Professional Documents
Culture Documents
SPCL - Letters of Credit CD Incomplete
SPCL - Letters of Credit CD Incomplete
CA
III. TOPIC:
Special Commercial Law - Letters of Credit
IV. STATEMENT OF 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. Inter-Resin 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 Inter-Resin Industrial Corporation. Bank of America
advised the Bank of Ayudhya of Inter-Resins availment under the letter of credit and asked for the corresponding
reimbursement. Inter-Resin presented documents for the second availment under the same letter of credit. However,
Bank of America stopped the processing of such after they received a telex from Bank of Ayudhya declaring that the
Letter of Credit is fraudulent. Bank of America sued Inter-Resin for the recovery of the first Letter of Credit payment.
V. STATEMENT OF THE CASE:
Bank of America sued Inter-Resin for the recovery of P10,219,093.20, the peso equivalent of the draft for
US$1,320,600.00 on the partial availment of the now disowned letter of credit. On the other hand, Inter-Resin claimed
that not only was it entitled to retain P10,219,093.20 on its first shipment but also to the balance US$1,461,400.00
covering the second shipment.
VI. ISSUE:
1. Whether it has warranted the genuineness and authenticity of the letter of credit and, corollarily, whether it
has acted merely as an advising bank or as a confirming bank.
2. Following the dishonor of the letter of credit by Bank of Ayudhya, whether Bank of America may recover
against Inter-Resin under the draft executed in its partial availment of the letter of credit.
VII. RULING:
1. It cannot seriously be disputed, looking at this case, that Bank of America has, in fact, only been an
advising, not confirming, bank, and this much is clearly evident, among other things, by the provisions of the letter
of credit itself, the petitioner bank's letter of advice, its request for payment of advising fee, and the admission of
Inter-Resin that it has paid the same. That Bank of America has asked Inter-Resin to submit documents required by the
letter of credit and eventually has paid the proceeds thereof, did not obviously make it a confirming bank. The fact,
too, that the draft required by the letter of credit is to be drawn under the account of General Chemicals (buyer) only
means the same had to be presented to Bank of Ayudhya (issuing bank) for payment. It may be significant to recall
that the letter of credit is an engagement of the issuing bank, not the advising bank, to pay the draft.
2. Yes. This kind of transaction is what is commonly referred to as a discounting arrangement. This time, Bank
of America has acted independently as a negotiating bank, thus saving Inter-Resin from the hardship of presenting the
documents directly to Bank of Ayudhya to recover payment. (Inter-Resin, of course, could have chosen other banks
with which to negotiate the draft and the documents.) As a negotiating bank, Bank of America has a right to recourse
against the issuer bank and until reimbursement is obtained, Inter-Resin, as the drawer of the draft, continues to
assume a contingent liability thereon.
While bank of America has indeed failed to allege material facts in its complaint that might have likewise
warranted the application of the Negotiable Instruments Law and possible then allowed it to even go after the
indorsers of the draft, this failure, 32/ nonetheless, does not preclude petitioner bank's right (as negotiating bank) of
recovery from Inter-Resin itself. Inter-Resin admits having received P10,219,093.20 from bank of America on the letter
of credit and in having executed the corresponding draft. The payment to Inter-Resin has given, as aforesaid, Bank of
America the right of reimbursement from the issuing bank, Bank of Ayudhya which, in turn, would then seek
indemnification from the buyer (the General Chemicals of Thailand). Since Bank of Ayudhya disowned the letter of
credit, however, Bank of America may now turn to Inter-Resin for restitution.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial Corporation is ordered to refund
to petitioner Bank of America NT & SA the amount of P10,219,093.20 with legal interest from the filing of the
complaint until fully paid.
VI. ISSUE:
Whether or not the petitioner is to be held liable under the letter of credit despite non-compliance by the beneficiary
with the terms thereof.
VII. RULING:
It is a settled rule in commercial transactions involving letters of credit that the documents tendered must strictly
conform to the terms of the letter of credit. The tender of documents by the beneficiary (seller) must include all
documents required by the letter. A correspondent bank which departs from what has been stipulated under the letter
of credit, as when it accepts a faulty tender, acts on its own risks and it may not thereafter be able to recover from the
buyer or the issuing bank, as the case may be, the money thus paid to the beneficiary Thus the rule of strict
compliance.
Under the provisions of the U.C.P., the bank may only negotiate, accept or pay, if the documents tendered to it are on
their face in accordance with the terms and conditions of the documentary credit. And since a correspondent bank, like
the petitioner, principally deals only with documents, the absence of any document required in the documentary credit
justifies the refusal by the correspondent bank to negotiate, accept or pay the beneficiary, as it is not its obligation to
look beyond the documents. It merely has to rely on the completeness of the documents tendered by the beneficiary.
In regard to the ruling of the lower court and affirmed by the Court of Appeals that the petitioner is not a notifying
bank but a confirming bank, we find the same erroneous. In this case, the letter merely provided that the petitioner
"forward the enclosed original credit to the beneficiary. 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. Since the petitioner 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. xxx
As a mere notifying bank, not only does the petitioner not have any contractual relationship with the buyer, it has also
nothing to do with the contract between the issuing bank and the buyer regarding the issuance of the letter of credit.
Finally, even if we assume that the petitioner is a confirming bank, the petitioner cannot be forced to pay the amount
under the letter. As we have previously explained, there was a failure on the part of the private respondent to comply
with the terms of the letter of credit.
WHEREFORE, the COURT RESOLVED to GRANT the petition and hereby NULLIFIES and SETS ASIDE the decision of the
Court of Appeals dated June 29, 1990. The amended complaint in Civil Case No. 15121 is DISMISSED.
SO ORDERED.
Whether or Not the bank is liable for the loss suffered by defendants-appellants on account of the violation
by their vendor of its prestation
VII. RULING:
1. Even without the stipulation recited above, the appellants cannot shift the burden of loss to the Bank on account of
the violation by their vendor of its prestation. It was uncontrovertibly proven by the Bank during the trial below that
banks, in providing financing in international business transactions such as those entered into by the appellants, do
not deal with the property to be exported or shipped to the importer, but deal only with documents. The existence of a
custom in international banking and financing circles negating any duty on the part of a bank to verify whether what
has been described in letters of credits or drafts or shipping documents actually tallies with what was loaded aboard
ship, having been positively proven as a fact, the appellants are bound by this established usage. They were, after all,
the ones who tapped the facilities afforded by the Bank in order to engage in international business.
Under the terms of their Commercial Letter of Credit Agreements with the Bank, the appellants agreed that the Bank
shall not be responsible for the existence, character, quality, quantity, conditions, packing, value, or delivery of the
property purporting to be represented by documents; for any difference in character, quality, quantity, condition, or
value of the property from that expressed in documents, or for partial or incomplete shipment, or failure or omission
to ship any or all of the property referred to in the Credit, as well as for any deviation from instructions, delay,
default or fraud by the shipper or anyone else in connection with the property the shippers or vendors and ourselves
[purchasers] or any of us. Having agreed to these terms, the appellants have, therefore, no recourse but to comply
with their covenant.
VI.ISSUE: Whether or not presentment for acceptance was needed in order for PRMI to be liable under the draft.
VII. RULING:
Presentment for acceptance is defined an the production of a bill of exchange to a drawee for acceptance. Acceptance,
however, was not even necessary in the first place because the drafts which were eventually issued were sight drafts.
Even if these were not sight drafts, thereby necessitating acceptance, it would be the Bank (Bank of America) and
not Philippine Rayon which had to accept the same for the latter was not the drawee.
The trial court and the public respondent, therefore, erred in ruling that presentment for acceptance was an
indispensable requisite for Philippine Rayons liability on the drafts to attach. Contrary to both courts pronouncements,
Philippine Rayon immediately became liable upon Bank of Americas payment on the letter of credit. Such is the
essence of the letter of credit issued by the petitioner. A different conclusion would violate the principle upon which
commercial letters of credit are founded because in such a case, both the beneficiary and the issuer, Nissho Company
Ltd. and the petitioner, respectively, would be placed at the mercy of Philippine Rayon even if the latter had already
received the imported machinery and the petitioner had fully paid for it.
In fact, there was no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is
necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL).
In the instant case then, the drawee was necessarily the herein the Bank of America. It was to the latter that the drafts
were presented for payment.
Drafts drawn by the beneficiary need not be presented to the applicant for acceptance before the issuing bank can see
k reimbursement. Once the issuing bank has paid the beneficiary after the latters compliance with
the terms of the letter of credit, the issuing bank becomes entitled to reimbursement.
(Prudential Bank Trust Company vs. IAC, 216 SCRA 257 (1992))
Serrano was charged with the crime of estafa under Article 315 (b) of the Revised Penal Code in relation to
Presidential Decree No. 115. The Trial Court rendered a judgment in favor of BOC finding Serrano guilty of the crime
charged and order to pay civil liability to the bank. Respondent appealed to the Court of Appeals, the latter reversed
the decision of the lower court. Hence, this review;
VI. ISSUE:
Whether Respondent is jointly and severally liable with Via Moda under the guarantee clause of the Letter of
Credit secured by Trust Receipt
VII. RULING:
No.
Serrano cannot be held civilly liable under the trust receipt since she was not made personally liable nor was
she a guarantor therein. The parties stipulated during the pre-trial that respondent Serrano executed the trust receipt
in representation of Via Moda, Inc., which has a separate personality from Serrano, and petitioner BOC failed to show
sufficient reason to justify the piercing of the veil of corporate fiction. It thus ruled that this was not Serranos personal
obligation but that of Via Moda and there was no basis of finding her solidarily liable with Via Moda.
A letter of credit is a separate document from a trust receipt. While the trust receipt may have been executed
as a security on the letter of credit, still the two documents involve different undertakings and obligations. A letter of
credit is an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts
or other demands for payment upon compliance with the conditions specified in the credit. Through a letter of credit,
the bank merely substitutes its own promise to pay for the promise to pay of 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. By contrast, a trust receipt transaction is one where the entruster, who holds an absolute title
or security interests over certain goods, documents or instruments, released the same to the entrustee, who executes
a trust receipt binding himself to hold the goods, documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents and instruments with the obligation to turn over to the entruster the
proceeds thereof to the extent of the amount owing to the entruster, or as appears in the trust receipt, or return the
goods, documents or instruments themselves if they are unsold, or not otherwise disposed of, in accordance with the
terms and conditions specified in the trust receipt.
On August 1, 1980, pursuant to the July 31 contract, Reliance applied for a letter of credit in favor of Daewoo
amounting to US$380,600 with the China Banking Corporation. Said application was endorsed to Iron and Steel
authority which was however denied. Reliance was asked to submit purchase orders from end-users to support its
application for the L/C. Reliance however, was only able to raise 900 purchase orders. Daewoo rejected the proposed
L/C because the covered quantity fell short of the contracted tonnage. Daewoo in turn was forced to sell the foundry
pig iron at a lower price to mitigate losses.
VI. Issue:
WON the failure of the importer to open a letter of credit on the date agreed upon makes him liable to the exporter for
damages.
VII. Ruling: Yes. The opening of the L/C is not a condition precedent for the birth of the obligation of Reliance to
purchase foundry pig iron from Daewoo. In this case, the parties have reached a meeting of the minds with regard to
the subject matter of the contract, the price thereof and other provisions. The failure of Reliance to open, the
appropriate L/C did not prevent the birth of that contract, and neither did such failure extinguish that contract. The
opening of the L/C in favor of Daewoo was an obligation of Reliance and the performance of that obligation by Reliance
was a condition of 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.
VIII. Dispositive Portion:
WHEREFORE, in view of the foregoing, the Petition for Review is hereby DENIED for lack of merit and the
decision of the Court of Appeals dated 8 February 1991 is hereby AFFIRMED. Costs against petitioner.
Universal Motors filed a formal claim for damages in the amount of P643,963.84 against Westwind, Asian
Terminal Inc. (ATI) and R.F. Revilla Customs Brokerage, Inc. Such demand remained unheeded; it sought reparation
from and was compensated in the sum of P633,957.15 by Philam. Accordingly, Universal Motors issued a Subrogation
Receipt in favor of Philam.
VI. ISSUE:
Whether or not Philam may claim against Westwind and ATI as a subrogee
VII. RULING: Yes. The Court holds that petitioner Philam has adequately established the basis of its claim against
petitioners ATI and Westwind. Philam, as insurer, was subrogated to the rights of the consignee, Universal Motors
Corporation, pursuant to the Subrogation Receipt executed by the latter in favor of the former. The right of subrogation
accrues simply upon payment by the insurance company of the insurance claim. Petitioner Philams action finds
support in Article 2207 of the Civil Code, which provides as follows:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. x x x.
We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all the
remedies that the insured may have against the third party whose negligence or wrongful act caused the loss. The
right of subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues simply upon
payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It is
designed to promote and accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a
debt by one who, in justice, equity, and good conscience, ought to pay.
*** on the topic letters of credit: the bill of lading for the shipment dated April 15, 1995 provides that Rizal Commercial
Banking Corporation (RCBC) was the consignee while Universal Motors is listed as the notify party. These designations
are in line with the subject shipment being covered by a Letter of Credit which RCBC issued upon the request of
Universal Motors.
A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with
sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he
is paid, and a buyer, who wants to have control of his goods before paying. However, letters of credit are employed by
the parties desiring to enter into commercial transactions, not for the benefit of the issuing bank but mainly for the
benefit of the parties to the original transaction, in these cases, Nichimen Corporation as the seller and Universal
Motors as the buyer. Hence, the latter, as the buyer of the Nissan parts, should be regarded as the person entitled to
delivery of the goods.
VI. ISSUE:
(1) Whether or not a contract of sale has been perfected between the parties
(2) Whether or not a contract of sale has been perfected even if defendant failed to open a letter of credit
VII. RULING:
(1) Yes, a contract of sale has been perfected between the parties
Article 1319 of the Civil Code provides that consent is manifested by the meeting of the offer and acceptance
upon the thing and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter offer."
In the case at bar, SJ Industrial informed SSPT of his desire to avail of the prices of the parts and enclose
therewith a Purchase Order. At this stage, a meeting of the minds between vendor and vendee has occurred,
the object of the contract: being the spare parts and the consideration, the price stated in petitioner's offer
dated December 17, 1981 and accepted by the respondent on December 24,1981. The note that SJ Industrial
made on the PO was another indication of acceptance on his part, for by requesting a 3% discount, he
implicitly accepted the price as first offered by the vendor.
(2) Yes, a contract of sale has been perfected even if defendant failed to open a letter of credit. The opening of a
letter of credit in favor of a vendor is only a mode of payment. It is not among the essential requirements of a
contract of sale.
In the case at bar, there was no showing that SSPT reserved title to the goods until SJ Industrial had opened a
letter of credit. Petitioner, in the course of its dealings with private respondent, did not incorporate any
provision declaring their contract of sale without effect until after the fulfilment of the act of opening a letter of
credit.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the petition is GRANTED and the decision of the trial court dated June 13, 1988 is REINSTATED with
modification. SO ORDERED.
VI. ISSUE:
1.
VII. RULING:
1. Yes. Petitioner admits that it received the bill of lading immediately after the arrival of the shipment. Having
been afforded an opportunity to examine the said document, petitioner did not immediately object to or dissent from
any term or stipulation therein. It was only six months later that petitioner sent a letter to private respondent saying
that it could not accept the shipment. Petitioners inaction for such a long period conveys the clear inference that it
accepted the terms and conditions of the bill of lading. Moreover, said letter spoke only of petitioners inability to use
the delivery permit, i.e. to pick up the cargo, due to the shippers failure to comply with the terms and conditions of the
letter of credit, for which reason the bill of lading and other shipping documents were returned by the banks to the
shipper. The letter merely proved petitioners refusal to pick up the cargo, not its rejection of the bill of lading.
A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which three
parties, namely, the shipper, the carrier, and the consignee undertake specific responsibilities and assume stipulated
obligations. A bill of lading delivered and accepted constitutes the contract of carriage even though not signed,
because the acceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance
of the contract and of all of its terms and conditions of which the acceptor has actual or constructive notice. In a
nutshell, the acceptance of a bill of lading by the shipper and the consignee, with full knowledge of its contents, gives
rise to the presumption that the same was a perfected and binding contract. Section 17 of the bill of lading provided
that the shipper and the consignee were liable for the payment of demurrage charges for the failure to discharge the
containerized shipment beyond the grace period allowed by the tariff rules.
VI. ISSUE:
Whether or not the partial payments made by the principal obligors would have the corresponding effect of reducing
the liability of the petitioner as guarantor or surety under the terms of the standby LCs in question.
VII. RULING:
Unequivocally, the subject standby Letters of Credit secure the payment of any obligation of the Mendozas to Philam
Life including all interests, surcharges and expenses thereon but not to exceed P600,000.00. But while they are a
security arrangement, they are not converted thereby into contracts of guaranty. That would make them ultra vires
rather than a letter of credit, which is within the powers of a bank. The standby L/Cs are, "in effect an absolute
undertaking to pay the money advanced or the amount for which credit is given on the faith of the instrument." They
are primary obligations and not accessory contracts. Being separate and independent agreements, the payments
made by the Mendozas cannot be added in computing IBAA's liability under its own standby letters of credit. Payments
made by the Mendozas directly to Philam Life are in compliance with their own prestation under the loan agreement.
As to the liability of the Mendozas to IBAA, it bears recalling that the Mendozas, upon their application for the opening
and issuance of the Irrevocable Standby Letters of Credit in favor of Philam Life, had executed a Real Estate Mortgage
as security to IBAA for any payment that the latter may remit to Philam Life on the strength of said Letters of Credit;
and that IBAA had recovered from the Mendozas the amount of P432,386.07 when it foreclosed on the mortgaged
property of said spouses in the concept of "principal (unpaid advances under the 2 standby LCs plus interest and
charges)." In addition, IBAA had recovered P255,364.95 representing its clean loans to the Mendozas plus accrued
interest besides the fact that it now has the foreclosed property. As between IBAA and the Mendozas, therefore, there
has been full liquidation. The remaining obligation of P222,000.00 on the loan of the Mendozas, therefore, is now
IBAA's sole responsibility to pay to Philam Life by virtue of its absolute and irrevocable undertaking under the standby
L/Cs. Specially so, since the promissory notes executed by the Mendozas in favor of IBAA authorized the sale of the
mortgaged security "for the purpose of applying their proceeds to x x x payments" of their obligations to IBAA
VI. ISSUE:
Whether respondent Judge acted without or in excess of jurisdiction or with grave abuse of discretion when he issued
the Order of July 17, 1967, on the ground:
(a) the letter of credit issued by respondent bank is irrevocable; xxx
VII. RULING:
In issuing the Order of July 17, 1967, respondent Judge violated the irrevocability of the letter of credit issued by
respondent Bank in favor of petitioner. An irrevocable letter of credit cannot during its lifetime be cancelled or modified
without the express permission of the beneficiary.
VIII. DISPOSITIVE PORTION:
PREMISES CONSIDERED, the petition is given due course and the assailed Orders of July 17, 1967 and November 3,
1967 and March 16, 1968 are ANNULLED and SET ASIDE; and the preliminary injunctions issued by this Court should
continue until the termination of Case No. Q-10351 on the merits.
VII. RULING:
1. No. As regards the Beautilike account, the trial court and CA erred in holding that Land Bank failed to protect
Monet's interest when it paid the suppliers despite discrepancies in the shipment vis - -vis the order specifications of
Monet.
What characterizes letters of credit, as distinguished from other accessory contracts, is the engagement of the issuing
bank to pay the seller once the draft and the required shipping documents are presented to it. In turn, this
arrangement assures the seller of prompt payment, independent of any breach of the main sales contract. By this socalled "independence principle," the bank determines compliance with the letter of credit only by examining the
shipping documents presented; it is precluded from determining whether the main contract is actually accomplished or
not.
Article 3 of the Uniform Customs and Practice (UCP) for Documentary Credits provides that credits, by their nature, are
separate transactions from the sales or other contract(s) on which they may be based and banks are in no way
concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the
credit. Consequently, the undertaking of a bank to pay, accept and pay draft(s) or negotiate and/or fulfill any other
obligation under the credit is not subject to claims or defenses by the applicant resulting from his relationships with
the issuing bank or the beneficiary.
Article 15 of the UCP states that banks assume no liability or responsibility for the form, sufficiency, accuracy,
genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in
the documents or superimposed thereon; nor do they assume any liability or responsibility for the description, weight,
quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good
faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the
goods, or any other person whomsoever.
The so-called "independence principle" assures the seller or the beneficiary of prompt payment independent of any
breach of the main contract and precludes the issuing bank from determining whether the main contract is actually
accomplished or not. For, if the letter of credit is drawable only after the settlement of any dispute on the main
contract entered into by the applicant of the said letter of credit and the beneficiary, then there would be no practical
and beneficial use for letters of credit in commercial transactions.
As the issuing bank in the Beautilike transaction involving an import letter of credit, Land Bank only deals in
documents and it is not involved in the contract between the parties. The relationship between the beneficiary and the
issuer of a letter of credit is not strictly contractual, because both privity and a meeting of the minds are lacking. Thus,
upon receipt by Land Bank of the documents of title which conform with what the letter of credit requires, it is duty
bound to pay the seller, as it did in this case.
2. Yes, Land Bank is liable for opportunity losses in relation to the Wishbone transaction. The terms and conditions of
the Letter of Credit were substantially complied with by Monet. Land bank did not pursue collection on this despite the
fact that the goods were acceptable merchandise. The trial court correctly considered Land Bank as the attorney-infact of Monet with regard to its export transactions with Wishbone Trading Company.
3. Yes, the trial court and CA erred in limiting the obligation of Monet and Tagle spouses to Land Bank to what was
stated in the "Schedule of Amortization from the Loans and Discounts Department of LANDBANK. The reversible error
committed by both courts partook of the form of over reliance and sole reliance on the figures contained in the said
schedule to the exclusion of other pieces of documentary evidence. The records of the case show that Monet and
Spouses Tagle, in the course of their credit transactions with Land Bank, executed not only one, but several promissory
notes in varying amounts in favor of the bank.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the instant petition is GRANTED. The October 9, 2003 decision and the January 20, 2004 resolution of the
Court of Appeals in CA-G.R. CV No. 57436, are MODIFIED insofar as the award of the counterclaim to the respondents is
concerned. Accordingly, there being no basis to award opportunity costs to the respondents, Monet's Export and
Manufacturing Corporation and the spouses, Vicente V. Tagle, Sr. and Ma. Consuelo G. Tagle, relative to the Beautilike
account, but finding good cause to sustain the award of opportunity costs to the respondents on account of the failure
of the petitioner to diligently perform its duties as the attorney-in-fact of the respondents in the Wishbone Trading
Company account, the amount of opportunity costs granted to the respondents, is REDUCED to US$15,000.00 payable
in Philippine pesos at the official exchange rate when payment is to be made. Insofar as the amount of indebtedness of
the respondents to the petitioner is concerned, the October 9, 2003 decision and the January 20, 2004 resolution of
the Court of Appeals in CA-G.R. CV No. 57436, are SETASIDE. The case is hereby remanded to its court of origin, the
Regional Trial Court of Manila, Branch 49, for the reception of additional evidence as may be needed to determine the
actual amount of indebtedness of the respondents to the petitioner. The trial court is INSTRUCTED to deduct the award
of opportunity losses granted to the respondents, in the amount of US$15,000.00 payable in Philippine pesos at the
official exchange rate when payment is to be made, from the amount ultimately determined as the actual amount of
indebtedness of the respondents to the petitioner. No pronouncement as to costs.
VII. RULING:
YES. The collection of 15% margin fee was valid.
Under R.A. No. 2609, Sec.1, . . . the Central Bank, in respect of all sales of foreign exchange by the Central Bank and
its authorized agent banks, shall have authority to establish a uniform margin of not more than 40% over the Bank's
selling rates stipulated by the Monetary Board which margin shall not be changed oftener than once a year except
upon the recommendation of the National Economic Council and the approval of the President. The Monetary Board
shall fix the margin at such rate as it may deem necessary to effectively curtail any excessive demand upon the
international reserve." The language of the law is clear. A margin fee may be collected from "all sales of foreign
exchange by the Central Bank and its authorized agent banks . . . With the categorical finding in the decision
appealed from that the purchase of the forward exchange by the Central Bank, prior to the suspension of the margin
levy, it cannot be denied that deference must be paid to the legal provision calling for a margin fee.
(17.)
ABAD V. CA
III. TOPIC:
Letters of Credit
VI. ISSUE:
Whether TOMCO's marginal deposit of P28,000 in the possession of the bank should first be deducted from its principal
indebtedness before computing the interest and other charges due.
VII. RULING:
TOMCOs marginal deposit should be set off against his debt, for while TOMCO earns no interest on his marginal
deposit, PCIB, apart from being able to use said deposit for its own purposes, also earns interest on the money it
loaned to TOMCO. It would be onerous to compute interest and other charges on the face value of the letter of credit
which the bank issued, without first crediting or setting off the marginal deposit which TOMCO paid to the bank.
Requiring TOMCO to pay interest on the entire letter of credit without deducting first the marginal deposit, would be a
clear case of unjust enrichment by the bank.
other charges of the bank should be computed on the outstanding loan balance of P52,000 only. The decision is
affirmed in other respects, with costs against the respondent Philippine Commercial and Industrial Bank.
Whether or Not the marginal deposit should not be deducted outright from the amount of the letter of
credit
VII. RULING:
1. No. petitioner argues that the marginal deposit should be considered only after computing the principal plus accrued
interest and other charges. It could be onerous to compute interest and other charges on the face value of the letter of
credit which a bank issued, without first crediting or setting off the marginal deposit which the borrower paid to itcompensation is proper and should take effect by operation of law because the requisited in Art. 1279 are present and
should extinguish both debts to the concurrent
VIII. DISPOSITIVE PORTION:
WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision of the Court of
Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED.
ISSUE: Whether or not the award should be modified to reflect the stipulations of the parties.
RULING:
Yes. Under a letter of credit-trust receipt transaction, a bank extends to a borrower a loan covered by the letter
of credit, with the trust receipt as security of the loan. A trust receipt is a security transaction intended to aid in
financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except thru utilization, as collateral, of the
merchandise imported or purchased. In contracts contained in trust receipts, the contracting parties may establish
agreements, terms and conditions they may deem advisable, provided they are not contrary to law, morals or public
order.
In this case, the parties stipulated specific amounts of interest, service charges and penalties. Since a contract
is the law between the parties, the obligations arising from contracts should be complied with by the parties. The
courts cannot vary the terms thereof unless the stipulation is contrary to law, morals, good customs, public order, or
public policy.