Rodzssen Supply, Inc. vs. Far East Bank & Trust Co., 357 SCRA 618 [2001].

Bank paid the seller of goods under an expired letter of credit but the goods subject thereof were
voluntarily received and kept by the buyer which refused to pay the bank.

Facts: X opened with B (bank) a domestic letter of credit (LC) in favor of Y for the purchase from the
latter of hydraulic loaders. B paid Y for the equipment after the expiration of the letter of credit. X
refused to pay B claiming that there was breach of contract by B which acted in bad faith in paying Y
knowing that Y delivered the loaders to X after the expiry date of the subject LC. X offered to return the
loaders to B which refused to take possession three (3) years after X accepted delivery, when B made a
demand for payment.

Issue: Was it proper for B to pay the LC which had long expired or been cancelled?

Held: B should not have paid the LC which had become invalid upon the lapse of the period fi xed
therein. Be that as it may, X should pay B the amount B expended for the equipment belatedly delivered
by Y and voluntarily received and kept by X. B’s right to seek recovery from X is Art. 1160 anchored, not
upon the ineffi cacious LC, but on Article 2142 of the Civil Code. X was not without fault in the
transactions in view of its unexplained inaction for almost four (4) years with regard to the status of the
ownership or possession of the loaders and the fact that it formalized its offer to return the equipment
only after B’s demand for payment, which came more than three (3) years after X accepted delivery.

When both parties to a transaction are mutually negligent in the performance of their obligations, the
fault of one cancels the negligence of the other and as in this case, their rights and obligations may be
determined equitably under the law proscribing unjust enrichment.