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Seller/ exporter/ beneficiary – one who sells the goods to the buyer, and
who delivers the draft and documents to the issuing bank to recover
A. DEFINITION/CONCEPT payment (Bank of America NT & SA v. CA)


-Letter issued
-by one merchant to another
-or for the purpose of attending to a commercial transaction E. BASIC PRINCIPLES OF LETTER OF CREDIT

1. Doctrine of Independence
- A letter accommodation is an entirely distinct and separate agreement.
It is not supposed to be affected by the main contract upon which it
2. Fraud exception principle
A financial device (mode of payment) developed as a convenient and relatively - The fraud exception exists when the beneficiary, for the purpose of
safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable drawing on the credit, fraudulently presents to the confirming bank,
interests of a seller, who refuses to part with his goods before he is paid, and a documents that contain, expressly or by implication, material
buyer, who wants to have control of the goods before paying. (Bank of America representations of fact that to his knowledge are untrue.
NT. & SA v. CA)
3. Doctrine of strict compliance
- The Issuing Bank or the Confirming Bank, as the case may be, must
examine the tender documents (including shipping documents) and
must make sure that the terms and conditions of the Letter of Credit are
strictly complied with. There is no discretion on the part of the bank to
1. Applicant/ buyer/ importer – one who purchases the goods, procures the
waive any requirement. The tender documents must not only be
LoC, and obliges himself to reimburse the issuing bank upon receipt of the
complete but they must on their faces be in compliance with the terms
documents of title.
of the Credit. Documents that are not stipulated as tender documents
will not be examined.
2. Issuing/ opening bank – one which, whether a paying bank or not, issues the
LoC, and undertakes to pay the seller upon receipt of the draft and proper
documents of title from the seller to surrender them to the buyer upon
reimbursement. II. WAREHOUSE RECEIPTS LAW (Act No. 2137)
It is a written acknowledgment by a warehouseman or agent that he has As to effect of Null and void Valid, but enforceable
received and holds certain goods therein described in his warehouse for deliberate alteration only in accordance
the person to whom it is issued. WR is a document of title to goods. with its original tenor
As to conversion from Originally bearer Converted to an order
Functions: (CRD) bearer to order instrument will always WR if specially
1. It is a Contract – simple contract evidencing the underlying be such endorsed
contract of deposit or of carriage; As to significance of May obtain a better Obtains only the title
holder in due course title which the party
2. Evidence of Receipt of goods; and
negotiating had over
3. Represents the goods and therefore operates as transferable
the goods.
Document of title that carries with it control over the goods
4. Rights of the person to whom WR is negotiated (holder)
1. To whom delivered
1. Title to the goods of the person negotiating the receipt and title of the
a. Person lawfully entitled to possession of goods or his agent (person to
person to whose order the goods were to be delivered;
whom a competent court has ordered delivery of goods; attaching
2. Direct obligation of the warehouseman to hold possession of the goods
creditor; purchaser)
for him, as if the warehouseman directly contracted with him
b. Person entitled to delivery under a non-negotiable receipt or with
written authority; or Rights of the transferee:
c. Person in possession of a negotiable receipt
1. Title of the goods, as against the transferor;
2. Right to notify the warehouseman of the transfer and acquire the direct
2. Kinds
obligation of the warehouseman to hold the goods for him
a) Negotiable – a receipt in which it is stated that the goods received will be
delivered to the bearer or to the order of any person named in such
receipt is a negotiable receipt C. Duties of a warehouseman (IT D NI)
b) Non-negotiable – a receipt in which it is stated that the goods received
a. To issue a WR in the required form for the goods received;
will be delivered to the deposit or to any other specified person is a non-
b. To take care of the goods deposited with ordinary and reasonable
negotiable receipt.
c. To deliver the goods to the person lawfully entitled;
3. Distinctions between a negotiable instrument and a negotiable warehouse d. Not to commingle the goods deposited, unless goods are fungible and of
receipt: the same kind and grade, giving rise to co-ownership over commingled
N.I NWR mass;
As to subject Money Merchandise e. To insure the goods in proper circumstances.
As to object of value Instrument itself Goods deposited
As to liability of Secondary (NIL) None (for failure to
intermediate parties deliver the goods)
D. Warehouseman’s Lien

1. All lawful charges for storage and preservation of the goods

2. All lawful claims for money advanced, interest, insurance, transportation,

labor, weighing coopering, and other charges and expenses in relation to such
goods; and

3. all reasonable charges and expenses for notice and advertisement of the sale,
and the sale of goods