself+ auto(aticall! delve i,to t'e record of a case to deter(i,e t'e facts a,ew w'ere t'ere is disa.ree(e,t betwee, t'e fi,di,.s of fact b! t'e trial court a,d b! t'e Court of Appeals* 4'e, t'e disa.ree(e,t is (erel! o, t'e probative value of t'e evide,ce+ i*e*+ w'ic' is (ore credible of two versio,s+ we li(it our review to o,l! ascertai,i,. if t'e fi,di,.s of t'e Court of Appeals are supported b! t'e records* So lo,. as t'e fi,di,.s of t'e appellate court are co,siste,t wit' a,d ,ot palpabl! co,trar! to t'e evide,ce o, record+ we s'all decli,e to (a0e a review o, t'e probative value of suc' evide,ce* T'e fi,di,.s of fact of t'e Court of Appeals+ a,d ,ot t'ose of t'e trial court+ will be co,sidered fi,al a,d co,clusive+ eve, i, t'is Court*8< I, t'is case+ we fi,d ,o co.e,t reaso, to disturb t'e fore.oi,. factual fi,di,.s of t'e Court of Appeals*

At a,! rate+ petitio,er OC is ,ot precluded fro( fili,. a separate civil actio, a.ai,st t'e respo,sible part! w'ere t'e above(e,tio,ed issues could be properl! resolved or deter(i,ed* T'e issues raised b! 'erei, petitio,er i,volve a deter(i,atio, of facts a,d re2uire t'e ad(issio, a,d e-a(i,atio, of additio,al evide,ce for its resolutio,* T'at ca,,ot be do,e i, a petitio, for review o, certiorari b! (erel! appeali,. t'e civil aspect of a, ac2uittal i, a cri(i,al case*

HEREFORE+ t'e petitio, is DE"IED for lac0 of (erit*

!IV. LANDBANK V. MONET3S E!PORT FACTS: L P a,d 3O"ET e-ecuted a, E-port Pac0i,. Credit Li,e A.ree(e,t w'ereb! t'e latter is .ive, a credit li,e w'ic' was secured b! t'e proceeds of t'e e-port letters of credit+ t'e co,ti,ui,. .uara,tee of t'e sps* Ta.le+ a,d t'ird part! (ort.a.e b! 3e,di.oria* T'e credit li,e a.ree(e,t was re,ewed a,d a(e,ded several ti(es u,til it was i,creased to C3* Later 3O"ET co,ti,uousl! refused to pa! L P despite repeated de(a,ds* T'e loa, balloo,ed to ;;3 L P filed to t'e RTC a co(plai,t for su( of (o,e! wit' pra!er for preli(i,ar! attac'(e,t* 3O"ET a,d sps* Ta.le co,te,ded t'at L P failed a,d refused to collect t'e receivable so, t'eir E-port L/C a.ai,st 4is'bo,e Tradi,. Co* of Ji,. Oo,. i, t'e su( of S::OR 4JILE it (ade u,aut'ori9ed pa!(e,ts o, t'eir I(port L/C to eautili0e JO i, t'e a(ou,t of S:A3R w'ic' seriousl! da(a.ed t'e busi,ess i,terest of 3O"ET* ISSUES: 4O" t'e ba,0 s'ould be faulted for t'e lost of profits of t'e clie,t* HELD: Our ruli,. i, Bank of "erica# NT - S v. Court of ppeals +L8;M is perti,e,tF

4'at c'aracteri9es letters of credit+ as disti,.uis'ed fro( ot'er accessor! co,tracts+ is t'e e,.a.e(e,t of t'e issui,. ba,0 to pa! t'e seller o,ce t'e draft a,d t'e re2uired s'ippi,. docu(e,ts are prese,ted to it* I, tur,+ t'is arra,.e(e,t assures t'e seller of pro(pt pa!(e,t+ i,depe,de,t of a,! breac' of t'e (ai, sales co,tract*

! t'is so-called 5i,depe,de,ce pri,ciple+6 t'e ba,0 deter(i,es co(plia,ce wit' t'e letter of credit o,l! b! e-a(i,i,. t'e s'ippi,. docu(e,ts prese,ted

3oreover+ Article : of t'e $,ifor( Custo(s a,d Practice %$CP& for Docu(e,tar! Credits provides t'at credits+ b! t'eir ,ature+ are separate tra,sactio,s fro( t'e sales or ot'er co,tract%s& o, w'ic' t'e! (a! be based a,d ba,0s are i, ,o wa! co,cer,ed wit' or bou,d b! suc' co,tract%s&+ eve, if a,! refere,ce w'atsoever to suc' co,tract%s& is i,cluded i, t'e credit* Article ;C of t'e $CP statesF a,0s assu(e ,o liabilit! or respo,sibilit! for t'e for(+ sufficie,c!+ accurac!+ .e,ui,e,ess+ falsificatio, or le.al effect of a,! docu(e,ts+ or for t'e .e,eral a,d/or particular co,ditio,s stipulated i, t'e docu(e,ts or superi(posed t'ereo,E &%0 1% $)*( ,ss#.* ,&( '-,"-'-$( %0 0*s4%&s-"-'-$( 5%0 $)* 1*s+0-4$-%&, 2*-/)$, 6#,'-$(, +%&1-$-%&, 4,+7-&/, 1*'-v*0(, v,'#* %0 *8-s$*&+* %5 $)* /%%1s 0*40*s*&$*1 "( ,&( 1%+#.*&$s, or for t'e .ood fait' or acts a,d/or o(issio,s+ solve,c!+ perfor(a,ce or sta,di,. of t'e co,si.,or+ t'e carriers+ or t'e i,surers of t'e .oods+ or a,! ot'er perso, w'o(soever* %E(p'asis supplied& I, Transfield Philippines# +nc. v. 3u4on 5!dro Corporation# et al.+L88M we 'eld t'at t'e e,.a.e(e,t of t'e issui,. ba,0 is to pa! t'e seller or be,eficiar! of t'e credit o,ce t'e draft a,d t'e re2uired docu(e,ts are prese,ted to it* T'e so-called 5i,depe,de,ce pri,ciple6 assures t'e seller or t'e be,eficiar! of pro(pt pa!(e,t -&1*4*&1*&$ %5 ,&( "0*,+) %5 $)* .,-& +%&$0,+$ ,&1 40*+'#1*s $)* -ss#-&/ ",&7 50%. 1*$*0.-&-&/ 2)*$)*0 $)* .,-& +%&$0,+$ -s ,+$#,''( ,++%.4'-s)*1 %0 &%$. For+ if t'e letter of credit is drawable o,l! after t'e settle(e,t of a,! dispute o, t'e (ai, co,tract e,tered i,to b! t'e applica,t of t'e said letter of credit a,d t'e be,eficiar!+ t'e, t'ere would be ,o practical a,d be,eficial use for letters of credit i, co((ercial tra,sactio,s* Accordi,.l!+ we fi,d (erit i, t'e co,te,tio, of La,d a,0 t'at+ as t'e issui,. ba,0 i, t'e eautili0e tra,sactio, i,volvi,. a, i(port letter of credit+ it o,l! deals i, docu(e,ts a,d it is ,ot i,volved i, t'e co,tract betwee, t'e parties* T'e relatio,s'ip betwee, t'e be,eficiar! a,d t'e issuer of a letter of credit is ,ot strictl! co,tractual+ because bot' privit! a,d a (eeti,. of t'e (i,ds are lac0i,.* T'us+ upo, receipt b! La,d a,0 of t'e docu(e,ts of title w'ic' co,for( wit' w'at t'e letter of credit re2uires+ it is dut! bou,d to pa! t'e seller+ as it did i, t'is case* T'us+ ,o fault or acts of (is(a,a.e(e,t ca, be attributed to La,d a,0 relative to 3o,et1s i(port letter of credit* Its actio,s fi,d solid footi,. o, t'e le.al pri,ciples a,d 7urisprude,ce earlier discussed* Co,se2ue,tl!+ it was error for t'e trial court a,d for t'e Court of Appeals to .ra,t opportu,it! losses to t'e respo,de,ts o, t'is accou,t* O, t'e (atter+ 'owever+ of t'e 4is'bo,e tra,sactio, w'ere it is alle.ed b! respo,de,ts t'at petitio,er failed i, its dut! to protect its %3o,et1s& i,terest i, collecti,. t'e a(ou,t due to it fro( its custo(ers+ we fi,d t'at t'e trial court a,d t'e Court of Appeals co((itted ,o reversible error i, 'oldi,. La,d a,0 liable for opportu,it! losses* T'e trial court su((ari9ed t'e tra,sactio, i, t'is (a,,erF

A careful review of t'e records reveal t'at t'e trial court correctl! co,sidered La,d a,0 as t'e attor,e!-i,-fact of 3o,et wit' re.ard to its e-port tra,sactio,s wit' 4is'bo,e Tradi,. Co(pa,!* As t'e attor,e!-i,-fact of 3o,et i, tra,sactio,s i,volvi,. its e-port letters of credit+ suc' as t'e 4is'bo,e accou,t+ La,d a,0 s'ould 'ave e-ercised t'e re2uisite de.ree of dili.e,ce i, collecti,. t'e a(ou,t due to t'e for(er* T'e records of t'is case are bereft of evide,ce s'owi,. t'at La,d a,0 e-ercised t'e prude,ce (a,dated b! its co,tractual obli.atio,s to 3o,et* T'e failure of La,d a,0 to 7udiciousl! safe.uard t'e i,terest of 3o,et is ,ot wit'out a,! repercussio,s vis-U-vis t'e viabilit! of 3o,et as a busi,ess e,terprise* As correctl! observed b! t'e Court of AppealsF I, fi,e+ because of t'e ,o,-collectio, V defe,da,ts-appellees suffered fro( a lac0 of fi,a,cial resources sufficie,t to bu! ,ew (aterials* A,d si,ce t'e! also could ,o lo,.er draw o, t'eir e-isti,. credit li,e wit' La,dba,0+ t'e! could ,ot purc'ase (aterials to fill up t'e orders of t'eir custo(ers* ecause of t'is t'e busi,ess reputatio, of 3o,et1s suffered w'ic' 'aste,ed its decli,e* L8CM a(ou,t of $SS ;C+<<<*<< pa!able i, P'ilippi,e pesos at t'e official e-c'a,.e rate w'e, pa!(e,t is to be (ade* HEREFORE+ t'e i,sta,t petitio, is GRA"TED* T'e October B+ 8<<: decisio, a,d t'e )a,uar! 8<+ 8<<= resolutio, of t'e Court of Appeals i, CA-G*R* C> "o* C@=:D+ are 3ODIFIED i,sofar as t'e award of t'e cou,terclai( to t'e respo,de,ts is co,cer,ed* Accordi,.l!+ t'ere bei,. ,o basis to award opportu,it! costs to t'e respo,de,ts+ 3o,et1s E-port a,d 3a,ufacturi,. Corporatio, a,d t'e spouses+ >ice,te >* Ta.le+ Sr* a,d 3a* Co,suelo G* Ta.le+ relative to t'e eautili0e accou,t+ but fi,di,. .ood cause to sustai, t'e award of opportu,it! costs to t'e respo,de,ts o, accou,t of t'e failure of t'e petitio,er to dili.e,tl! perfor( its duties as t'e attor,e!-i,-fact of t'e respo,de,ts i, t'e 4is'bo,e Tradi,. Co(pa,! accou,t+ t'e a(ou,t of opportu,it! costs .ra,ted to t'e respo,de,ts+ is RED$CED to $SS;C+<<<*<< pa!able i, P'ilippi,e pesos at t'e official e-c'a,.e rate w'e, pa!(e,t is to be (ade*

ii

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