Visitas técnicas y ponencias sobre las novedades en I+D+i dentro del sector . 30

Letters of Credit FACTS:

Bank of America received by registered maul an Irrevocable Letter of Credit purportedly issued by Bank of Ayudha in Thailand for the account of General Chemicals (Thailand) for $2,782,000 to cover the sale of plastic ropes and agricultural files.

Bank of America acted as the advising bank to the beneficiary Inter-Resin Industrial Corporation.

Bank of America notified Inter-resin of the letter of credit. Inter-resin then sent its lawyer to confirm the letter of credit. A bank official said that there was no need to confirm because the letter of credit would not have been transmitted if it was not genuine.

Inter-resin sought to make partial availment of the letter of credit for the shipment of goods worth $1,320,600. Bank of America issued a cashier’s check in pesos and subsequently asked for reimbursement from the Bank of Ayudha.

Inter-resin again wanted to make a second availment of the letter of credit. Bank of America received a telex from the Bank of Ayudha declaring the letter of credit as fraudulent. The letter of credit had been issued for the account of Siam Union Metal in favor of Electrolutic Zinc Co. and not for the account of General Chemicals in favor of Inter-resin. Hence, Bank of America stopped processing Inter-resin’s request.

Bank of America sought the help of its branch in Thailand and the NBI to determine the authenticity of the letter of credit.

It was found that the vans exported by Inter-resin did not contain plastic ropes but plastic strips and waste materials.

Bank of America files criminal charges against the officials of Inter-resin for estafa which was dismissed for insufficiency of evidence. It is now seeking recovery of the payment it made to Inter-resin. Inter-resin on the other hand is claiming that it is entitled to be paid for the remaining balance of the letter of credit covering the second shipment of goods. It is arguing that Bank of America made assurances that enticed it to send merchandise to Thailand and that Bank of America was at fault for not verifying the authenticity of the letter of credit.

The trial court and the CA ruled in favor of Inter-resin and held the Bank of America as liable for payment of the balance. Hence, this petition.

ISSUE:

1. Whether or not Bank of America warranted the genuineness and authenticity of the letter of credit

2. Whether or not it has acted merely as an advising bank of a confirming bank

3. Whether or not Bank of America following the dishonor of the letter of credit by the Bank of Ayudha may recover from Inter-resin HELD:

Read the annotations on letters of credit. The court explained the structure and relationship of parties in letters of credit.

1. The Bank of America is merely an advising bank and not a confirming bank as proved by the letter of credit itself, the letter of advice, the bank’s request for payment of the advising fee and the admission of Inter-resin that it has paid the same. The letter of credit is an engagement of the issuing bank and not the advising bank. In this case the draft to be drawn was under the name of General Chemicals to be paid by the Bank of Ayudha and not the Bank of America.

a. Also the Bank of America’s letter of advice to Inter-resin said that “the enclosure is solely an advise of credit opened by the abovementioned correspondent and conveys no engagement by us.” The written reservation limits the obligation of the Bank of America merely as an advising bank.

b. As an advising bank the Bank of America did not incur any obligation other than notifying Inter-resin of the letter or credit. The statement of the bank employee did not effectively novate the letter of credit or the letter of advise and hold the bank wholly liable

2. Inter-resin cannot argue that the Bank of America induced it to send merchandise to Thailand. It is strange if it did not enter into a contract with General Chemicals prior to the issuance of the letter of credit. A perfected contract precedes the issuance of a letter of credit

3. Art. 18 of the UCP: Banks assume no liability or responsibility for the consequences arising out of the delay and or loss of any messages, letters or documents, or for delay, mutilation or other errors arising in the transmission of any telecommunication

4. The Bank of America as advising Bank is bound only to check the apparent authenticity of the letter of credit.

a. Apparent – unaided senses that is not or may not be borne out by more rigorous examination or greater knowledge

5. The Bank of America may also recover what it has paid to Inter- resin. What happened was a discounting arrangement, where Bank of America acted independently as a negotiating bank. Inter-resin did not have to present the documents to the Bank of Ayudha in Thailand to recover payment.

a. As negotiating bank, Bank of America has a right of recourse against the issuing bank and until reimbursement Inter-resin has contingent liability

b. Bank of Ayudha in turn can claim reimbursement from General Chemicals. But since the Bank of Ayudha disowned the letter of credit, Bank of America may now turn to Inter- resin for payment

FEATI V. CA 196 SCRA 576 Letters of Credit FACTS:

Villaluz and Christiansen entered into an agreement to sell lauan logs. Christiansen issued a purchase order for the logs in favor of Hanmi Trade and Development Corp. Christiansen acted as the broker of the sale. Hanmi instructed the Security Pacific and National Bank to issue an irrevocable letter of credit for $54,000 available at sight in favor of Villaluz. The letter of credit was sent to Feati Bank (now Citytrust) with the instruction that it “forward the enclosed letter of credit to the beneficiary.” The letter of credit provided that the draft be drawn by Villlaluz against the Security Pacific and National Bank and that it be accompanied by certain documents including the certification of Christiansen stating that the logs have been approved prior to shipment. Also incorporated by reference in the letter of credit is the Uniform Customs and Practice for Documentary Credits.

The logs were then loaded on the vessel Zenlin Glory and were inspected and certified by the representatives from the Bureau of Customs and Bureau of Forestry. The logs were also approved by the Chief Mate of the vessel. Christiansen, however, refused to issue his certification. As a consequence, Feati refused to advance payment on the letter of credit. Although it had allowed Villaluz to obtain a loan for P45,000 in order to cover the cost of shipment.

Villauz appealed to the Central Bank and the Central Bank issued a memorandum stating that the certification of the Bureau of Forestry is sufficient to approve the shipment of the logs.

The logs arrived at Korea and received by Hanmi and were later on sold to Taitsung Lumber Company.

The demand of Villauz for payment of the draft were unheeded by Feati because of the absence of the certification of Christiansen. Villaluz filed a petition for mandamus and specific performance against Christiansen and the Feati Bank.

The trial court and the Ca rule din favor of Villaluz. Hence this petition. ISSUE:

1. Whether or not a correspondent bank is to be held liable under the letter of credit despite the non-compliance of the beneficiary with the terms thereof

2. Whether or not FEATI is a notifying of confirming bank HELD:

1. It is a settled rule that the documents tendered by the beneficiary must strictly conform to the terms of the letter of credit. The tender must include all the documents required by the letter.

a. A correspondent bank bears the risk of non-reimbursement if it decides to pay the beneficiary despite the non- compliance with the terms of the letter of credit

b. The rule is recognized in the United States and has been adopted by the Philippines

2. The letter of credit also incorporates the Uniform Customs and Practice for Documentary Credit (UCP) as such the said rules are applicable in the relations between the parties. Also, even if there was no incorporation in the letter of credit, Art. 2 of the Code of Commerce states that in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by the customs and usages generally observed. Hence, the applicability of the UCP particularly articles 3, 7 and 8.

3. The mentioned provisions state that the bank may only negotiate, accept or pay, if the documents tendered to it are on their face in accordance with the terms and conditions of the documentary credit. The absence of any document required justifies the refusal by the correspondent bank to negotiate, accept or pay the beneficiary. It is not its obligation to look beyond the documents. It merely has to rely on the completeness of the documents tendered by the beneficiary.

4. FEATI is merely a notifying bank. The credit is irrevocable but not confirmed and FEATI is not bound to pay without presenting the documents required by the letter of credit.

a. Irrevocable credit – means that the issuing bank may not without the consent of the beneficiary and the applicant revoke his undertaking under the letter of credit

b. Confirmed Credit – obligation assumed by the correspondent bank. Correspondent bank gives an absolute assurance to the beneficiary that it will undertake the issuing bank’s obligation as its own according to the terms and conditions of the credit.

5. And even if FEATI be considered as a negotiating or a confirming bank, it cannot be forced to pay the amount under the letter because there was a failure on the part of Villaluz to comply with the terms of the letter of credit.

KENG HUA PAPER PRODUCTS V. CA