1.

Transfield PH vs Luzon Hydro Corp

The independent nature of the letter of credit may be: (a) independence in
toto where the credit is independent from the justification aspect and is a
separate obligation from the underlying agreement like for instance a
typical standby; or (b) independence may be only as to the justification
aspect like in a commercial letter of credit or repayment standby, which is
identical with the same obligations under the underlying agreement. In
both cases the payment may be enjoined if in the light of the purpose of
the credit the payment of the credit would constitute fraudulent abuse of
the credit.

Facts: Transfield Philippines (Transfield) entered into a turn-key contract with Luzon
Hydro Corp. (LHC).Under the contract, Transfield were to construct a hydro-electric
plants in Benguet and Ilocos. Transfield was given the sole responsibility for the
design, construction, commissioning, testing and completion of the Project. The
contract provides for a period for which the project is to be completed and also
allows for the extension of the period provided that the extension is based on
justifiable grounds such as fortuitous event. In order to guarantee performance by
Transfield, two stand-by letters of credit were required to be opened. During the
construction of the plant, Transfield requested for extension of time citing typhoon
and various disputes delaying the construction. LHC did not give due course to the
extension of the period prayed for but referred the matter to arbitration committee.
Because of the delay in the construction of the plant, LHC called on the stand-by
letters of credit because of default. However, the demand was objected by Transfield
on the ground that there is still pending arbitration on their request for extension of
time.
Issue: Whether or not LHC can collect from the letters of credit despite the pending
arbitration case
Held: Transfields argument that any dispute must first be resolved by the parties,
whether through negotiations or arbitration, before the beneficiary is entitled to call
on the letter of credit in essence would convert the letter of credit into a mere
guarantee.
The independent nature of the letter of credit may be: (a) independence in toto
where the credit is independent from the justification aspect and is a separate
obligation from the underlying agreement like for instance a typical standby; or (b)
independence may be only as to the justification aspect like in a commercial letter of
credit or repayment standby, which is identical with the same obligations under the
underlying agreement. In both cases the payment may be enjoined if in the light of
the purpose of the credit the payment of the credit would constitute fraudulent
abuse of the credit.

Jurisprudence has laid down a clear distinction between a letter of credit and a
guarantee in that the settlement of a dispute between the parties is not a prerequisite for the release of funds under a letter of credit. In other words, the
argument is incompatible with the very nature of the letter of credit. If a letter of
credit is drawable only after settlement of the dispute on the contract entered into
by the applicant and the beneficiary, there would be no practical and beneficial use
for letters of credit in commercial transactions.
The engagement of the issuing bank is to pay the seller or beneficiary of the credit
once the draft and the required documents are presented to it. 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. Under this
principle, 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,
quantity, 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.
2. METROPOLITAN WATERWORKS VS DAWAY, ET AL
The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not
apply to the the standby letter of credit issued by the bank as the former
prohibition is on the enforcement of claims against guarantors or sureties
of the debtors whose obligations are not solidary with the debtor.

The concept of guarantee vis--vis the concept of an irrevocable letter of

credit are inconsistent with each other. The guarantee theory destroys the
independence of the banks responsibility from the contract upon which it
was opened and the nature of both contracts is mutually in conflict with
each other. A Standby Letter of Credit is not a guaranty because under a
Standby Letter of Credit, the bank undertakes a primary obligation. On
the other hand, a guarantor undertakes a collateral obligation which arises
only upon the debtors default. A Standby Letter of Credit is a primary
obligation and not an accessory contract.

Facts: Maynilad obtained a 20-year concession to manage, repair, refurbish, and

upgrade existing Metropolitan Waterworks and Sewerage System (MWSS) water
delivery and sewerage services in Metro Manilas west zone. Maynilad, under the
concession agreement undertook to pay concession fees and itsforeign loans. To
secure its obligations, Maynilad was required under Section 9 of the concession

contract to put up a bond, bank guarantee or other security acceptable to MWSS.

Pursuant to this requirement, Maynilad arranged on for a three-year facility with a
number of foreign banks led by Citicorp Intl for the issuance of an irrevocable
standby letter of credit (SLC) in the amount of $ 120 million in favor of MWSS for the
full and prompt payment of Maynilads obligations to MWSS. Due to devaluation of
the peso and other business reversals of Maynilad, MWSS filed a notice of early
termination of the concession contract. Upon certification of the non performance of
Maynilad obligation, the MWSS moved to collect from Citicorp on the standby letters
of credit issued. Maynilad filed for corporate rehabilitation.
Judge Daway stayed
the payment of the letter of credit by Citicorp pursuant to Sec 6 (b) of Rule 4 of the
Interim Rules on Corporate Rehabilitation.
Issue: Whether or not the payment of the standby of letter of credit can be stayed
by filing of a petition for rehabilitation
Held: No. The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not
apply to the the standby letter of credit issued by the bank as the former prohibition
is on the enforcement of claims against guarantors or sureties of the debtors whose
obligations are not solidary with the debtor.
The participating banks obligation under the letter of credit are solidary with
respondent Maynilad in that it is a primary, direct, definite and an absolute
undertaking to pay and is not conditioned on the prior exhaustion of the debtors
assets. These are the same characteristics of a surety or solidary obligor. And being
solidary, the claims against them can be pursued separately from and independently
of the rehabilitation case.
Issuing banks under the letters of credit are not equivalent to guarantors. The
concept of guarantee vis--vis the concept of an irrevocable letter of credit are
inconsistent with each other. The guarantee theory destroys the independence of
the banks responsibility from the contract upon which it was opened and the nature
of both contracts is mutually in conflict with each other. In contracts of guarantee,
the guarantors obligation is merely collateral and it arises only upon the default of
the person primarily liable. On the other hand, in an irrevocable letter of credit, the
bank undertakes a primary obligation. We have also defined a letter of credit as an
engagement by a bank or other person made at the request of a customer that the
issuer shall honor drafts or other demands of payment upon compliance with the
conditions specified in the credit.
A Standby Letter of Credit is not a guaranty because under a Standby Letter of
Credit, the bank undertakes a primary obligation. On the other hand, a guarantor
undertakes a collateral obligation which arises only upon the debtors default. A
Standby Letter of Credit is a primary obligation and not an accessory contract.
3. PRUDENTIAL BANK VS IAC
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.

Facts: 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. Prudential Bank opened
Letter of Credit No. DPP-63762 for $128,548.78 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. Two of the original drafts
were accepted by PRMI through its president, Anacleto R. Chi, while the others were
not. Upon the arrival of the machineries, the Prudential Bank indorsed the shipping
documents to the PRMI which accepted delivery of the same. To enable PRMI to take
delivery of the machineries, it executed, by prior arrangement with the Prudential
Bank, a trust receipt which was signed by Anacleto R. Chi in his capacity as
President of PRMI company
At the back of the trust receipt was printed a form to be accomplished by 2 sureties
who, by the very terms and conditions thereof, were to be jointly and severally liable
to the Prudential Bank should the PRMI fail to pay the total amount or any portion of
the drafts issued by Nissho and paid for by Prudential Bank. . PRMI was able to take
delivery of the textile machineries and installed the same at its factory site. Chi
argued that presentment for acceptance was necessary to make PRMI liable.
The trial court ruled that that presentment for acceptance was an indispensable
requisite for Philippine Rayons liability on the drafts to attach.
Issue : Whether or not presentment for acceptance was needed in order for PRMI to
be liable under the draft.
HELD : 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.

4. TRANSFIELD (REFER TO #1)

5. BANK OF AMERICA VS CA
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.

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 bank, thus saving InterResin from the hardship of presenting the documents directly to Bank of Ayudhya to
recover payment. 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.
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.
6. KENG HUA PAPER VS CA

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 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

FIRST DIVISION

[G.R. No. 116863. February 12, 1998]

KENG HUA PAPER PRODUCTS CO. INC., petitioner, vs. COURT OF APPEALS;
REGIONAL TRIAL COURT OF MANILA, BR. 21; and SEA-LAND
SERVICE, INC., respondents.

DECISION
PANGANIBAN, J.:
What is the nature of a bill of lading? When does a bill of lading become
binding on a consignee? Will an alleged overshipment justify the consignees refusal
to receive the goods described in the bill of lading? When may interest be computed
on unpaid demurrage charges?

Statement of the Case

These are the main questions raised in this petition assailing the Decision [1] of
the Court of Appeals[2] promulgated on May 20, 1994 in C.A.-G.R. CV No. 29953
affirming in toto the decision[3] dated September 28, 1990 in Civil Case No. 85-33269
of the Regional Trial Court of Manila, Branch 21. The dispositive portion of the said
RTC decision reads:
WHEREFORE, the Court finds by preponderance of evidence that Plaintiff
has proved its cause of action and right to relief. Accordingly, judgment is
hereby rendered in favor of the Plaintiff and against Defendant, ordering
the Defendant to pay plaintiff:
1. The sum of P67,340.00 as demurrage charges, with interest at the legal rate from
the date of the extrajudicial demand until fully paid;
2. A sum equivalent to ten (10%) percent of the total amount due as Attorneys fees
and litigation expenses.
Send copy to respective counsel of the parties.

On July 9, 1982, the shipment was discharged at the Manila International

Container Port. Notices of arrival were transmitted to the defendant 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
plaintiffs container from the moment the free time period expired on July
29, 1982 until the time when the shipment was unloaded from the
container on November 22, 1983, or a total of four hundred eighty-one
(481) days. During the 481-day period, demurrage charges
accrued. Within the same period, letters demanding payment were sent
by the plaintiff to the defendant who, however, refused to settle its
obligation which eventually amounted to P67,340.00. Numerous
demands were made on the defendant but the obligation remained
unpaid. Plaintiff thereafter commenced this civil action for collection and
damages.
In its answer, defendant, by way of special and affirmative defense,
alleged that it purchased fifty (50) tons of waste paper from the shipper
in Hong Kong, Ho Kee Waste Paper, as manifested in Letter of Credit No.
824858 (Exh. 7. p. 110. Original Record) issued by Equitable Banking
Corporation, with partial shipment permitted; that under the letter of
credit, the remaining balance of the shipment was only ten (10) metric
tons as shown in Invoice No. H-15/82 (Exh. 8, p. 111, Original Record);
that the shipment plaintiff was asking defendant to accept was twenty
(20) metric tons which is ten (10) metric tons more than the remaining
balance; that if defendant were to accept the shipment, it would be
violating Central Bank rules and regulations and custom and tariff laws;
that plaintiff had no cause of action against the defendant because the
latter did not hire the former to carry the merchandise; that the cause of
action should be against the shipper which contracted the plaintiffs
services and not against defendant; and that the defendant duly notified
the plaintiff about the wrong shipment through a letter dated January 24,
1983 (Exh. D for plaintiff, Exh. 4 for defendant, p. 5. Folder of Exhibits).

The Facts

As previously mentioned, the RTC found petitioner liable for demurrage,

attorneys fees and expenses of litigation. The petitioner appealed to the Court of
Appeals, arguing that the lower court erred in (1) awarding the sum of P67,340 in
favor of the private respondent, (2) rejecting petitioners contention that there was
overshipment, (3)
ruling
that
petitioners
recourse
was
against
the
shipper, and (4) computing legal interest from date of extrajudicial demand. [5]

The factual antecedents of this case as found by the Court of Appeals are as
follows:

Respondent Court of Appeals denied the appeal and affirmed the lower courts
decision in toto. In a subsequent resolution,[6] it also denied the petitioners motion
for reconsideration.

SO ORDERED.

[4]

Plaintiff (herein private respondent), a shipping company, is a foreign

corporation licensed to do business in the Philippines. On June 29, 1982,
plaintiff received at its Hong Kong terminal a sealed container, Container
No. SEAU 67523, containing seventy-six bales of unsorted waste paper
for shipment to defendant (herein petitioner), Keng Hua Paper Products,
Co. in Manila. A bill of lading (Exh. A) to cover the shipment was issued
by the plaintiff.

Hence, this petition for review.[7]

The Issues

In its memorandum, petitioner submits the following issues:

I. Whether or not petitioner had accepted the bill of lading;
II. Whether or not the award of the sum of P67,340.00 to private respondent was
proper;
III. Whether or not petitioner was correct in not accepting the overshipment;
IV. Whether or not the award of legal interest from the date of private respondents
extrajudicial demand was proper;[8]
In the main, the case revolves around the question of whether petitioner was
bound by the bill of lading. We shall, thus, discuss the above four issues as they
intertwine with this main question.

The Courts Ruling

The petition is partly meritorious. We affirm petitioners liability for demurrage,

but modify the interest rate thereon.

Main Issue: Liability Under 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.[9] A bill of lading delivered and accepted constitutes the contract of
carriage even though not signed, [10] because the (a)cceptance 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. [11] 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. [12]
In the case at bar, both lower courts held that the bill of lading was a valid and
perfected contract between the shipper (Ho Kee), the consignee (Petitioner Keng
Hua), and the carrier (Private Respondent Sea-Land). 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 tariff rules. Applying said stipulation, both lower courts
found petitioner liable. The aforementioned section of the bill of lading reads:
17. COOPERAGE FINES. The shipper and consignee shall be liable for,
indemnify the carrier and ship and hold them harmless against, and the

carrier shall have a lien on the goods for, all expenses and charges for
mending cooperage, baling, repairing or reconditioning the goods, or the
van, trailers or containers, and all expenses incurred in protecting, caring
for or otherwise made for the benefit of the goods, whether the goods be
damaged or not, and for any payment, expense, penalty fine, dues, duty,
tax or impost, loss, damage, detention, demurrage, or liability of
whatsoever nature, sustained or incurred by or levied upon the carrier or
the ship in connection with the goods or by reason of the goods being or
having been on board, or because of shippers failure to procure consular
or other proper permits, certificates or any papers that may be required
at any port or place or shippers failure to supply information or otherwise
to comply with all laws, regulations and requirements of law in
connection with the goods of from any other act or omission of the
shipper or consignee: (Underscoring supplied.)
Petitioner contends, however, that it should not be bound by the bill of lading
because it never gave its consent thereto. Although petitioner admits physical
acceptance of the bill of lading, it argues that its subsequent actions belie the
finding that it accepted the terms and conditions printed therein. [13] Petitioner cites
as support the Notice of Refused or On Hand Freight it received on November 2,
1982 from private respondent, which acknowledged that petitioner declined to
accept the shipment. Petitioner adds that it sent a copy of the said notice to the
shipper on December 29, 1982. Petitioner points to its January 24, 1983 letter to the
private respondent, stressing that its acceptance of the bill of lading would be
tantamount to an act of smuggling as the amount it had imported (with full
documentary support) was only (at that time) for 10,000 kilograms and not for
20,313 kilograms as stated in the bill of lading and could lay them vulnerable to
legal sanctions for violation of customs and tariff as well as Central Bank laws.
[14]
Petitioner further argues that the demurrage was a consequence of the shippers
mistake of shipping more than what was bought. The discrepancy in the amount of
waste paper it actually purchased, as reflected in the invoice vis--vis the excess
amount in the bill of lading, allegedly justifies its refusal to accept the shipment. [15]

Petitioner Bound by the Bill of Lading

We are not persuaded. Petitioner admits that it received the bill of lading
immediately after the arrival of the shipment[16] on July 8, 1982.[17] 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, on January 24, 1983, 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. [18] The
letter merely proved petitioners refusal to pick up the cargo, not its rejection of the
bill of lading.

Petitioners reliance on the Notice of Refused or On Hand Freight, as proof of its

nonacceptance of the bill of lading, is of no consequence. Said notice was not
written by petitioner; it was sent by private respondent to petitioner in November
1982,
or
four
months
after
petitioner
received
the
bill
of
lading. If the notice has any legal significance at all, it is to highlight petitioners
prolonged failure to object to the bill of lading. Contrary to petitioners
contention, the notice and the letter support not belie the findings of the two lower
courts that the bill of lading was impliedly accepted by petitioner.
As aptly stated by Respondent Court of Appeals:
In the instant case, (herein petitioner) cannot and did not allege nonreceipt of its copy of the bill of lading from the shipper. Hence, the terms
and conditions as well as the various entries contained therein were
brought to its knowledge. (Herein petitioner) accepted the bill of lading
without interposing any objection as to its contents. This raises the
presumption that (herein petitioner) agreed to the entries and
stipulations imposed therein.
Moreover, it is puzzling that (herein petitioner) allowed months to pass,
six (6) months to be exact, before notifying (herein private respondent)
of the wrong shipment. It was only on January 24, 1983 that (herein
petitioner) sent (herein private respondent) such a letter of notification
(Exh D for plaintiff, Exh. 4 for defendant; p. 5, Folder of Exhibits). Thus,
for the duration of those six months (herein private respondent never
knew the reason for (herein petitioners) refusal to discharge the
shipment.
After accepting the bill of lading, receiving notices of arrival of the
shipment, failing to object thereto, (herein petitioner) cannot now deny
that it is bound by the terms in the bill of lading. If it did not intend to be
bound, (herein petitioner) would not have waited for six months to lapse
before finally bringing the matter to (herein private respondents
attention.The most logical reaction in such a case would be to
immediately verify the matter with the other parties involved. In this
case, however, (herein petitioner) unreasonably detained (herein private
respondents) vessel to the latters prejudice. [19]
Petitioners attempt to evade its obligation to receive the shipment on the pretext
that this may cause it to violate customs, tariff and central bank laws must likewise
fail. Mere apprehension of violating said laws, without a clear demonstration that
taking delivery of the shipment has become legally impossible, [20] cannot defeat the
petitioners contractual obligation and liability under the bill of lading.
In any event, the issue of whether petitioner accepted the bill of lading was
raised for the first time only in petitioners memorandum before this Court. Clearly,
we cannot now entertain an issue raised for the very first time on appeal, in
deference to the well-settled doctrine that (a)n issue raised for the first time on
appeal and not raised timely in the proceedings in the lower court is barred by
estoppel. Questions raised on appeal must be within the issues framed by the
parties and, consequently, issues not raised in the trial court cannot be raised for
the first time on appeal.[21]

In the case at bar, the prolonged failure of petitioner to receive and discharge
the cargo from the private respondents vessel constitutes a violation of the terms of
the bill of lading. It should thus be liable for demurrage to the former.
In The Apollon,[22] Justice Story made the following relevant comment on the
nature of demurrage:
In truth, demurrage is merely an allowance or compensation for the delay
or detention of a vessel. It is often a matter of contract, but not
necessarily so. The very circumstance that in ordinary commercial
voyages, a particular sum is deemed by the parties a fair compensation
for delays, is the very reason why it is, and ought to be, adopted as a
measure of compensation, in cases ex delicto. What fairer rule can be
adopted than that which founds itself upon mercantile usage as to
indemnity, and fixes a recompense upon the deliberate consideration of
all the circumstances attending the usual earnings and expenditures in
common voyages? It appears to us that an allowance, by way of
demurrage, is the true measure of damages in all cases of mere
detention, for that allowance has reference to the ships expenses, wear
and tear, and common employment.[23]

Amount of Demurrage Charges

Petitioner argues that it is not obligated to pay any demurrage charges

because, prior to the filing of the complaint, private respondent made no demand for
the sum of P67,340.Moreover, private respondents loss and prevention manager, Loi
Gillera, demanded P50,260, but its counsel, Sofronio Larcia, subsequently asked for
a different amount of P37,800.
Petitioners position is puerile. The amount of demurrage charges in the sum
of P67,340 is a factual conclusion of the trial court that was affirmed by the Court of
Appeals and, thus, binding on this Court. [24] Besides such factual finding is supported
by the extant evidence.[25] The apparent discrepancy was a result of the variance of
the dates when the two demands were made. Necessarily, the longer the cargo
remained unclaimed, the higher the demurrage. Thus, while in his letter dated April
24, 1983,[26] private respondents counsel demanded payment of only P37,800, the
additional demurrage incurred by petitioner due to its continued refusal to receive
delivery of the cargo ballooned to P67,340 by November 22, 1983. The testimony of
Counsel Sofronio Larcia as regards said letter of April 24, 1983 elucidates, viz:
Q Now, after you sent this letter, do you know what happened?
A Defendant continued to refuse to take delivery of the shipment and the
shipment stayed at the port for a longer period.
Q So, what happened to the shipment?

A The shipment incurred additional demurrage charges which amounted

to P67,340.00 as of November 22, 1983 or more than a year after - almost
a year after the shipment arrived at the port.
Q So, what did you do?
A We requested our collection agency to pursue the collection of this amount. [27]
Bill of Lading Separate from
Other Letter of Credit Arrangements
In a letter of credit, there are three distinct and independent contracts: (1) the
contract of sale between the buyer and the seller, (2) the contract of the buyer with
the issuing bank, and(3) the letter of credit proper in which the bank promises to
pay the seller pursuant to the terms and conditions stated therein. Few things are
more clearly settled in law than that the three contracts which make up the letter of
credit arrangement are to be maintained in a state of perpetual separation. [28] A
transaction involving the purchase of goods may also require, apart from a letter of
credit, a contract of transportation specially when the seller and the buyer are not in
the same locale or country, and the goods purchased have to be transported to the
latter.
Hence, 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. Any discrepancy between the amount of the goods described
in the commercial invoice in the contract of sale and the amount allowed in the
letter of credit will not affect the validity and enforceability of the contract of
carriage as embodied in the bill of lading. As the bank cannot be expected to look
beyond the documents presented to it by the seller pursuant to the letter of credit,
[29]
neither can the carrier be expected to go beyond the representations of the
shipper in the bill of lading and to verify their accuracy vis--vis the commercial
invoice and the letter of credit. Thus, the discrepancy between the amount of goods
indicated in the invoice and the amount in thebill of lading cannot negate petitioners
obligation
to
private
respondent
arising
from
the
contract
of
transportation. Furthermore, private respondent, as carrier, had no knowledge of the
contents of the container. The contract of carriage was under the arrangement
known as Shippers Load And Count, and the shipper was solely responsible for the
loading of the container while the carrier was oblivious to the contents of the
shipment. Petitioners remedy in case of overshipment lies against the seller/shipper,
not against the carrier.

Payment of Interest

Petitioner posits that it first knew of the demurrage claim of P67,340 only when
it received, by summons, private respondents complaint. Hence, interest may not be
allowed to run from the date of private respondents extrajudicial demands on March
8, 1983 for P50,260 or on April 24, 1983 for P37,800, considering that, in both cases,
there was no demand for interest.[30]We agree.

Jurisprudence teaches us:

2. 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 (Art. 1169, Civil Code) 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 (at which time the
quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.[31]
The case before us involves an obligation not arising from a loan or
forbearance of money; thus, pursuant to Article 2209 of the Civil Code, the
applicable interest rate is six percent per annum. Since the bill of lading did not
specify the amount of demurrage, and the sum claimed by private respondent
increased as the days went by, the total amount demanded cannot be deemed to
have been established with reasonable certainty until the trial court rendered its
judgment. Indeed, (u)nliquidated damages or claims, it is said, are those which are
not or cannot be known until definitely ascertained, assessed and determined by the
courts after presentation of proof.[32] Consequently, the legal interest rate is six
percent, to be computed from September 28, 1990, the date of the trial courts
decision. And in accordance with Philippine Natonal Bank[33] and Eastern Shipping,
[34]
the rate of twelve percent per annum shall be charged on the total then
outstanding, from the time the judgment becomes final and executory until its
satisfaction.
Finally, the Court notes that the matter of attorneys fees was taken up only in
the dispositive portion of the trial courts decision. This falls short of the settled
requirement that the text of the decision should state the reason for the award of
attorneys fees, for without such justification, its award would be a conclusion without
a premise, its basis being improperly left to speculation and conjecture. [35]
WHEREFORE,
the
assailed
Decision
is
hereby AFFIRMED with
the MODIFICATION that the legal interest of six percent per annum shall be
computed from September 28, 1990 until its full payment before finality of
judgment. The rate of interest shall be adjusted to twelve percent per annum,
computed from the time said judgment became final and executory until full
satisfaction. The award of attorneys fees is DELETED.
SO ORDERED.

Los Angeles, California issued an irrevocable letter of credit available at sight in

favor of Villaluz for the sum of $54,000.00, the total purchase price of the lauan logs.

The letter of credit was mailed to the Feati Bank and Trust Company with the
instruction to the latter that it forward the enclosed letter of credit to the
beneficiary. The letter of credit also provided that the draft to be drawn is on
Security Pacific National Bank and that it be accompanied by certain documents.
7. FEATI BANK VS CA

The logs were thereafter loaded on a vessel but Christiansen refused to issue the
certification required in paragraph 4 of the letter of credit, despite repeated requests

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.

by the private respondent. The logs however were still shipped and received by
consignee, to whom Christiansen sold the logs. Because of the absence of the
certification by Christiansen, the Feati Bank and Trust company refused to advance
the payment on the letter of credit until such credit lapsed. Since the demands by
Villaluz for Christiansen to execute the certification proved futile, he filed an action

A negotiating bank, on the other hand, is a correspondent bank which buys

for mandamus and specific performance against Christiansen and Feati Bank and

or discounts a draft under the letter of credit. Its liability is dependent

Trust Company before the Court of First Instance of Rizal. Christiansen however left

upon the stage of the negotiation. If before negotiation, it has no liability

the Philippines and Villaluz filed an amended complaint making Feati Bank and Trust

with respect to the seller but after negotiation, a contractual relationship

Company.

will then prevail between the negotiating bank and the seller.
Issue: Whether or not Feati Bank is liable for Releasing the funds to Christiansen
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.

Held: In commercial transactions involving letters of credit, the functions assumed

by a correspondent bank are classified according to the obligations taken up by it.
The correspondent bank may be called a notifying bank, a negotiating bank, or a
confirming bank.

Facts: Bernardo Villaluz entered into a contract of sale with Axel Christiansen in
which Villaluz agreed to deliver to Christiansen 2,000 cubic meters of lauan logs at

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.

$27.00 per cubic meter FOB. On the arrangements made and upon the instructions
of consignee, Hanmi Trade Development, Ltd., the Security Pacific National Bank of

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

8. BELMAN COMAPANIA VS CENTRAL BANK OF PH

but after negotiation, a contractual relationship will then prevail between the

Republic of the Philippines

SUPREME COURT
Manila

negotiating bank and the seller.

EN BANC

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

G.R. No. L-15044

May 30, 1960

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

BELMAN COMPAIA INCORPORADA, plaintiff-appellee,

vs.
CENTRAL BANK OF THE PHILIPPINES, defendant-appellant.

instruction to the petitioner by the issuing bank, the Security Pacific National Bank, it

Nat M. Balboa for appellant.

Bienvenido L. Garcia for appellee.

is indubitable that the petitioner is only a notifying bank and not a confirming bank

BARRERA, J.:

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.

From the decision of the Court of First Instance of Manila (in Civil Case No. 34566), in
which it was ordered to refund to plaintiff Belman Compaia Incorporada the
amounts of P273.41 and P172.87, with legal interest from the date the complaint
was filed until fully paid, and the amount of P250.00 as attorney's fees, and to pay
costs, defendant Central Bank of the Philippines interposed this appeal.
Two issues both legal, are presented in this appeal; (a) whether the action has
already prescribed, and (b) whether defendant Central Bank can be compelled to
make the refund after the amounts involved had already been turned over to the
National Treasury of the Government. We take up only the first question because it is
decisive.
On April 26, 1951 and May 4, 1951, plaintiff paid to the Philippine National Bank its
obligations for foreign exchange obtained under Credits Nos. 43729 (PNB I/B 36747)
and 41347 (PNB I/B 37605), respectively. On the same dates, defendant Central
Bank collected from plaintiff, as exchange tax, 1 the amounts of P273.41 (CBP O. R.
No. 002801 dated April 26, (1951) and P172.87 (CBP O. R. No 002928 dated May 4,
1951) Plaintiff paid said amounts to defendant, under protest.
On November 8, 1951, plaintiff requested defendant to refund to it both amounts,
but defendant refused to do so. Plaintiff reiterated said request for the refund of
P273.41 on September 2, 1957, and of P172.87 on October 7, 1957; and for both
amounts, on December 2, 1957. Defendant, however, likewise refused to comply
with plaintiff's request2 .
Plaintiff, therefore, on December 20, 1957, filed with the above-mentioned court a
complaint praying, inter alia, that defendant's Monetary Board Resolution No. 286,
series of 1951, be declared null and void, and that defendant be ordered to refund to
plaintiff said amounts of P273.41 and P172.87 it paid as exchange tax.

On January 3, 1958, defendant filed a motion to dismiss on the grounds that (1) the
court has no jurisdiction over the subject matter of the action; (2) the complaint
states no cause of action; and (3) the cause of action, if any, is barred by the statute
of limitations. On January 10, 1958, plaintiff filed an opposition to said motion, to
which, defendant filed a reply on January 17, 1958.
On April 7, 1958, the court issued an order holding in abeyance its resolution on
defendant's motion to dismiss, until after the parties shall have presented their
evidence.
On April 11, 1958, defendant filed its answer reiterating as defenses, the grounds
alleged in its motion to dismiss.
After the issues have been joined and due hearing had, the lower court rendered a
decision which, in pertinent part, reads:
xxx

xxx

xxx

Defendant's collection of the Exchange Tax on April 26, 1951 and May 4,
1951, when plaintiff paid its obligations under Credits Nos. 43729 and No.
41347 is erroneous and without any legal basis because the plaintiff on
these dates did not purchase any foreign exchange from the Bank but
merely liquidated its existing accounts under the Credits. The sale of
foreign exchange in the present case took place at the moment when the
applications for Letters of Credit were approved and given due course that
is, on May 29, 1950 and January 2, 1951, at which time, Republic Act 601
imposing a tax on the sale of Foreign Exchange was not, as yet, in
existence.
xxx

xxx

xxx

Under these circumstances, and considering the fact that the amount of
P273.41 under Official Receipt No. 002801 was collected by the defendants
seven (7) days (April 26, 1951) before Resolution No. 286 was approved on
May 3, 1951, the conclusion is inescapable that Central Bank Resolution No.
286 is null and void not only because it has not been published as required
by law in the Official Gazette, but as admitted by the defendant itself under
oath in par. XV of Exhibit "B", the same is erroneous interpretation of
Section 1 of Republic Act 601.
The present suit is directed against the Central Bank, a corporation duly
authorized by its Charter to sue and be sued. Resolution No. 286 was issued
by the Central Bank and the defendant cannot now be permitted to claim
exemption from the consequences of an illegal resolution of its own
making.
There is nothing to the contention that plaintiff's action has prescribed,
because no vested or acquired rights can arise from acts or ommissions
which are against the law or which infringe upon the rights of others. (Art.
2254, New Civil Code).

IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court hereby renders

judgments in favor of the plaintiff and against the defendant declaring
Central Bank Resolution No. 286 illegal and void ab initio. Defendant is
hereby ordered to return to the plaintiff the sums of P273.41 and P172.87
with legal interests thereon from the date of the filing of the complaint until
fully paid and the amount of P250.00 as attorney's fees. Defendant shall
pay the costs.
Defendant-appellant urges in this appeal that the lower court erred in not dismissing
plaintiff-appellee's complaint on the ground that it has prescribed.
The contention is correct. It is to be noted that the excise tax law (Rep. Act No. 601,
contain no provision regarding the period within which a taxpayer must bring his
action to recover an excise tax erroneously or illegally collected. Accordingly,
Articles 18 and 1149 of the New Civil Code, should be applied in order to determine
said period. The articles referred to, respectively, provide:
ART. 18. In matters which are governed by the Code of Commerce and
special laws, their deficiency shall be governed by the provisions of this
Code. (Emphasis supplied.).
ART. 1149. All other actions whose periods are not fixed in this Code or in
other laws must be brought within five years from the time the right of
action accrues. (Id.)
It is not disputed that under the doctrine laid down in the cases of Philippine
National Bank vs. Zulueta, 101 Phil., 1071; 55 Off. Gaz. (2) 222; Philippine National
Bank vs. Union Books, Incorporated, 101 Phil., 1084; andPhilippine National Bank vs.
Arrozal, 103 Phil., 213; 54 Off. Gaz. (21) 5698,3 said amounts of P273.41 and
P172.87, were erroneously or illegally collected by the defendant from plaintiff
inasmuch as the latter had applied for the letters of credit (Nos. 41347 and 43729)
with the PNB, on May 29, 1950 and December 28, 1950, long before the enactment
of Republic Act No. 601 on March 28, 1951, imposing the excise tax on the purchase
on foreign exchange. Pursuant to Article 1149 of the New Civil Code above-quoted,
plaintiff's right of action to recover the aforementioned amounts should have
prescribed on April 26, 1956 (as to the P273.41) and May 4, 1956 (as to the
P172.87).
However, it appears that on November 8, 1951, plaintiff requested defendant, in
writing, to refund to it said amounts. Pursuant to Article 1155 of the New Civil
Code,4 the five-year period is interrupted and should start to be counted again from
November 8, 1951. Thus computed, the right of action should expire on November
11, 1956. Since the complaint was filed only on December 20, 1957, the action is
clearly barred. It is true that other extrajudicial written requests or demands were
made on September 2, 1957 and October 7, 1957, and lastly on December 2, 1957,
but all of these came after the period had already prescribed, as stated, on
November 11, 1956.
Article 2254 of the new Civil Code which provides that "No vested or acquired right
can arise from acts or omissions which are against the law or which infringe upon
the rights of others", and which was cited by the lower court as authority for its

conclusion that plaintiff's action has not prescribed, is inapplicable. This article is
among the transitional provisions of the New Civil Code. It must be read in relation
to, and within the context of Article 2252 which speaks of "Changes made and new
provisions and rules laid down by this Code which may prejudice or impair vested or
acquired rights in accordance with the old legislation" which changes shall have no
retroactive effect. The second paragraph of Article 2252 reads:
For the determination of the applicable law in cases which are not specified
elsewhere in this Code, the following articles shall be observed:
And, one of these "following articles", is Article 2254 cited by the lower court.
Here in the instant case, all the pertinent facts occurred after the effectivity of the
New Civil Code. There is, therefore, no reason to apply Article 2254, especially so,
when no vested or acquired right is being here asserted by defendant Central Bank,
the only question being, whether the right of plaintiff to bring the action had already
prescribed.
In view of the conclusion at which we have arrived, we find no necessity in taking up
the other questions raised in this appeal.
Wherefore the decision appealed from is hereby reversed, with costs against the
appellee. So ordered.
Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Concepcion, and Gutierrez
David, JJ., concur.

9. JOHANNES SCHUBACK VS CA
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 105387 November 11, 1993

JOHANNES SCHUBACK & SONS PHILIPPINE TRADING
CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, RAMON SAN JOSE, JR., doing business under
the name and style "PHILIPPINE SJ INDUSTRIAL TRADING," respondents.
Hernandez, Velicaria, Vibar & Santiago for petitioner.

Ernesto M. Tomaneng for private respondent.

ROMERO, J.:
In this petition for review on certiorari, petitioner questions the reversal by the Court
of Appeals 1 of the trial court's ruling that a contract of sale had been perfected
between petitioner and private respondent over bus spare parts.
The facts as quoted from the decision of the Court of Appeals are as follows:
Sometime in 1981, defendant 2 established contact with
plaintiff 3 through the Philippine Consulate General in Hamburg,
West Germany, because he wanted to purchase MAN bus spare
parts from Germany. Plaintiff communicated with its trading
partner. Johannes Schuback and Sohne Handelsgesellschaft m.b.n.
& Co. (Schuback Hamburg) regarding the spare parts defendant
wanted to order.
On October 16, 1981, defendant submitted to plaintiff a list of the
parts (Exhibit B) he wanted to purchase with specific part numbers
and description. Plaintiff referred the list to Schuback Hamburg for
quotations. Upon receipt of the quotations, plaintiff sent to
defendant a letter dated 25 November, 1981 (Exh. C) enclosing its
offer on the items listed by defendant.
On December 4, 1981, defendant informed plaintiff that he
preferred genuine to replacement parts, and requested that he be
given 15% on all items (Exh. D).
On December 17, 1981, plaintiff submitted its formal offer (Exh. E)
containing the item number, quantity, part number, description,
unit price and total to defendant. On December, 24, 1981,
defendant informed plaintiff of his desire to avail of the prices of
the parts at that time and enclosed Purchase Order No. 0101
dated 14 December 1981 (Exh. F to F-4). Said Purchase Order
contained the item number, part number and description.
Defendant promised to submit the quantity per unit he wanted to
order on December 28 or 29 (Exh. F).
On December 29, 1981, defendant personally submitted the
quantities he wanted to Mr. Dieter Reichert, General Manager of
plaintiff, at the latter's residence (t.s.n., 13 December, 1984, p.
36). The quantities were written in ink by defendant in the same
Purchase Order previously submitted. At the bottom of said
Purchase Order, defendant wrote in ink above his signature:
"NOTE: Above P.O. will include a 3% discount. The above will serve
as our initial P.O." (Exhs. G to G-3-a).

Plaintiff immediately ordered the items needed by defendant from

Schuback Hamburg to enable defendant to avail of the old prices.
Schuback Hamburg in turn ordered (Order No. 12204) the items
from NDK, a supplier of MAN spare parts in West Germany. On
January 4, 1982, Schuback Hamburg sent plaintiff a proforma
invoice (Exhs. N-1 to N-3) to be used by defendant in applying for
a letter of credit. Said invoice required that the letter of credit be
opened in favor of Schuback Hamburg. Defendant acknowledged
receipt of the invoice (t.s.n., 19 December 1984, p. 40).
An order confirmation (Exhs. I, I-1) was later sent by Schuback
Hamburg to plaintiff which was forwarded to and received by
defendant on February 3, 1981 (t.s.n., 13 Dec. 1984, p. 42).
On February 16, 1982, plaintiff reminded defendant to open the
letter of credit to avoid delay in shipment and payment of interest
(Exh. J). Defendant replied, mentioning, among others, the
difficulty he was encountering in securing: the required dollar
allocations and applying for the letter of credit, procuring a loan
and looking for a partner-financier, and of finding ways 'to proceed
with our orders" (Exh. K).
In the meantime, Schuback Hamburg received invoices from, NDK
for partial deliveries on Order No.12204 (Direct Interrogatories., 07
Oct, 1985, p. 3). Schuback Hamburg paid NDK. The latter
confirmed receipt of payments made on February 16, 1984 (Exh.CDeposition).
On October 18, 1982, Plaintiff again reminded defendant of his
order and advised that the case may be endorsed to its lawyers
(Exh. L). Defendant replied that he did not make any valid
Purchase Order and that there was no definite contract between
him and plaintiff (Exh. M). Plaintiff sent a rejoinder explaining that
there is a valid Purchase Order and suggesting that defendant
either proceed with the order and open a letter of credit or cancel
the order and pay the cancellation fee of 30% of F.O.B. value, or
plaintiff will endorse the case to its lawyers (Exh. N).
Schuback Hamburg issued a Statement of Account (Exh. P) to
plaintiff enclosing therewith Debit Note (Exh. O) charging plaintiff
30% cancellation fee, storage and interest charges in the total
amount of DM 51,917.81. Said amount was deducted from
plaintiff's account with Schuback Hamburg (Direct Interrogatories,
07 October, 1985).
Demand letters sent to defendant by plaintiff's counsel dated
March 22, 1983 and June 9, 1983 were to no avail (Exhs R and S).
Consequently, petitioner filed a complaint for recovery of actual or compensatory
damages, unearned profits, interest, attorney's fees and costs against private
respondent.

In its decision dated June 13, 1988, the trial court 4 ruled in favor of petitioner by
ordering private respondent to pay petitioner, among others, actual compensatory
damages in the amount of DM 51,917.81, unearned profits in the amount of DM
14,061.07, or their peso equivalent.
Thereafter, private respondent elevated his case before the Court of Appeals. On
February 18, 1992, the appellate court reversed the decision of the trial court and
dismissed the complaint of petitioner. It ruled that there was no perfection of
contract since there was no meeting of the minds as to the price between the last
week of December 1981 and the first week of January 1982.
The issue posed for resolution is whether or not a contract of sale has been
perfected between the parties.
We reverse the decision of the Court of Appeals and reinstate the decision of the
trial court. It bears emphasizing that a "contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object of the contract and
upon the price. . . . " 5
Article 1319 of the Civil Code states: "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." The facts presented to us indicate that
consent on both sides has been manifested.
The offer by petitioner was manifested on December 17, 1981 when petitioner
submitted its proposal containing the item number, quantity, part number,
description, the unit price and total to private respondent. On December 24, 1981,
private respondent informed petitioner of his desire to avail of the prices of the parts
at that time and simultaneously enclosed its Purchase Order No. 0l01 dated
December 14, 1981. 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.
Although said purchase order did not contain the quantity he wanted to order,
private respondent made good, his promise to communicate the same on December
29, 1981. At this juncture, it should be pointed out that private respondent was
already in the process of executing the agreement previously reached between the
parties.
Below Exh. G-3, marked as Exhibit G-3-A, there appears this statement made by
private respondent: "Note. above P.O. will include a 3% discount. The above will
serve as our initial P.O." This notation on the purchase order was another indication
of acceptance on the part of the vendee, for by requesting a 3% discount, he
implicitly accepted the price as first offered by the vendor. The immediate
acceptance by the vendee of the offer was impelled by the fact that on January 1,
1982, prices would go up, as in fact, the petitioner informed him that there would be
a 7% increase, effective January 1982. On the other hand, concurrence by the
vendor with the said discount requested by the vendee was manifested when
petitioner immediately ordered the items needed by private respondent from

Schuback Hamburg which in turn ordered from NDK, a supplier of MAN spare parts in
West Germany.

10. BPI VS DE RENY FABRIC

When petitioner forwarded its purchase order to NDK, the price was still pegged at
the old one. Thus, the pronouncement of the Court Appeals that there as no
confirmed price on or about the last week of December 1981 and/or the first week of
January 1982 was erroneous.

Doctrine: Under the terms of their Commercial Letter of Credit Agreements

While we agree with the trial court's conclusion that indeed a perfection of contract
was reached between the parties, we differ as to the exact date when it occurred,
for perfection took place, not on December 29, 1981. Although the quantity to be
ordered was made determinate only on December 29, 1981, quantity is immaterial
in the perfection of a sales contract. What is of importance is the meeting of the
minds as to the object and cause, which from the facts disclosed, show that as of
December 24, 1981, these essential elements had already occurred.

packing, value, or delivery of the property purporting to be represented by

with the Bank, the appellants agreed that the Bank shall not be
responsible for the existence, character, quality, quantity, conditions,

documents; for any difference in character, quality, quantity, condition, or

value of the property from that expressed in documents. Having been
positively proven as a fact, the appellants are bound by this established
usage.

On the part of the buyer, the situation reveals that private respondent failed to open
an irrevocable letter of credit without recourse in favor of Johannes Schuback of
Hamburg, Germany. This omission, however. does not prevent the perfection of the
contract between the parties, for the opening of the letter of credit is not to be
deemed a suspensive condition. The facts herein do not show that petitioner
reserved title to the goods until private respondent 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 fulfillment
of the act of opening a letter of credit.

Facts:: De Reny Fabric Industries, Inc. (De Reny) applied for, and was granted, four
(4) irrevocable commercial letters of credit with the Bank of Philippine Islands (BPI).
The letter of credits was used to cover the purchase of goods by De Reny from its

The opening of a etter 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 enumerated in Article
1305 and 1474 of the Civil Code, the absence of any of which will prevent the
perfection of the contract from taking place.

American supplier, the J.B. Distributing Company. As each shipment arrived in the

To adopt the Court of Appeals' ruling that the contract of sale was dependent on the
opening of a letter of credit would be untenable from a pragmatic point of view
because private respondent would not be able to avail of the old prices which were
open to him only for a limited period of time. This explains why private respondent
immediately placed the order with petitioner which, in turn promptly contacted its
trading partner in Germany. As succinctly stated by petitioner, "it would have been
impossible for respondent to avail of the said old prices since the perfection of the
contract would arise much later, or after the end of the year 1981, or when he finally
opens the letter of credit." 6

by the corporation when it became established, as a result of a chemical test

WHEREFORE, the petition is GRANTED and the decision of the trial court dated June
13, 1988 is REINSTATED with modification.

Philippines, the De Reny Fabric Industries, Inc. made partial payments to the Bank
amounting to 12,000. Further payments were, however, subsequently discontinued

conducted by the National Science Development Board, that the goods that arrived
in Manila were colored chalks instead of dyestuffs. The corporation also refused to
take possession of these goods, and for this reason, the Bank caused them to be
deposited with a bonded warehouse paying therefor the amount of P12,609.64 up to
the filing of its complaint with the court.

Issue : Whether or not De Reny fabrics is liable under the letter of Credit

SO ORDERED.
Feliciano, Bidin, Melo and Vitug, JJ., concur.

Held : 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

When the letter of Credit expires, the bank can still collect from the

entered into by the appellants, do not deal with the property to be exported or

plaintiff, not on the letter of credit, but on the grounds of solutio indebiti

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

Facts: Rodzssen Supply, Inc. (Rodzssen) opened with plaintiff Far East Bank and Trust
Co. (Far East Bank) a 30-day domestic letter of credit, in the amount of P190,000.00
in favor of Ekman and Company, Inc. (Ekman) for the purchase from the latter of five
units of hydraulic loaders, to expire on February 15, 1979.

The three loaders were delivered to defendant for which Far East Bank paid Ekman
and which defendant paid plaintiff before expiry date of LC. The remaining two
loaders were delivered to defendant but the latter refused to pay. Ekman pressed
payment to plaintiff. Rodzssen paid Ekman for the two loaders and later demanded
from defendant such amount as it paid Ekman. Far East Bank refused payment
contending that there was a breach of contract by Rodzssen who in bad faith paid
Ekman, knowing that the two units of hydraulic loaders had been delivered to
defendant after the expiry date of subject Letter of Credit.

Issue: Whether or not Far East Bank can still collect from Rodzssen despite the
expiration of the letters of Credit

covenant.
Held: Far East Bank can still collect from Rodzssen not on the letter of credit but on
the grounds of solutio indebiti

Far East Banks right to seek recovery from Rodzssen is anchored not upon the
inefficacious Letter of Credit, but on Article 2142 of the Civil Code, which reads;

11. RODZSSEN SUPPLY VS FAR EAST

Certain lawful, voluntary and unilateral acts give rise to the juridical relation of
quasi-contract to the end that no one shall be unjustly enriched or benefited at the
expense of another.

Ekman for the last 2 loaders on March 14, 1980, which was five months after the
expiration of the LC on October 16, 1979. Respondent even informed petitioner in

supplier, Oregon Industries, Inc., to pay for one Skagit Yarder with accessories. PCIB
paid to Oregon Industries the cost of the machinery against a bill of exchange for P
80,000, with recourse, presentment and notice of dishonor waived, and with date of
maturity on January 4, 1964.

December 1979 of the cancellation of the LC and credited P22800 to the account of
petitioner, which represented the marginal deposit which petitioner had been
required to put up for the unnegotiated portion of the LC. The subject LC had
become invalid upon the lapse of the period fixed therein. Thus, respondent should

After making the required marginal deposit of P28,000 on November 5, 1963,

TOMCO, Inc. signed and delivered to the bank a trust receipt acknowledging receipt
of the merchandise in trust for the bank, with the obligation "to hold the same in
storage" as property of PCIB, with a right to sell the same for cash provided that the
entire proceeds thereof are turned over to the bank, to be applied against
acceptance(s) and any other indebtedness of TOMCO, Inc.

not have paid Ekman since it was not obliged to do so.

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, as in this case,
and their rights and obligations may be determined equitably under the law
proscribing unjust enrichment.

12. ABAD VS CA
G.R. No. L-42735 January 22, 1990
RAMON L. ABAD, petitioner,
vs.
HON. COURT OF APPEALS & THE PHILIPPINE COMMERCIAL AND INDUSTRIAL
BANK, respondents.
Manuel T. De Guia for petitioner.

In consideration of the release to TOMCO, Inc. by PCIB of the machinery covered by

the trust receipt, petitioner Ramon Abad signed an undertaking entitled, "Deed of
Continuing Guaranty" appearing on the back of the trust receipt, whereby he
promised to pay the obligation jointly and severally with TOMCO, Inc.
Except for TOMCO's P28,000 marginal deposit in the bank, no payment has been
made to PCIB by either TOMCO, Inc. or its surety, Abad, on the P80,000 letter of
credit.
Consequently, the bank sued TOMCO, Inc. and Abad in Civil Case No. 75767-CFI
Manila entitled, "Philippine Commercial and Industrial Bank vs. TOMCO, Inc. and
Ramon Abad." PCIB presented in evidence a "Statement of Draft Drawn" showing
that TOMCO was obligated to it in the total sum of P125,766.13 as of August 26,
1970.
TOMCO did not deny its liability to PCIB under the letter of credit but it alleged that
inasmuch as it made a marginal deposit of P28,000, this amount should have been
deducted from its principal obligation, leaving a balance of P52,000 only, on which
the bank should have computed the interest, bank charges, and attorney's fees.

San Juan, Africa, Gonzales & San Agustin Law Offices for private respondent.

On February 5, 1972, the trial court rendered judgment in favor of PCIB ordering
TOMCO, Inc. and Abad to pay jointly and severally to the bank the sum of
P125,766.13 as of August 26, 1970, with interest and other charges until complete
payment is made, plus attorney's fees and costs.

GRINO-AQUINO, J.:

Abad appealed to the Court of Appeals which, in a decision dated November 21,
1975, affirmed in toto the decision of the trial court.

The bone of contention in this petition for review of the decision dated November
21, 1975 of the Court of Appeals in C.A. G.R. No. 51649-R entitled, "Philippine
Commercial and Industrial Bank vs. TOMCO, Inc., Oregon Industries, Inc., and Ramon
L. Abad" is whether the debtor (or its surety) is entitled to deduct the debtor's cash
marginal deposit from the principal obligation under a letter of credit and to have
the interest charges computed only on the balance of the said obligation.

Abad filed this petition for review raising the issue of 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.
Petitioner alleges that by not deducting the marginal deposit from TOMCO's
indebtedness, the bank unjustly enriched itself at the expense of the debtor
(TOMCO) and its surety (Abad).

On October 31, 1963, TOMCO, Inc., now known as Southeast Timber Co. (Phils.), Inc.,
applied for, and was granted by the Philippine Commercial and Industrial Bank
(hereafter called "PCIB"), a domestic letter of credit for P 80,000 in favor of its

The petition is impressed with merit.

The nature and mercantile usage of a trust receipt was explained in the case of PNB
vs. General Acceptance & Finance Corporation, et al., G.R. No. L-30751, 24 May
1988 and Vintola vs. Insular Bank of Asia and America, 150 SCRA 578, as follows:
. . . . A trust receipt is considered as 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 through utilization, as collateral of the merchandise
imported or purchased, ... . The bank does not become the real
owner of the goods. It is merely the holder of a security title for
the advances it had made to the importer. The goods the importer
had purchased through the bank financing, remain the importer's
property and he holds it at his own risk. The trust receipt
arrangement does not convert the bank into an investor; it
remains a lender and creditor. This is so because the bank had
previously extended a loan which the letter of credit represents to
the importer, and by that loan, the importer should be the real
owner of the goods. If under the trust receipt, the bank is made to
appear as the owner, it was but an artificial expedient, more of a
legal fiction than fact, for if it were so, it could dispose of the
goods in any manner it wants, which it cannot do, just to give
consistency with the purpose of the trust receipt of giving a
stronger security for the loan obtained by the importer. To consider
the bank as the true owner from the inception of the transaction
would be to disregard the loan feature involved.
. . . . A letter of credit-trust receipt arrangement is endowed with
its own distinctive features and characteristics. Under that set-up,
a bank extends a loan covered by the letter of credit, with the
trust receipt as a security for the loan. In other words, the
transaction involves a loan feature represented by the letter of
credit, and a security feature which is in the covering trust receipt.
....
A trust receipt, therefore, is a security agreement, pursuant to
which a bank acquires a "security interest" in the goods. It secures
an indebtedness and there can be no such thing as security
interest that secures no obligation.
The marginal deposit requirement is a Central Bank measure to cut off excess
currency liquidity which would create inflationary pressure. It is a collateral security
given by the debtor, and is supposed to be returned to him upon his compliance with
his secured obligation. Consequently, the bank pays no interest on the marginal
deposit, unlike an ordinary bank deposit which earns interest in the bank. As a
matter of fact, the marginal deposit requirement for letters of credit has been
discontinued, except in those cases where the applicant for a letter of credit is not
known to the bank or does not maintain a good credit standing therein (Bankers
Associations of the Philippines Policy, Rules 6 and 7).

It is only fair then that the importer's marginal deposit (if one was made, as in this
case), should be set off against his debt, for while the importer earns no interest on
his marginal deposit, the bank, apart from being able to use said deposit for its own
purposes, also earns interest on the money it loaned to the importer. 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 the importer paid to the bank. Compensation is proper and should
take effect by operation of law because the requisites in Article 1279 of the Civil
Code are present and should extinguish both debts to the concurrent amount (Art.
1290, Civil Code). Although Abad is only a surety, he may set up compensation as
regards what the creditor owes the principal debtor, TOMCO (Art. 1280, Civil Code).
It is not farfetched to assume that the bank used TOMCO's marginal deposit to
partially fund the P80,000 letter of credit it issued to TOMCO, hence, the interests
and other charges on said letter of credit should be levied only on the balance of
P52,000 which was the portion that was actually funded or loaned by the bank from
its own funds. Requiring the importer to pay interest on the entire letter of credit
without deducting first him marginal deposit, would be a clear case of unjust
enrichment by the bank.
WHEREFORE, the petition for review is granted. The decision of the Court of Appeals
is modified by deducting TOMCO's marginal deposit of P28,000 from the principal
amount of P80,000 covered by its letter of credit. The interests and 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.
SO ORDERED.

13. INSULAR BANK VS IAC

14. PHILIPPINE VIRGINIA VS DE LOS ANGELES ET AL

Doctrine: An irrevocable letter of credit cannot, during its lifetime, be

cancelled or modified without the express permission of the beneficiary.

Because of the prevailing export or world market price under which Sevilla will be
exporting at a loss, the agreement was further amended to require Sevilla would
open an irrevocable letter of credit

with the Prudential Bank and Trust Co.

(Prudential) in favor of the PVTA to secure the payment of said balance, drawable
upon the release from the Bureau of Customs of the imported Virginia blending
tobacco. While Sevilla was trying to negotiate the reduction of the procurement cost
Facts: Timoteo Sevilla, proprietor and General Manager of the Philippine Associated

of the 2,101.479 kilos of PVTA tobacco already exported which attempt was denied

Resources (PAR) was awarded in a public bidding the right to import Virginia leaf

by PVTA and also by the Office of the President. PVTA attempted to collect from the

tobacco. Subsequently, the Philippine Virginia Tobacco Administration (PVTA) and

letter of Credit with Prudential. Sevilla filed an injunction for the release of funds

Sevilla entered into a contract for the importation of 85 million kilos of Virginia leaf

with Prudential in the sala of Judge Delos Santos. Judge Delos Santos issued the

tobacco and a counterpart exportation of 2.53 million kilos of tobacco and 5.1

injunction order and in a subsequent petition, ordered the funds of the letter of

million kilos of farmers and tobacco at P3.00 a kilo. In accordance with their

credit released to Sevilla.

contract Sevilla purchased from PVZTA and exported 2,101.470 kilos of tobacco,
paying the PVTA the sum of P2,482,938.50 and leaving a balance of P3,713,908.91.

Issue: Whether or not Judge Sevilla acted with grave abuse of discretion in releasing

Before respondent Sevilla could import the counterpart blending Virginia tobacco,

the funds to the applicant of the letter of credit.

amounting to 525,560 kilos, Republic Act No. 4155 was passed and took effect on
June 20, 1 964, authorizing the PVTA to grant import privileges at the ratio of 4 to 1
instead of 9 to 1 and to dispose of all its tobacco stock at the best price available.

Held: Judge Delos Santos 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. Consequently, if the finding the trial on the merits is that respondent
Sevilla has ailieged unpaid balance due the petitioner, such unpaid obligation would
be unsecured.

15. LAND BANK VS MONETS EXPERT.

The issuing bank in the transaction involving an import letter of credit, is
independent from its function as an agent of the same transaction. As the
issuer of the letter of credit, it only deals in documents and it is not
involved in the contract between the parties. However, a partys liability is
mitigated as the bank failed to exercised the required diligence in its
function as a collection agent of the same transaction.

Facts: Land Bank of the Philippines (Land Bank), and Monets Export and
Manufacturing Corporation (Monet) executed an Export Packing Credit Line
Agreementunder which Monet was given a credit line in the amount of P250,000.00,
secured by the proceeds of its export letters of credit, the continuing guaranty of the
spouses Vicente V. Tagle, Sr. and Ma. Consuelo G. Tagle. The credit line agreement
was renewed and amended several times until it was increased to P5,000,000.00.
Subsequently, Monet appointed Land Bank as an assignor to demand, collect and
receive the proceeds of the export letters of credit of their clients at a oan value of
80%.
One of Monets, Wishbone Trading Company of Hong Kong (Wishbone), drew the
amount of US$38,768.40 on the letter of credit. However, Landbank was not able to
collect from Wishbone.
Monet alleged as a consequence that they are not liable for the letter of credit as
Land Bank failed and refused to collect the receivables on their export letter of
credit against Wishbone.
Issue: Whether or not the failure of Landbank to collect from Wishbone Trading
Company of Hong Kong absolves Monet from liability
Held: Monet is still liable notwithstanding Lanbanks failure to collect.
Land Bank that, as the issuing bank in the transaction involving an import letter of
credit, is independent from its function as an agent of the spouses. As the issuer of
the letter of credit, it 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.
The engagement of the issuing bank is to pay the seller or beneficiary of the credit
once the draft and the required documents are presented to it. 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.
However, Monets liabilities are mitigated as the bank failed to exercised the
required diligence in its collection. In transactions involving its export letters of
credit, such as the Wishbone account, Land Bank should have exercised the
requisite degree of diligence in collecting the amount due to the former.

16. BPI VS DE RENY (#10)

17. RELIANCE COMMODITIES VS DAEWOO

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.

18. INSULAR BANK VS IAC (#13)

19. TRANSFIELD (#1)

20. FEATI.. (#7)

21. BANK OF COMMERCE VS SERRANO

DECISION
QUISUMBING, J.:

On March 15, 1994, BOC issued to Via Moda, Irrevocable Letter of Credit No.
BCZ-940051, in the amount of US$56,735, for the purchase and importation of fabric
and textile products from Tiger Ear Fabric Co. Ltd. of Taiwan. To secure the release of
the goods covered, respondent, in representation of Via Moda, executed Trust
Receipt No. 94-22221 dated April 21, 1994 with due date on July 20, 1994 for
US$55,944.73 (P1,554,424.32).[5]
Under the terms of the trust receipt, Via Moda agreed to hold the goods in trust
for petitioner as the latters property and to sell the same for the latters account. In
case of sale, the proceeds are to be remitted to the bank as soon as it is received,
but not later than the maturity date. Said proceeds are to be applied to the relative
acceptances, with interest at the rate of 26% per annum, with a penalty of 36% per
annum of the total amount due until fully paid in case of non-payment of the trust
receipt and relative acceptance at maturity date or, in the alternative, to return the
goods in case of non-sale.[6]
The goods covered by the trust receipt were shipped by Via Moda to its
consignee in New Jersey, USA, who sent an Export Letter of Credit issued by the
Bank of New York, in favor of BOC. The Regional Operations Officer of BOC signed
the export declarations to show consent to the shipment. The total value of the
entrusted goods which were shipped per export declaration was US$81,987
(P2,246,443.80). The proceeds of the entrusted goods sold were not credited to the
trust receipt but, were applied by the bank to the principal, penalties and interest of
the export packing loan. The excess P472,114.85 was applied to the trust receipt,
leaving a balance of P1,444,802.28 as of November 15, 1994.[7]
On November 16, 1994, petitioner sent a demand letter to Via Moda to pay the
said amount plus interest and penalty charges, or to return the goods covered by
Trust Receipt No. 94-22221 within 5 days from receipt. The demand was not heeded.
As of December 15, 1998, the outstanding balance of Via Moda was P4,783,487.15.
[8]

For our review on certiorari is the civil aspect of the Court of Appeals Decision,
[1]
dated September 28, 2001, in CA-G.R. CR No. 24570 as well as its Resolution,
[2]
dated January 17, 2002, denying petitioners motion for reconsideration. The Court
of Appeals set aside the Decision [3] dated May 31, 2000, of the Regional Trial Court
(RTC) Branch 105 of Quezon City.
The facts are as follows:
Petitioner Bank of Commerce (formerly Boston Bank of the Philippines) is a
private domestic banking institution. Respondent Teresita S. Serrano is the General
Manager and Treasurer of Via Moda International, Inc., a domestic business entity
primarily engaged in the import and export of textile materials and fabrics.
Via Moda International, represented by respondent, obtained an export packing
loan from petitioner, Bank of Commerce (BOC)-Diliman, Quezon City Branch, in the
amount of US$50,000 (P1,382,250), secured by a Deed of Assignment over
Irrevocable Transferable Letter of Credit No. 100072119. Respondent Serrano
executed in favor of BOC Promissory Note No. 94/086 for US$50,000 dated May 6,
1994 with maturity date on July 14, 1994. Via Moda then opened a deposit account
for the proceeds of the said loan.[4]

On March 8, 1998, respondent was charged with the crime of estafa under
Article 315 (b) of the Revised Penal Code in relation to Presidential Decree No. 115. [9]
On May 31, 2000, the trial court rendered judgment and the dispositive portion
of which reads:
WHEREFORE, in the light of the foregoing, the Court finds accused Teresita S.
Serrano GUILTY beyond reasonable doubt of the crime charged in the Information
filed in this case and sentences her to serve the indeterminate penalty of
imprisonment from EIGHT (8) YEARS AND ONE (1) DAY OF PRISION MAYOR, AS
MINIMUM, TO TWENTY (20) YEARS OF RECLUSION TEMPORAL, AS MAXIMUM,
including the accessory penalties. She is ordered to pay her civil liability to Bank of
Commerce in the amount of P4,783,487.15, with interest until fully paid, and the
costs of this suit.
SO ORDERED.[10]

Respondent appealed to the Court of Appeals which rendered a decision dated

September 28, 2001, reversing the trial courts decision. The Court of Appeals held
that the element of misappropriation or conversion in violation of P.D. No. 115, in
relation to the crime of estafa, was absent in this case, thereby acquitting the
respondent and deleting her civil liability. The decretal portion of the decision reads
as follows:
WHEREFORE, premises considered, the appealed decision is hereby REVERSED, and
the accused-appellant ACQUITTED of the crime charged. The civil liability adjudged
by the court a quo is hereby deleted, there being no showing that accused-appellant
bound herself personally liable with respect to the loan secured by the trust receipt.
SO ORDERED.[11]
Petitioner filed a Motion for Reconsideration which was denied. Petitioner now
comes to this Court submitting the following issues for our resolution:
I. WHETHER RESPONDENT IS JOINTLY AND SEVERALLY LIABLE WITH VIA
MODA UNDER THE GUARANTEE CLAUSE OF LC NO. [BCZ-940051]
(EXHIBIT A) SECURED BY TRUST RECEIPT NO. [94-22221] (EXHIBIT C).
[12]

II. WHETHER THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR

IN DELETING THE CIVIL LIABILITY OF RESPONDENT SERRANO IN ITS
DECISION DATED SEPTEMBER 28, 2001.[13]
On the first issue, petitioner contends that the Court of Appeals made a
manifestly mistaken inference from its findings or a misapprehension of facts and
overlooked a vital piece of evidence on record, particularly, the Guarantee Clause of
the Letter of Credit secured by the Trust Receipt. Petitioner further alleges that the
said Guarantee Clause provides that the liability of respondent is joint and solidary;
hence, she should be held liable on the obligation.
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. [14] 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.[15]

However, the question of the liability of respondent based on the Guarantee

Clause of the Letter of Credit, was not raised either at the trial court or before the
Court of Appeals. A question that was never raised in the courts below cannot be
allowed to be raised for the first time on appeal without offending basic rules of fair
play, justice and due process. Such an issue was not brought to the fore either in the
trial court or the appellate court, and would have been disregarded by the latter
tribunal for the reasons previously stated. With more reason, the same does not
deserve consideration by this Court.[16]
On the second issue, the Court of Appeals held that respondent 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. [17]
Worthy of mention at this point is the Court of Appeals finding that there was
no misappropriation or conversion by the respondent of the proceeds of the sale in
the goods, subject of the trust receipt since the proceeds were actually received by
petitioner but the latter applied the same to Via Modas other obligations under the
export packing loan. It further stated that such application of payment to another
obligation was done by petitioner on its own and should not create a criminal liability
on the part of respondent who did not take part nor had any knowledge thereof. It is
on this premise that the respondent was acquitted of the crime charged. [18]
Incidentally, petitioner urged this Court to review the factual findings of the
case due to contradictory findings of the trial court and the Court of Appeals arising
from misappreciation of facts by the Court of Appeals. Such plea must be rejected. It
is a well established rule that in an appeal via certiorari, only questions of law may
be raised,[19] and we find petitioners averments insufficient to disregard this wellentrenched rule. This Court does not, of itself, automatically delve into the record of
a case to determine the facts anew where there is disagreement between the
findings of fact by the trial court and by the Court of Appeals. When the
disagreement is merely on the probative value of the evidence, i.e., which is more
credible of two versions, we limit our review to only ascertaining if the findings of
the Court of Appeals are supported by the records. So long as the findings of the
appellate court are consistent with and not palpably contrary to the evidence on
record, we shall decline to make a review on the probative value of such evidence.
The findings of fact of the Court of Appeals, and not those of the trial court, will be
considered final and conclusive, even in this Court. [20] In this case, we find no cogent
reason to disturb the foregoing factual findings of the Court of Appeals.
At any rate, petitioner BOC is not precluded from filing a separate civil action
against the responsible party where the abovementioned issues could be properly
resolved or determined. The issues raised by herein petitioner involve a
determination of facts and require the admission and examination of additional
evidence for its resolution. That cannot be done in a petition for review
on certiorari by merely appealing the civil aspect of an acquittal in a criminal case.

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated
September 28, 2001 and the Resolution dated January 17, 2002, of the Court of
Appeals in CA-G.R. CR No. 24570, are AFFIRMED.
SO ORDERED.