Bank of America, NT vs.

Court of Appeals 228 SCRA 357 Facts of the Case Bank of America received by registered mail an irrevocable letter of credit purportedly issued by Bank of Ayudhya Samyek Branch, for the account of General Chemicals, Ltd., of Thailand in the amount of $2,782,000.00 to cover the sale of plastic ropes and agricultural files, with the latter as the advising bank and Inter-Resin Industrial Corporation as beneficiary. Subsequently, Bank of America notified Inter-Resin of the letter of credit as a confirmation but the latter refused for one of its employee explained to Inter-Resin that there was no need for confirmation because the letter of credit is genuine. After which, Inter-Resin twice sought for availment under the letter of credit. Hence, Bank of America issued P10, 219,093 as first availment upon being satisfied of the documents submitted by Inter-Resin. However, Bank of America stopped the processing of the second availment upon being informed by Bank of Ayudhya that the letter of credit was fraudulent. Further, upon conducting an examination of the vans sent by Inter-Resin, it found out that they contain not ropes but plastic strips, wrappers, rags and waste materials. Therefore, Bank of America sued Inter-Resin for recovery of the money it gave under the first availment, considering the letter of credit has been disowned by Bank of Ayudhya but the trial court ruled in favor of Inter-Resin which was affirmed by the Court of Appeals. Issue Whether or not under the Letter of Credit Bank of America has incurred any liability to the beneficiary thereof. Ruling The Honorable Supreme Court reversed the decision of the lower courts. It ruled that the crucial point of the issue that is largely dependent on the banks participation as advising or notifying bank, then it would not be liable, but as a confirming bank in this the case, it could be considered as having an incurred that liability. First, the court said that it cannot seriously be disputed that Bank of America has been an advising bank and not confirming bank and it is clearly evident on the provisions of the letter of credit, the petitioner banks letter of advice, its request for payment of advising fee, and the admission of Inter-Resin that it has paid the same. That the Bank of America has asked Inter-Resin to submit documents required by the letter of credit and eventually has paid the proceeds thereof. Hence, it does not obviously makes it as a confirming bank. Second, as an advising or notifying bank the Bank of America did not incur any obligation more than just notifying Inter-Resin of the letter of credit issued in its favor, let alone to confirm the letter of credit. As such, bringing the letter of credit to the attention of the seller is the

primordial obligation of an advising bank. The Bank of America should have first checked the authenticity of the letter of credit with Bank of Ayudhya before it dispatch the same to the InterResin Company. Third, as an advising bank, Bank of America is bound only to check the apparent authenticity of the letter of credit, which it did. Lastly, the Supreme Court noted that the additional ground raised by Bank of America, i.e. that Inter-Resin sent waste instead of its products, is really of no consequence. In the operation of a letter of credit, the involved banks deal only with documents and not on goods described in those documents.

Keng Hua Paper Products vs. Court of Appeals 286 SCRA 257 Facts of the Case Sea-Land Service, a shipping company, is a foreign corporation licensed to do business in thePhilippines. On 29 June 1982, SeaLand received at its Hong Kong terminal a sealed container, ContainerSEAU 67523, containing 76 bales of unsorted waste paper for shipment to Keng Hua Paper Products, Co. in Manila. A bill of lading to cover that shipment was issued by Sea-Land. On 9 July 1982, the shipment was discharged at the Manila International Container Port and notices of arrival were transmitted to Keng Hua but the latter failed to discharge the shipment from the container during the free time period or grace period. The said shipment remained inside the Sea-Lands container from the moment the free time period expired on 29July 1982 until the time when the shipment was unloaded from the container on 22 November 1983 for a total of 481 days. However, during that period, the unsorted waste paper accrued demurrage charges. Within the same period, letters demanding payment were sent by Sea-Land to Keng Hua who, however, refused to settle its obligation which eventually amounted to P67, 340.00. Consequently, numerous demands were made on Keng Hua but the obligation remained unpaid. Thereafter, Sea Land commenced the civil action for collection and damages. As such, the Regional Trial Court found Keng Hua liablefor demurrage, attorneys fees and expenses of litigation. The latter appealed to the Court of Appeals, which denied the appeal and affirmed the lower courts decision. In a subsequent resolution, it also denied Keng Huas motion for reconsideration. Hence, the petition for review. Issue 1. Whether or not petitioner had accepted the bill of lading; 2. Whether or not the award of the sum of P67,340.00 to private respondent was proper; and 3. Whether or not the award of legal interest from the date of private respondents extrajudicial demand was proper. Ruling On the first issue, the Honorable Supreme Court agreed with the decision of the lower courts as to the validity of the bill of lading. The court reiterated that petitioner accepted the documents when it did not immediately object to or dissent from any term or stipulation to the bill of lading given by the private respondent. Consequently, failure of Ken Hua to notify private respondent of immediately and the lapsed of six months tantamount to the acceptance of the bill of lading. Thus, there was a valid and perfected contract between the shipper Ho Kee), the consignee (Petitioner Keng Hua), and the carrier (Private Respondent Sea-Land) under the Bill of Lading Law.

Second, the court held petitioner liable for the sum of P67, 340.00 for demurrage charges when the latter failed to pay its obligation upon several demands. The court reiterated that the contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the contract of sale between the seller and the buyer, and the contract for the issuance of a letter of credit between the buyer and the issuing bank. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in the bill of lading cannot negate petitioners obligation to private respondent arising from the contract of transportation and his failure to deliver the goods charges him for demurrage according to law. Lastly, the Supreme Court believes that petitioner is correct in assailing that private respondent is not entitled to interest from the date of their extrajudicial demands. The court cited Art. 1169 of the New Civil Code which provides that: When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made. The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. Finally, the court affirmed the assailed decision with the modification that legal interest of 6% per annum shall be computed from 28 September 1990 until its payment before finality of judgment. The rate of interest shall be adjusted to 12% annum, computed from the time said judgment became final and executory until satisfaction. the full per full

Reliance Commodities, Inc. v. Daewoo Industrial Co., Ltd. 228 SCRA 545 Facts of the Case Reliance Commodities, Inc. and Daewoo entered into a contract of sale where latter undertook to ship and deliver to former several tons of foundry pig iron. The first contract was consummated and completed but Daewoo fell short of 135.655 metric tons and the second contract for 2,000 metric tons was then perfected. However, Reliances application for a letter of credit was denied by the China Banking Corporation, and it was shown later that the reason for this is that it has exceeded its foreign exchange allocation. For the reason, Reliance failed to comply with its undertaking under the contract and Daewoo was forced to sell the foundry pig irons to another buyer at a lower price. Consequently, Reliance filed an action for damages against Daewoo for the recovery of P226,370.48 representing the value of the short delivery of 135.655 metric tons of foundry pig iron under the first contract. In response, the former filed a counterclaim, contending that Reliance was guilty of breach of contract when it failed to open a letter of credit as required in the second contract. After which, the Regional Trial court ruled that Reliance is entitled to short delivery price and ordered Daewoo to pay the amount. However, it also held that Reliance is liable for breach of contract for its failure to open a letter of credit. Thus, it also awarded damages to Daewoo. Later, the Court of Appeals denied the appeal of Reliance. Hence, this petition. Issue Whether or not the failure of an importer (Reliance) to open a letter of credit on the date agreed upon makes him liable to the exporter (Daewoo) for damages. Ruling The Honorable Supreme Court affirmed the decision of the lower courts. The court agrees with the Court of Appeals that Reliance and Daewoo had a perfected contract. The failure of Reliance to open the appropriate letter of credit did not prevent the birth of the contract, and neither did such failure extinguish the contract. Subsequently, the opening of the letter of credit in favor of Daewoo was an obligation of Reliance and the performance of that obligation by Reliance was a condition for enforcement of the reciprocal obligation of Daewoo to ship the subject matter of the contract the foundry pig iron to Reliance. As such, the contract itself between Reliance and Daewoo had already sprung into legal existence and was enforceable. The letter of credit provided for in that contract was the mode or mechanism by which payment was to be effected by Reliance of the price of the pig iron. The court believes that the failure of a buyer seasonably to furnish an agreed letter of credit is a breach of the contract

between buyer and seller. Where the buyer fails to open a letter of credit as stipulated, the seller or exporter is entitled to claim damages for such breach. Finally, damages for failure to open a commercial credit may, in appropriate cases, include the loss of profit which the seller would seasonably have made when the transaction was carried out.

PRUDENTIAL BANK vs. INTERMEDIATE APPELLATE COURT 216 SCRA 257 Facts of the Case Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile machineries under a five-year deferred payment plan. To effect payment for said machineries, Philippine Rayon Mills opened a commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho. Against this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the Prudential Bank through its correspondent in Japan. Two of these drafts were accepted by Philippine Rayon Mills while the others were not. Subsequently, petitioner instituted an action for the recovery of the sum of money it paid to Nissho as Philippine Rayon Mills was not able to pay its obligations arising from the letter of credit. Then, respondent court ruled that with regard to the ten drafts which were not presented and accepted, no valid demand for payment can be made. However, petitioner claims that the drafts were sight drafts which did not require presentment for acceptance to Philippine Rayon. Hence, this petition. Issue Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon liable thereon. Ruling The Honorable Supreme Court granted the petition with costs against private respondents. The court reiterated that the drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. As such, there was in fact no need for acceptance as the issued drafts are sight drafts. Subsequently, presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). The said section provides that presentment for acceptance must be made: (a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the maturity of the instrument; or (b) Where the bill expressly stipulates that it shall be presented for acceptance; or (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.

In no other case is presentment for acceptance necessary in order to render any party to the bill liable. Clearly, the sight drafts do not require presentment for acceptance. Thus, Philippine Rayon is not liable.

CHARLES LEE, et. al vs. COURT OF APPEALS 375 SCRA 579 Facts of the Case Petitioner as the President and Board of Directors of MICO obtained a loan from PBCom secured by a letter of credit either foreign or local transactions wherein petitioners are jointly and severally guarantees to the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts, and other obligations of every kind and nature for which the latter may be held liable and accountable by PBCom upon demand. In all the transactions involving foreign letters of credit, PBCom turned over to MICO the necessary documents such as the bills of lading and commercial invoices to enable the latter to withdraw the goods and maintain their business. However, MICO failed to pay the obligations incurred despite repeated demands by private respondent and foreclosing all real estate mortgages in a public auction. PBCom then demanded the settlement of interests and charges upon filing their complaint in the Regional Trial Court. Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed by respondent PBCom, and alleged that MICO was not granted the alleged loans and neither did it receive the proceeds of the aforesaid loans as such the corresponding real estate mortgage and the surety agreements signed concededly by the petitioners-sureties are null and void. Consequently, the trial court gave credence to the testimonies of herein petitioners and dismissed the complaint filed by PBCom. Likewise it declared the real estate mortgage and its foreclosure null and void. On the other hand the Court of Appeals reversed the ruling of the trial court, saying that the latter committed an erroneous application and appreciation of the rules governing the burden of proof. Citing Section 24 of the Negotiable Instruments Law which provides that: Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party thereto for value. Hence, this petition. Issue Whether or not the proceeds of the loans and letters of credit transactions are considered to be a Negotiable Instrument Ruling The Honorable Supreme Court affirmed the Court os Appeals decision with cost against the petitioner. The Court laid down Section 24 of the NIL which provides that every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person

whose signature appears thereon to have become a party for value thus, the negotiable instrument was given or indorsed for sufficient consideration. In addition, Letters of credit and trust receipts are, however, not negotiable instruments. But drafts issued in connection with letters of credit are negotiable instruments. Finally, the documents presented by PBCom is not a Negotiable Instrument, however, the drafts drawn in connection with the letters of credit have sufficient consideration which is accepted by the NIL law.