Professional Documents
Culture Documents
Banking Secrecy Law
Banking Secrecy Law
Banking Secrecy Law
IAC
FACTS:
August 8, 1962: Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho
Co., Ltd. of Japan for the importation of textile machineries under a 5-year deferred
payment plan
To effect the payment, PRMI applied for 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, the Bank of
Tokyo, Ltd.
Upon the arrival of the machineries, the Prudential Bank indorsed the shipping
documents to the PRMI which accepted delivery of the same.
The PRMI was able to take delivery of the textile machineries and installed the
same at its factory site
December 29, 1969: PRMI's factory was leased by Yupangco Cotton Mills for an
annual rental of P200K T
January 5, 1974: all the textile machineries in PRMI's factory were sold to AIC
Development Corporation for P300K
The PRMI's obligation from the letter of credit and the trust receipt remained unpaid
and unliquidated despite repeated demands
October 3, 1974: present action for the collection of the principal amount of
P956,384.95 was filed on against PRMI and Anacleto R. Chi.
RTC: PRMI ordered to pay for the 2 drafts which were accepted the 10 were not yet
accepted and for Chi it was dismissed
CA: Affirmed
letter of credit
Through a letter of credit, the bank merely substitutes its own promise to pay
for one of its customers who in return promises to pay the bank the amount of funds
mentioned in the letter of credit plus credit or commitment fees mutually agreed upon.
drawee (to whom drafts were presented for payment) = Prudential Bank
acceptance of a bill
a separate instrument
PRMI immediately became liable upon Prudential Bank's payment - essence of the
letter of credit issued by the Prudential Bank
trust receipt
banker takes the full title to the goods at the very beginning until the goods
are sold and the vendee is called upon to pay for them
In no other case is presentment for acceptance necessary in order to render any party to the
bill liable. Obviously then, sight drafts do not require presentment for acceptance.
ISSUE:
Whether or not a valid RE mortgage can be constituted on the building erected on the
belonging to another.
HELD:
A real estate mortgage can be constituted on the building erected on the land belonging to
another.
The inclusion of building distinct and separate from the land in the Civil Code can only mean
that the building itself is an immovable property.
While it is true that a mortgage of land necessarily includes in the absence of stipulation of
the improvements thereon, buildings, still a building in itself may be mortgaged by itself
apart from the land on which it is built. Such a mortgage would still be considered as a REM
for the building would still be considered as immovable property even if dealt with
separately and apart from the land.
The original mortgage on the building and right to occupancy of the land was executed
before the issuance of the sales patent and before the government was divested of title to
the land. Under the foregoing, it is evident that the mortgage executed by private
respondent on his own
building was a valid mortgage.
As to the second mortgage, it was done after the sales patent was issued and thus prohibits
pertinent provisions of the Public Land Act.
Bank of America NT & SA v Court of Appeals and Francisco et. al G.R. No. 105395
December 10, 1993
There would at least be three (3) parties: (a) the buyer, who procures the letter
of credit and obliges himself to reimburse the issuing bank upon receipts of the
documents of title; (b) the bank issuing the letter of credit, which undertakes to
pay the seller upon receipt of the draft and proper document of titles and to
surrender the documents to the buyer upon reimbursement; and, (c) the seller,
who in compliance with the contract of sale ships the goods to the buyer and
delivers the documents of title and draft to the issuing bank to recover payment.
Facts : Bank of America received an Irrevocable Letter of Credit issued by Bank of Ayudhya
for the Account of General Chemicals Ltd., Inc. for the sale of plastic ropes and agricultural
files. Under the letter of credit, Bank of America acted as an advising bank and Inter-Resin
Industrial Corp. (IR) acted as the beneficiary. Upon receipt of the letter advice, Inter- Resin
told Bank of America to confirm the letter of credit.
Notwithstanding such instruction, Bank of America failed to confirm the letter of credit. InterResin made a partial availment of the Letter of Credit after presentment of the required
documents to Bank of America. After confirmation of all the documents Bank of
America issued a check in favor of IR. BA advised Bank of Ayudhya of IRs availment under
the letter of credit and asked for the corresponding reimbursement. IR presented documents
for the second availment under the same letter of credit. However, BA stopped the
processing of such after they received a telex from Bank of Ayudhya delaring that the LC
fraudulent. BA sued IR for the recovery of the first LC payment.
The IR contended that Bank of America should have first checked the authenticity of the
letter of credit with bank of Ayudhya
Issue: Whether or not Bank of America may recover what it has paid under the letter of
credit to Inter-Resin
Held : May Bank of America then recover what it has paid under the letter of credit when the
corresponding draft
There would at least be three (3) parties: (a) the buyer, who procures the letter of credit and
obliges himself to reimburse the issuing bank upon receipts of the documents of title; (b) the
bank issuing the letter of credit, which undertakes to pay the seller upon receipt of the draft
and proper document of titles and to surrender the documents to the buyer upon
reimbursement; and, (c) the seller, who in compliance with the contract of sale ships the
goods to the buyer and delivers the documents of title and draft to the issuing bank to
recover payment.
The services of an advising (notifying) bank may be utilized to convey to the seller the
existence of the credit; or, of a confirming bank 16 which will lend credence to the letter of
credit issued by a lesser known issuing bank; or, of a paying bank, which undertakes to
encash the drafts drawn by the exporter. Further, instead of going to the place of the issuing
bank to claim payment, the buyer may approach another bank, termed the negotiating
bank, 18 to have the draft discounted.
Bank of America has acted independently as a negotiating
from the hardship of presenting the documents directly to
payment. As a negotiating bank, Bank of America has a right
bank and until reimbursement is obtained, Inter-Resin, as the
to assume a contingent liability thereon.
Furthermore, bringing the letter of credit to the attention of the seller is the primordial
obligation of an advising bank. The view that Bank of America should have first checked the
authenticity of the letter of credit with bank of Ayudhya, by using advanced mode of
business communications, before dispatching the same to Inter-Resin finds no real support.
Bank of the Philippine Islands v. De Reny Fabric Industries, Inc., 35 SCRA 253
(1970)
FACTS:-On four (4) diffierent occasions in 1961, the De Reny Fabric Industries, Inc., a
Philippine corporation, applied to theBank for four (4) irrevocable commercial letters of
credit to cover the purchase by the corporation of goodsdescribed in the covering L/C
applications as "dyestuffs of various colors" from its American supplier, the J.B.Distributing
Company.-All the applications of the corporation were approved, and the corresponding
Commercial L/C Agreements wereexecuted pursuant to banking procedures.-Pursuant to
banking regulations then in force, the corporation delivered to the Bank peso marginal
deposits aseach letter of credit was opened.-By virtue of the foregoing transactions, the
Bank issued irrevocable commercial letters of credit addressed to itscorrespondent banks in
the United States, with uniform instructions for them to notify the beneficiary thereof, the
JB.Distributing Company, that they have been authorized to negotiate the latter's sight
drafts up to the amountsmentioned therein, respectively, if accompanied, upon
presentation, by a full set of negotiable clean "on board"ocean bills of lading,
covering the merchandise appearing in the L/Cs, that is, dyestuffs
of various colors,Consequently, the J.B. Distributing Company drew upon, presented to and
negotiated with these banks, its sightdrafts covering the amounts of the merchandise
ostensibly being exported by it, together with clean bills of lading,and collected the full
value of the drafts up to the amounts appearing in the L/ Cs as above indicated.-These
correspondent banks then debited the account of the Bank of the Philippine Islands with
them up to the fullvalue of th drafts presented by the J.B. Distributing Company, thereafter,
endorsed and forwarded all documents tothe Bank of the Philippine Islands.-In the
In case of a notifying bank, the correspondent bank assumes no liability except to notify
and/or transmit to the beneficiary the existence of the letter of credit.
A negotiating bank, on the other hand, is a correspondent bank which buys or discounts a
draft under the letter of credit. Its liability is dependent upon the stage of the negotiation. If
before negotiation, it has no liability with respect to the seller but after negotiation, a
contractual relationship will then prevail between the negotiating bank and the seller.
In the case of a confirming bank, the correspondent bank assumes a direct obligation to the
seller and its liability is a primary one as if the correspondent bank itself had issued the
letter of credit.
In this case, the letter merely provided that the petitioner forward the enclosed original
credit to the beneficiary. (Records, Vol. I, p. 11) Considering the aforesaid instruction to the
petitioner by the issuing bank, the Security Pacific National Bank, it is indubitable that the
petitioner is only a notifying bank and not a confirming bank as ruled by the courts below.
A notifying bank is not a privy to the contract of sale between the buyer and the seller, its
relationship is only with that of the issuing bank and not with the beneficiary to whom he
assumes no liability. It follows therefore that when the petitioner refused to negotiate with
the private respondent, the latter has no cause of action against the petitioner for the
enforcement of his rights under the letter.
Since the Feati was only a notifying bank, its responsibility was solely to notify and/or
transmit the documentary of credit to the private respondent and its obligation ends there.
At the most, when the petitioner extended the loan to the private respondent, it assumed
the character of a negotiating bank. Even then, the petitioner will still not be liable, for a
negotiating bank before negotiation has no contractual relationship with the seller. Whether
therefore the petitioner is a notifying bank or a negotiating bank, it cannot be held liable.
Absent any definitive proof that it has confirmed the letter of credit or has actually
negotiated with Feati, the refusal by the petitioner to accept the tender of the private
respondent is justified.
Reliance Commodities, Inc. v. Daewoo Industrial Co., Ltd. G.R. No. L-100831
December 17, 1993
The failure of a buyer seasonably to furnish an agreed letter of credit is a breach
of he 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.
Facts: Reliance Commodities, Inc. (Reliance) and Daewoo Industrial Co Ltd (Daewoo) entered
into a contract of sale where Reliance undertook to ship and deliver to Daewoo 2,000 tons of
foundry pig iron. First contract was consummated and completed but Daewoo fell short of
135.655 metric tons. Second contract for 2,000 metric tons was also 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.
Because of the failure of Reliance to comply with its undertaking under the contract, Daewoo
was forced to sell the foundry pig irons to another buyer at a lower price. 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.
Daewoo 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.
Issue: Whether or not Reliance is liable for breach of contract by failing to obtain the letter of
credit
Held: Daewoo is liable for damages because the contract to deliver the goods were already
perfected. The opening of an L/C upon application of Reliance was not a condition precedent
for the birth of the obligation of Reliance to purchase foundry pig iron from Daewoo. As a
rule, the failure of to open the appropriate letter of credit did not prevent the birth of the
contract, and neither did such failure extinguish the contract.
In the instant case, 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. But the contract itself between Reliance and Daewoo had
already sprung into legal existence and was enforceable.
Thus the failure of a buyer seasonably to furnish an agreed letter of credit is a breach of he
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. Damages for
failure to open a commercial credit may, in appropriate cases, include the loss of profit
which the seller would reasonably have made had the transaction been carried out.
Once the credit is established, the seller ships the goods to the buyer and in the process
secures the required shipping documents or documents of title. To get paid, the seller
executes a draft and pays cash to the seller if it finds that the documents submitted by the
seller conform with what the letter of credit requires. The bank then obtains possession of
the documents upon paying the seller. The transaction is completed when the buyer
reimburses the issuing bank and acquires the documents entitling him to the goods. Under
this arrangement, the seller gets paid only if he delivers the documents of title over the
goods, while the goods only after reimbursing the bank.