FARINAS COMMERCIAL LAW CASE DIGESTS

FARINAS COMMERCIAL LAW CASE DIGESTS

LETTERS OF CREDIT

PRUDENTIAL BANK vs. INTERMEDIATE APPELLATE COURT G.R. No. 74886 December 8, 1992, 216 scra 257--presentment for payment

FACTS:Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile machineries under a five-year deferred payment plan. To effect payment for said machineries, Philippine Rayon Mills opened a commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho. Against this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the Prudential Bank through its correspondent in Japan. Two of these drafts were accepted by Philippine Rayon Mills while the others were not. Petitioner instituted an action for the recovery of the sum of money it paid to Nissho as Philippine Rayon Mills was not able to pay its obligations arising from the letter of credit. Respondent court ruled that with regard to the ten drafts which were not presented and accepted, no valid demand for payment can be made. Petitioner however claims that the drafts were sight drafts which did not require presentment for acceptance to Philippine Rayon.

ISSUE:Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon liable thereon.

RULING:In the case at bar, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. There was in fact 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). The said section provides that presentment for acceptance must be made:

(a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the maturity of the instrument; or (b) Where the bill expressly stipulates that it shall be presented for acceptance; or (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.

In no other case is presentment for acceptance necessary in order to render any party to the bill liable. Obviously then, sight drafts do not require presentment for acceptance.

Bank of America, NT v. Court of Appeals228 SCRA 357Bank of America received by registered mail an irrevocable letter of credit purportedly issued by Bank of Ayudhya Samyek Branch, for the account of General Chemicals, Ltd., of Thailand in the amount of $2,782,000.00 to cover the sale of plastic ropes and agricultural files, with Bank of America as the advising bank and Inter-Resin Industrial Corporation as beneficiary.Bank of America notified Inter-Resin of the letter of credit. Upon request by Inter-Resin for Bank of America to confirm the letter of credit, latter refused although one of its employee explained to Inter-Resin that there was no need for confirmation because the letter of credit is genuine.Inter-Resin therefore twice sought availment under the letter of credit. Bank of America issued P10,219,093 in the first availment upon being satisfied of the documents submitted by Inter-Resin.However, Bank of America stopped the processing of the second availment upon being informed by Bank of Ayudhya that the letter of credit was fraudulent. Further, upon conducting an examination of the vans sent by Inter-Resin, it found out that they contain not ropes but plastic strips, wrappers, rags and waste materials.Bank of America sued Inter-Resin for recovery of the money it gave under the first availment, considering the letter of credit has been disowned by Bank of Ayudhya. However, the trial court ruled in favor of Inter-Resin which was affirmed by the Court of Appeals.Supreme Court reversed the decision of the lower courts. It ruled that the crucial point of dispute in this case is whether, under the letter of credit, Bank of America has incurred any liability to the beneficiary thereof, an issue that largely is dependent on the banks participation in that transaction: as a mere advising or notifying bank, it would not be liable, but as a confirming bank, had this been the case, it could be considered as having incurred that liability.It cannot seriously be disputed, looking at this case, that Bank of America has, in fact, only been an advising, not confirming, bank, and this much is clearly evident, among other things, by the provisions of the letter of credit itself, the petitioner banks letter of advice, its request for payment of advising fee, and the admission of Inter-Resin that it has paid the same. That Bank of America has asked Inter-Resin to submit documents required by the letter of credit and eventually has paid the proceeds thereof, did not obviously make it a confirming bank.As an advising or notifying bank, Bank of America did not incur any obligation more than just notifying Inter-Resin of the letter of credit issued in its favor, let alone to confirm the letter of credit.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 in the UCP.As advising bank, Bank of America is bound only to check the apparent authenticity of the letter of credit, which it did. Websters explains that the word apparent suggests appearance to unaided senses that is not or may not be borne out by more rigorous examination or greater knowledge.May Bank of America then recover what it has paid under the letter of credit when the corresponding draft for partial availment thereunder and the required documents therefore were later negotiated with it by Inter-Resin? The answer is yes.This kind of transaction is what is commonly referred to as a discounting arrangement. This time, Bank of America, has acted independently as a negotiating bank, thus saving Inter-Resin from the hardship of presenting the documents directly to Bank of Ayudhya to recover payment. As a negotiating bank, Bank of America has a right of 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.SC noted that the additional ground raised by Bank of America, i.e. that Inter-Resin sent waste instead of its products, is really of no consequence. In the operation of a letter of credit, the involved banks deal only with documents and not on goods described in those documents.

CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and ALFONSO CO, petitioners, vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

Facts:On March 2, 1979, Charles Lee, as President of MICO wrote private respondent Philippine Bank of Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum of Three Million Pesos (P3,000,000.00) for the purpose of carrying out MICOs line of business as well as to maintain its volume of business.On the same day, Charles Lee requested for another discounting loan/credit line of Three Million Pesos (P3,000,000.00) from PBCom for the purpose of opening letters of credit and trust receipts.As per agreement, the proceeds of all the loan availments were credited to MICOs current checking account with PBCom. To induce the PBCom to increase the credit line of MICO, petitioners executed another surety agreement in favor of PBCom on July 28, 1980, whereby they jointly and severally guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts and all other obligations of any kind and nature for which MICO may be held accountable by PBComUpon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for payment. Private respondent PBCom extrajudicially foreclosed MICOs real estate mortgage upon repeated demands & emerged as the highest bidder. For the unpaid balance, PBCom then demanded the settlement of the aforesaid obligations from herein petitioners-sureties who, however, refused to acknowledge their obligations to PBCom under the surety agreements. Hence, PBCom filed a complaint with prayer for writ of preliminary attachment before the Regional Trial Court of Manila.Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed by respondent PBCom, and alleged that: a) MICO was not granted the alleged loans and neither did it receive the proceeds of the aforesaid loans; b) Chua Siok Suy was never granted any valid Board Resolution to sign for and in behalf of MICO; c) PBCom acted in bad faith in granting the alleged loans and in releasing the proceeds thereof; d) petitioners were never advised of the alleged grant of loans and the subsequent releases therefor, if any; e) since no loan was ever released to or received by MICO, the corresponding real estate mortgage and the surety agreements signed concededly by the petitioners-sureties are null and void.

Issue: WON the proceeds of the loans or the goods under the trust receipts were ever delivered to and received by MICO.

Held: It is clear that letters of credit, being usually bank to bank transactions, involve more than just one bank. Consequently, there is nothing unusual in the fact that the drafts presented in evidence by respondent bank were not made payable to PBCom.

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.

A trust receipt, therefor, is a document of security pursuant to which a bank acquires a security interest in the goods under trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, with the trust receipt as a security for the loan. The transaction involves a loan feature represented by a letter of credit, and a security feature which is in the covering trust receipt which secures an indebtedness.G.R. No. L-24821 October 16, 1970BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs.DE RENY FABRIC INDUSTRIES, INC., AURORA T. TUYO and AURORA CARCERENY alias AURORA C. GONZALES, defendants-appellants.FACTS : De Reny Fabric Industries, Inc. applied to the Bank for four (4) irrevocable commercial letters of credit to cover the purchase by the corporation of goods from its American supplier, the J.B. Distributing Company. As each shipment arrived in the Philippines, the De Reny Fabric Industries, Inc. made partial payments to the Bank amounting. Further payments were, however, subsequently discontinued by the corporation when it became established, as a result of a chemical test 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?HLED : Under the terms of their Commercial Letter of Credit Agreements with the Bank, the appellants agreed that the Bank shall not be responsible for the "existence, character, quality, quantity, conditions, packing, value, or delivery of the property purporting to be represented by documents; for any difference in character, quality, quantity, condition, or value of the property from that expressed in documents," or for "partial or incomplete shipment, or failure or omission to ship any or all of the property referred to in the Credit," as well as "for any deviation from instructions, delay, default or fraud by the shipper or anyone else in connection with the property the shippers or vendors and ourselves [purchasers] or any of us." Having agreed to these terms, the appellants have, therefore, no recourse but to comply with their covenant. But even without the stipulation recited above, the appellants cannot shift the burden of loss to the Bank on account of the violation by their vendor of its prestation. It was uncontrovertibly proven by the Bank during the trial below that banks, in providing financing in international business transactions such as those entered into by the appellants, do not deal with the property to be exported or shipped to the importer, but deal only with documents. The existence of a custom in international banking and financing circles negating any duty on the part of a bank to verify whether what has been described in letters of credits or drafts or shipping documents actually tallies with what was loaded aboard ship, having been positively proven as a fact, the appellants are bound by this established usage. They were, after all, the ones who tapped the facilities afforded by the Bank in order to engage in international business.FEATI BANK VS. CAFACTS:Note: Feati as a notifying bank is only obliged to notify and transmit to the seller the LC.Bernardo Villaluz (seller) agreed to sell to Christiansen (buyer) 2,000 cubic meters of lauan logs at a price of $27 per cubic meter FOB. Security Pacific National Bank of LA (Security) issued an Irrevocable Letter of Credit. Said letter of credit was mailed to FEATI bank and one of the documents required to be submitted by the seller to the bank is the Certification from Han Axel Christiansen that the logs have been approved prior to shipping in accordance with terms and conditions of corresponding purchase order. Also incorporated by reference in the letter of credit is the Uniform Customs and Practice for Documentary Credits (UCP). The logs were thereafter loaded on the vessel Zenlin Glory which was chartered by Christiansen. It was certified to be in good condition and exportable. The logs arrived at Korea and were received by the consignee Hanmi Trade Devt Comp. and were subsequently sold to another party. However Christiansen failed and refused to issue the certificate despite repeated demands by Villaluz. Due to the absence of the said certificate, Feati Bank refused to advance the payment on the letter of credit. because of the situation of Villaluz, Central Bank issued a memorandum declaring that the requirement of CERTIFICATION is not allowed. However such memo only came out after the letter of credit has already lapsed. RTC ruled in favor of Villaluz and held Feati Bank and Christiansen solildarily liable, it held that: 1. Feati Bank is liable because it failed to negotiate the letter of credit in the absence of the certification even if the Central Bank held such requirement as void. 2. That because the LC is irrevocable, the issuing bank, Security, is deemed to honor the LC upon presentment. And by accepting the instructions from the issuing bank Feati assumed the same undertaking.3. Under the principles and laws on both trust and estoppels. When Feati Bank accepted its role as the notifying and negotiating bank in behalf of the issuing bank, it in effect accepted a trust reposed on it and became a trustee in relation to Villaluz. CA affirmed and further held: 1. The LC was a confirmed LC in which the notifying bank gives its assurance also that the opening banks obligation will be performed. The notifying bank in such a case will not simply transmit but will confirm the opening banks obligation by making it also its own understanding, commitment or guaranty or obligation. ISSUE:1. W/N Feati Bank can be held liable for the LC absence the certification required by the LC. RULING:NO, Feati Bank is not liable. It is already a settled rule in Commercial transaction involving letter of credit that the documents tendered must strictly conform to the terms of the LC. In this case, the mere fact that the certification was required by the LC means that the document is of vital importance to the buyer and therefore must be submitted before the notifying bank is compelled to honor the LC. Thus failure of Villaluz to surrender the Certification is fatal.Under the UCP[footnoteRef:1] the bank may negotiate, accept or pay, if the documents tendered to it are on their face in accordance with the terms and conditions of the documentary credit. And since Feati Bank deals only with documents, the absence of any document required in the LC justifies the refusal by the correspondent bank to negotiate, accept, or pay the beneficiary, as it is not its obligation to look beyond the documents. It merely has to rely on the completeness of the documents. [1: Article 3.An irrevocable credit is a definite undertaking on the part of the issuing bank and constitutes the engagement of that bank to the beneficiary and bona fide holders of drafts drawn and/or documents presented thereunder, that the provisions for payment, acceptance or negotiation contained in the credit will be duly fulfilled, provided that all the terms and conditions of the credit are complied with.An irrevocable credit may be advised to a beneficiary through another bank (the advising bank) without engagement on the part of that bank, but when an issuing bank authorizes or requests another bank to confirm its irrevocable credit and the latter does so, such confirmation constitutes a definite undertaking of the confirming bank. . . .Article 7.Banks must examine all documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit,"Article 8.Payment, acceptance or negotiation against documents which appear on their face to be in accordance with the terms and conditions of a credit by a bank authorized to do so, binds the party giving the authorization to take up documents and reimburse the bank which has effected the payment, acceptance or negotiation. (Emphasis Supplied)]

SC also held that the decision of the TC was wrong in holding that irrevocable and confirmed credit is synonymous. It held that an irrevocable credit refers to the duration of the LC. On the other hand confirmed letter pertains to the obligation assumed by the bank, in this case, the correspondent bank gives an assurance to the beneficiary that it will undertake the issuing banks obligation as its own according to the terms and conditions of the credit. Hence it does not mean that the mere fact that a LC is irrevocable imply that the Correspondent bank in accepting the instructions of the issuing bank has also confirmed the LC. The SC also held that in this case Feati Bank was merely a notifying bank[footnoteRef:2] and not a negotiating bank[footnoteRef:3] nor a confirming bank[footnoteRef:4]. In this case the LC merely provided Feati Bank forward the enclosed original credit to Villaluz. As a notifying bank, its responsibility was solely to notify and/or transmit the documentary of credit to Villaluz and its obligation ends there. There is neither proof that Feati Bank confirmed the letter, the $75,000 loan granted by Feati Bank to Villaluz was not in anticipation of the loan but was an isolated transaction, the logical conclusion is that the LC was merely a collateral. By extending the loan it assumed the character of a negotiating bank but even then Feati bank was still not liable because there was no contractual relationship between Feati and Villaluz. [2: 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. (no contractual relationship with seller/benificiary)] [3: A negotiating bank, on the other hand, is a correspondent bank which buys or discounts a draft under the letter of credit. Its liability is dependent upon the stage of the negotiation. If before negotiation, it has no liability with respect to the seller but after negotiation, a contractual relationship will then prevail between the negotiating bank and the seller. (no contractual relationship with seller/benificiary)] [4: 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.]

Neither was there a trust[footnoteRef:5] between Feati Bank (trustee) and Villaluz (beneficiary). the mere opening of a LC does not involve a specific appropriation of a sum of money in favor of the beneficiary. It only signifies that the beneficiary may be able to draw funds upon the letter of credit up to the designated amount specified in the LC. The correspondent bank does not receive in advance the sum of money from the issuing bank. On the contrary, when they accept the tender and pays the amount, it gets the money from its own funds and then later seeks reimbursement from the issuing bank. Also as notifying bank it cannot be held liable even if there is a trust created. [5: trust has been defined as the "right, enforceable solely in equity, to the beneficial enjoyment of property the legal title to which is vested to another." Therefore, In order therefore for the trust theory to be sustained, Feati Bank should have had in its possession a sum of money as specific fund advanced to it by the issuing bank and to be held in trust by it in favor Viallaluz. This does not obtain in this case.]

Neither was there a guarantee. It is fundamental that an irrevocable credit is independent not only of the contract between the buyer and the seller but also of the credit agreement between the issuing bank and the buyer. Feati Bank has no business with the relationship of Christiansen and Security it merely being a notifying bank. Feati Bank was only following instruction of the issuing bank. But even if all of this argument existed (trust, guarantee, and confirming bank, Feati Bank cannot be compelled to pay because there was a failure on the part of Villaluz to comply with the terms of the LC which is the absence of the certificate. It cannot be argued that such a requirement is illegal because such pronouncement by the Central Bank was only done after the issuance of the LC, when the LC was issued there was still no such prohibition.

Transfield Philippines vs Luzon Hydro Electric Corp. (GR No 146717, Nov 22, 2004, Tinga) 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. 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 fortuitous events brought about by typhoon, barricades and demonstration. LHC did not give due course to the extension of the period prayed for but referred the matter to arbitration committee.In the meanwhile, 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. LHC invoked the independence principle. On the other hand, Transfield claims fraud on the part of LHC on calling the stand-by letters of credit.Under the independence principle, a LC accommodation is entirely distinct and separate, independent agreement. It is not supposed to be affected by the main contract upon which it rests. The court held for the LHC. Following the independence principle, even granting that there is still issue to be resolved arising from the turn-key project. This issue is not supposed to affect the obligation of the bank to pay the letter of credit in question. The court stressed that a LC accommodation is intended to benefit not only the beneficiary therein but the applicant thereon. On the issue of fraud, the SC held that there is nothing in the turn-key contract which states that all issues between the parties must be resolved first before LHC can call on the stand-by LC but the contract provides that if Transfield defaults, then LHC can call on these stand-by LC.MWSS vs. DAWAY AND MAYNILADG.R. No. 160732.June 21, 2004FACTS: MWSS granted Maynilad under a Concession Agreement to manage, operate, repair, decommission and refurbish the existing MWSS water delivery and sewerage services in the West Zone Service Area, for which Maynilad undertook to pay the corresponding concession fees which, among other things, consisted of payments of petitioners mostly foreign loans.To secure the concessionaires performance of its obligations, Maynilad was required under Section 6.9 of said contract to put up a bond, bank guarantee or other security acceptable to MWSS.In compliance with this requirement, Maynilad arranged for a three-year facility with a number of foreign banks, led by Citicorp Intl Ltd., for the issuance of an Irrevocable Standby Letter of Credit in favor of MWSS for the full and prompt performance of Maynilads obligations to MWSS as aforestated.Later, the parties agreed to resolve the issues between them [Maynilad is asking for a mechanism by which it hoped to recover the losses it had allegedly incurred and would be incurring as a result of the depreciation of the Philippine Peso against the US Dollar and in filing to get what it desired, Maynilad unilaterally suspended the payment of the concession fees] through an amendment of the Concession Agreement which was based on the terms set down in MWSS Board of Trustees Resolution which provided inter alia for a formula that would allow Maynilad to recover foreign exchange losses it had incurred or would incur under the terms of the Concession Agreement.However Maynilad served upon MWSS a Notice of Event of Termination, claiming that MWSS failed to comply with its obligations under the Concession Agreement and its Amendment regarding the adjustment mechanism that would cover Maynilads foreign exchange losses. Maynilad filed a Notice of Early Termination of the concession, which was challenged by MWSS. This matter was eventually brought before the Appeals Panel by MWSS. the Appeals Panel ruled that there was no Event of Termination as defined under Art. 10.2 (ii) or 10.3 (iii) of the Concession Agreement and that, therefore, Maynilad should pay the concession fees that had fallen due.The award of the Appeals Panel became final. MWSS, thereafter, submitted a written notice to Citicorp Intl Ltd, as agent for the participating banks, that by virtue of Maynilads failure to perform its obligations under the Concession Agreement, it was drawing on the Irrevocable Standby Letter of Credit and thereby demanded payment.Prior to this, however, Maynilad had filed on a petition for rehabilitation before the RTC of Quezon City which resulted in the issuance of the Stay Order and the disputed Order of November 27, 2003.ISSUE: WON the rehabilitation court sitting as such, act in excess of its authority or jurisdiction when it enjoined herein petitioner from seeking the payment of the concession fees from the banks that issued the Irrevocable Standby Letter of Credit in its favorHELD: the petition for certiorari is granted.The Order of November 27, 2003 of the RTC of Quezon City 90, is hereby declared null and voidand set aside.YESFirst, the claim is not one against the debtor but against an entity that respondent Maynilad has procured to answer for its non-performance of certain terms and conditions of the Concession Agreement, particularly the payment of concession fees.Secondly, Sec. 6 (b) of Rule 4 of the Interim Rules does not enjoin the enforcement of all claims against guarantors and sureties, but only those claims against guarantors and sureties who are not solidarily liable with the debtor. Respondent Maynilads claim that the banks are not solidarily liable with the debtor does not find support in jurisprudence.Letters of credit were developed for the purpose of insuring to a seller payment of a definite amount upon the presentation of documentsand is thus a commitment by the issuer that the party in whose favor it is issued and who can collect upon it will have his credit against the applicant of the letter, duly paid in the amount specified in the letter They are in effect absolute undertakings to pay the money advanced or the amount for which credit is given on the faith of the instrument. They are primary obligations and not accessory contracts and while they are security arrangements, they are not converted thereby into contracts of guaranty. What distinguishes letters of credit from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and other required shipping documents are presented to it. They are definite undertakings to pay at sight once the documents stipulated therein are presented.The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to herein petitioner as the 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 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.The terms of the Irrevocable Standby Letter of Credit do not show that the obligations of the banks are not solidary with those of respondent Maynilad. On the contrary, it is issued at the request of and for the account of Maynilad in favor of the MWSS as a bond for the full and prompt performance of the obligations by the concessionaire under the Concession Agreement and herein MWSS is authorized by the banks to draw on it by the simple act of delivering to the agent a written certification substantially in the form of the Letter of Credit.Taking into consideration our own rulings on the nature of letters of credit and the customs and usage developed over the years in the banking and commercial practice of letters of credit, we hold that except when a letter of credit specifically stipulates otherwise, the obligation of the banks issuing letters of credit are solidary with that of the person or entity requesting for its issuance, the same being a direct, primary, absolute and definite undertaking to pay the beneficiary upon the presentation of the set of documents required therein.The public respondent, therefore, exceeded his jurisdiction, in holding that he was competent to act on the obligation of the banks under the Letter of Credit under the argument that this was not a solidary obligation with that of the debtor. Being a solidary obligation, the letter of credit is excluded from the jurisdiction of the rehabilitation court and therefore in enjoining petitioner from proceeding against the Standby Letters of Credit to which it had a clear right under the law and the terms of said Standby Letter of Credit, public respondent acted in excess of his jurisdiction.NOTES:We held in Feati Bank & Trust Company v. Court of Appeals that the concept of guarantee visvis 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.TRUST RECEIPTS LAWRosario Textile Mills Corp. v. Home Bankers Savings and Trust Company, 462 SCRA 88 (2005)

FACTS:

- Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings & Trust Co. for an Omnibus Credit Line for P10 million. -The bank approved RTMCs credit line but for only P8 million. The bank notified RTMC of the grant of the said loan thru a letter which contains terms and conditions conformed by RTMC thru Edilberto V. Yujuico.Yujuico signed a Surety Agreement in favor of the bank, in which he bound himself jointly and severally with RTMC for the payment of all RTMCs indebtedness to the bank.-RTMC availed of the credit line by making numerous drawdowns, each drawdown being covered by a separate promissory note and trust receipt. RTMC, represented by Yujuico, executed in favor of the bank a total of eleven (11) promissory notes.-Despite the lapse of the respective due dates under the promissory notes and notwithstanding the banks demand letters, RTMC failed to pay its loans. Hence, the bank filed a complaint for sum of money against RTMC and Yujuico.

CONTENTION OF RTMC AND YUJUICO:They claimed that although the grant of the credit line and the execution of the suretyship agreement are admitted, the bank gave assurance that the suretyship agreement was merely a formality under which Yujuico will not be personally liable; that the importation of raw materials under the credit line was with a grant of option to them to turn-over to the bank the imported raw materials should these fail to meet their manufacturing requirements. -RTMC offered to make such turn-over since the imported materials did not conform to the required specifications. However, the bank refused to accept the same, until the materials were destroyed by a fire which gutted down RTMCs premises.For failure of the parties to amicably settle the case, trial on the merits proceeded.

TC:-In favor of the bank and orderd RTMC and Yujuico to pay.-RMTC appealed contending that under the trust receipt contracts between the parties, they merely held the goods described therein in trust for Home Bankers Savings and Trust Company (the bank) which owns the same. Since the ownership of the goods remains with the bank, then it should bear the loss. With the destruction of the goods by fire, petitioners should have been relieved of any obligation to pay.

CA: -Affirmed the trial courts judgment, holding that the bank is merely the holder of the security for its advance payments to petitioners; and that the goods they purchased, through the credit line extended by the bank, belong to them and hold said goods at their own risk.

ISSUE:-Whether or not RMTC and Yujuico are not relieved of their obligation to pay their loan after they rtried to tender te goods to the bank which the bank refused to accept the same, and which goods weresubsequently lost in fire.

HELD:-Petitioners theorize that when petitioner RTMC imported the raw materials needed for its manufacture, using the credit line, it was merely acting on behalf of the bank, the true owner of the goods by virtue of the trust receipts. Hence, under the doctrine of res perit domino, the bank took the risk of the loss of said raw materials. RTMCs role in the transaction was that of end user of the raw materials and when it did not accept those materials as they did not meet the manufacturing requirements, RTMC made a valid and effective tender of the goods to the bank. Since the bank refused to accept the raw materials, RTMC stored them in its warehouse. When the warehouse and its contents were gutted by fire, petitioners obligation to the bank was accordingly extinguished.-Petitioners stance, however, conveniently ignores the true nature of its transaction with the bank. We recall that RTMC filed with the bank an application for a credit line in the amount of P10 million, but only P8 million was approved. RTMC then made withdrawals from this credit line and issued several promissory notes in favor of the bank. In banking and commerce, a credit line is that amount of money or merchandise which a banker, merchant, or supplier agrees to supply to a person on credit and generally agreed to in advance. It is the fixed limit of credit granted by a bank, retailer, or credit card issuer to a customer, to the full extent of which the latter may avail himself of his dealings with the former but which he must not exceed and is usually intended to cover a series of transactions in which case, when the customers line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making any further drawings. -It is thus clear that the principal transaction between petitioner RTMC and the bank is a contract of loan. RTMC used the proceeds of this loan to purchase raw materials from a supplier abroad. In order to secure the payment of the loan, RTMC delivered the raw materials to the bank as collateral. Trust receipts were executed by the parties to evidence this security arrangement. Simply stated, the trust receipts were mere securities.Bank of Commerce v. SerranoG.R. No. 151895 February 16, 2005

Petitioner: Bank of CommerceRespondent: TERESITA S. SERRANO

FACTS: Petitioner Bank of Commerce (Boston Bank of the Philippines) banking institution Teresita Serrano GM and Treasurer of Via Moda Intl, importer and exporter of Textile materials and fabrics. Via Moda obtained an export packing loan from petitioner Bank of Commerce in amount of $50,000 secured by Deed of Assignment over Irrevocable Letter of Credit. Serrano executed a promissory note. She then opened a deposit account for the proceeds of the said loan. BOC issued to Via Moda an irrevocable letter of credit in the amount of $56,735 for the purchase and importation of fabric and textile products from Tiger Ear Fabric of Taiwn. To secure the release of the goods, she executed a trust receipt. 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 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 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 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. 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 RTC rendered a decision finding Serrano Guilty. CA reversed the RTC decision. It held that the element of misappropriation or conversion in relation to the crime of estafa, was absent in this case. Hence this Petition

ISSUE:

Whether or not CA erred in Reversing RTC decision? NO

HELD: A letter of credit is a separate document from a trust receipt. While the trust receipt may have been executed as a security on the letter of credit, still the two documents involve different undertakings and obligations. A letter of credit is an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. Through a letter of credit, the bank merely substitutes its own promise to pay for the promise to pay of one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. By contrast, a trust receipt transaction is one where the entruster, who holds an absolute title or security interests over certain goods, documents or instruments, released the same to the entrustee, who executes a trust receipt binding himself to hold the goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents and instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster, or as appears in the trust receipt, or return the goods, documents or instruments themselves if they are unsold, or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt. 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*Metrobank vs. GonzalesLandl & Company v. Metropolitan Bank, 435 SCRA 639 (2004)

FACTS:

-Landl and Company is engaged in the business of selling imported welding rods and alloys.

-It opened a commercial letter of credit with MBTC for the purchase of various welding rods and electrons from PERMA ALLOYS Inc., New York, USA. Landl put up a marginal deposit of P50, 000.00 from the proceeds of a separate clean loan.

-As an additional security, and as a condition for the approval of the application, MBTC required Percival Llaban and Manuel Lucente to execute a continuing surety agreement. Lucente also executed a Deed of assignment in favor of MBTC to cover the amount of the corporations obligation to the bank. Upon compliance with these requisites, MBTC opened an irrevocable Letter of Credit for Landl.

-Trust Receipt was executed to secure indebtedness of Landl.

-Upon Maturity, Landl defaulted payment of its obligation or to return the goods to MBTC.

-The goods were sold at public auction to MBTC as the highest bidder.

-However, the proceeds of the auction sale were insufficient to completely satisfy the outstanding obligation of Landl notwithstanding the application of the time deposit account of its director Lucente.

-Accordingly, MBTC demanded that Landl pay the remaining balance of their obligation.

-Landl failed to do so.

-MBTC filed a complaint for sum of money against Landl and its directors for the amount of the deficiency.

TC and CA:

-Ordered Landl to pay the bank.

ISSUE:

-Whether or not in a trust receipt transaction, an entruster which had taken actual and juridical possession of the goods covered by trust receipt may subsequently avail of the right to demand from the entrustee the deficiency of the amount covered by the trust receipt.

HELD

- A trust receipt agreement is merely a collateral agreement, the purpose of which is to serve as security for a loan.

-In the event of default or failure of the entrustee to comply with the terms of the trust receipt agreement, the entruster may cancel the trust and take possession of the goods subject of the trust receipt and while in possession cause the sale of the goods after at least five (5) day notice to the entrustee, in a private or public sale. The entruster may at public sale become a purchaser. If the proceeds of the sale were insufficient to satisfy entirely entrustees indebtedness, the entruster is well within its rights to file an action to collect the deficiency.NEGOTIABLE INSTRUMENTS LAW:EQUITABLE BANKING V. IAC 161 SCRA 518 FACTS: Nell Company issued a check to help Casals and Casville Enterprises obtain a letter of credit from Equitable Banking in connection with equipment, a garrett skidder, which Casals and Casville were buying from Nell. Nell indicated the payee as follows EQUITABLE BANKING CORPORATION A/C CASVILLE ENTERPRISES INC. Casals deposited the check with the bank and the bank teller accepted the same and in accordance with customary bank practice, stamped in the check the words non-negotiable. The amount was withdrawn after the deposit. This prompted Nell to file a case against the bank, Casals and Casville. While the instant case was being tried, Casals and Casville assigned the garrett skidder to plaintiff which credited in favor of defendants the amount of P450,000, as partial satisfaction of its claim against them. HELD:Equitable is not liable to Nell. Nell should bear the loss as it was through its own acts, which put it into the power of Casals and Casville Enterprises to perpetuate the fraud against it. The check wasnt initially non-negotiable. Neither was it cross-checked. The rubber-stamping transversally on the face of the check was only made the bank teller in accordance with customary bank practice, and not by Nell as the drawer of the check, and simply meant that thereafter the same check could no longer be negotiated. The payee was not indicated with reasonable certainty in contravention of Section 8. As worded, it could be accepted as deposit to the account of the party named therein after the symbols of A/C, or payable to the bank as trustee, or as an agent, for Casville with the latter being the ultimate beneficiary. CALTEX V. CA12 SCRA 448 FACTS: Security bank issued Certificates of Time Deposits to Angel dela Cruz. The same were given by Dela Cruz to petitioner in connection to his purchase of fuel products of the latter. On a later date, Dela Cruz approached the bank manager, communicated the loss of the certificates and requested for a reissuance. Upon compliance with some formal requirements, he was issued replacements. Thereafter, he secured a loan from the bank where he assigned the certificates as security. Here comes the petitioner, averred that the certificates were not actually lost but were given as security for payment for fuel purchases. The bank demanded some proof of the agreement but the petitioner failed to comply. The loan matured and the time deposits were terminated and then applied to the payment of the loan. Petitioner demands the payment of the certificates but to no avail. SECURITY BANK AND TRUST COMPANY 6778 Ayala Ave., Makati No. 90101 Metro Manila, Philippines SUCAT OFFICEP 4,000.00 CERTIFICATE OF DEPOSIT Rate 16% Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____ This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days. after date, upon presentation and surrender of this certificate, with interest at the rate of 16% per cent per annum. (Sgd. Illegible) (Sgd. Illegible) AUTHORIZED SIGNATURES HELD: CTDs are negotiable instruments. The documents provide that the amounts deposited shall be repayable to the depositor. And who, according to the document, is the depositor? It is the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment. If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER" stamped on the space provided for the name of the depositor in each CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to the transaction between them would not be in a position to know that the depositor is not the bearer stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind the plain import of what is written thereon to unravel the agreement of the parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or as a security has been dissipated and resolved in favor of the latter by petitioner's own authorized and responsible representative himself. In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products." This admission is conclusive upon petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereonDEVELOPMENT BANK OF RIZAL V. SIMA WEI 219 SCRA 736 FACTS: Sima Wei executed a promissory note in consideration of a loan secured from petitioner bank. She was able to pay partially for the loan but failed to pay for the balance. She then issued two checks to pay the unpaid balance but for some unexplainable reason, the checks were not received by the bank but ended up in the hands of someone else. The bank instituted actions against Sima Wei and other people. The trial court dismissed the case and the CA affirmed this decision. HELD: A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Section 16 provides that every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Thus, the payee of the negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery of an instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument.

PNB V. SEETO, 91 SCRA 757FACTS:Seeto called at a branch of bank and presented a check payable to cash or bearer, and drawn by Kiao against PBC. After consultation with the employees, Seeto made a general and qualified indorsement of the check. He was then paid the amount of the check by bank. The check was consequently dishonored, a letter was sent to Seeto and was asked to refund the money given to him. A second letter was sent to him and he averred that case against him be deferred while he inquired about why thecheck was dishonored. Thereafter, he refused to pay, alleging that the account against the check was drawn had sufficient funds when the check was drawn and if the bank didnt delay in clearing the check, there would have been sufficient funds.

The appellate court reversed the lower court in its decision. It ruled that the bank was guilty of unreasonably retaining and withholding the check, and that the delay in the presentment was inexcusable, so that respondent thereby was discharged from liability.HELD:Section 84 is applicable, nonetheless, it should be read in correlation with Section 186, which says that presentment should be within reasonable time.*quiros vs. tan guinlay: it was held that the article cited by appellees (which was Article 1100 of the Old Civil Code read in relation to Art. 1101) is applicable only when the obligation is to do something other than the payment of moneyWESTMONT BANK V. ONG373 SCRA 212 FACTS: Ong was supposed to be the payee of the checks issued by Island Securities. Ong has a current account with petitioner bank. He opted to sell his shares of stock through Island Securities. The company in turn issued checks in favor of Ong but unfortunately, the latter wasn't able to receive any. His signatures were forged by Tamlinco and the checks were deposited in his own account with petitioner. Ong then sought to collect the money from the family of Tamlinco first before filing a complaint with the Central Bank. As his efforts were futile to recover his money, he filed an action against the petitioner. The trial and appellate court decided in favor of Ong. HELD: Since the signature of the payee was forged, such signature should be deemed inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said forged signature. The payee, herein respondent, should therefore be allowed to collect from the collecting bank. It should be liable for the loss because it is its legal duty to ascertain that the payees endorsement was genuine before cashing the check. As a general rule, a bank or corporation who has obtained possession of a check with an unauthorized or forged indorsement of the payees signature and who collects the amount of the check other from the drawee, is liable for the proceeds thereof to the payee or the other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained. DOCTRINE OF DESIRABLE SHORT CUTplaintiff uses one action to reach, by desirable short cut, the person who ought to be ultimately liable as among the innocent persons involved in the transaction. In other words, the payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not. On the issue of laches, Ong didn't sit on his rights. He immediately sought the intervention of Tamlincos family to collect the sum of money, and later the Central Bank. Only after exhausting all the measures to settle the issue amicably did he file the action. ILLUSORIO V. CA 393 SCRA 89 FACTS: Petitioner was a prominent businessman who, because of different business commitments, entrusted to his then secretary the handling of his credit cards and checkbooks. For a material period of time, the secretary was able to encash and deposit in her personal account money from the account of petitioner. Upon knowledge of her acts, she was fired immediately and criminal actions were filed against her. Thereafter, petitioner requested the bank to restore its money but the bank refused to do so. HELD:The petitioner doesnt have a course of action against the bank. To be entitled to damages, petitioner has the burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery. Curiously though, petitioner failed to supply additional signature specimens as requested by the NBI. The bank was not also remiss in performance of its duties, it practices due diligence in encashing checks. The bank didnt have any hint of the modus operandi of Eugenio as she was a regular customer, designated by the petitioner himself to transact on his behalf. It was petitioner who was negligent in this case. He failed to examine his bank statements and this was the proximate cause of his own damage. Because of this negligence, he is precluded from setting up the defense of forgery with regard the checks. Bank of Philippine Islands vs Court of AppealsBenjamin Napiza maintains an account with the Bank of the Philippine Islands (BPI). In 1987, Napiza was approached by Henry Chan and the latter gave him a $2,500 Continental Bank Managers check. Chan asked if Napiza can deposit the check to his (Napizas BPI account) by way of accommodation and for the purpose of clearing the said check. Napiza agreed and so he deposited the check on September 3, 1987. Napiza then delivered a signed blank withdrawal slip to Chan with the condition that the $2,500.00 may only be withdrawn if the check cleared. For some reason, the withdrawal slip ended up in the hands of one Ruben Gayon who went to BPI and successfully withdrew the $2,500.00. At the time of the withdrawal, the check was not yet cleared. Then days later, BPI was notified by the drawee bank named in the check that the check is actually a counterfeit.ISSUE: Whether or not Napiza may be held liable to refund the amount of the check.HELD: No. The Supreme Court ruled that ordinarily, Napiza would have been liable because he is an accommodation indorser. But due to the attendant circumstances, Napiza is discharged from liability.The withdrawal slip indicates as well as the rules promulgated by BPI that withdrawal from the bank should be accompanied by the presentment of the account holders (Napizas) savings bankbook. This was not done so in the case at bar because Gayon was able to withdraw without it. Further, BPI allowed the withdrawal even before the check cleared. BPI already credited the $2,500.00 to Napizas account even without the drawee bank clearing the check. This is contrary to common banking practices and because of such negligence and lack of diligence, BPI, as the collecting bank, shall suffer the loss.Ang vs. associated bankFACTS: August 28, 1990:Associated Bank (formerly Associated Banking Corporation and now known as United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong (principal debtor) and petitioner Tomas Ang (co-maker) for the 2 promissory notes October 3 and 9, 1978:obtained a loan of P50,000andP30,000evidenced by promissory notepayable, jointly and severally, on January 31, 1979 and December 8, 1978 Despite repeated demands for payment, the latest on September 13, 1988 and September 9, 1986, they failed to settle their obligations totalling toP539,638.96 as of July 31, 1990 Antonio Ang Eng Liong only admitted to have secured a loan amounting toP80,000 Tomas Ang:bank is not the real party in interest as it is not the holder of the promissory notes, much less a holder for value or a holder in due course; the bank knew that he did not receive any valuable consideration for affixing his signatures on the notes but merely lent his name as an accommodation party bank granted his co-defendant successive extensions of time within which to pay, without his knowledge and consent the bank imposed new and additional stipulations on interest, penalties, services charges and attorney's fees more onerous than the terms of the notes, without his knowledge and consent he should be reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay, plusP30,000,P20,000 andP50,000 for moral and exemplary damages, and attorney's fees, respectively. October 19, 1990:RTC heldAntonio Ang Eng Liong was ordered to pay the principal amount ofP80,000 plus 14% interest per annum and 2% service charge per annum Lower Court: Granted against the bank, dismissing the complaint for lack of cause of action. CA: ordered Ang to pay the bank -bank is a holder CA observed that the bank, as the payee, did not indorse the notes to the Asset Privatization Trust despite the execution of the Deeds of Transfer and Trust Agreement and that the notes continued to remain with the bank until the institution of the collection suit. With the bank as the "holder" of the promissory notes, the Court of Appeals held that Tomas Ang is accountable therefor in his capacity as an accommodation party. Tomas Ang cannot validly set up the defense that he did not receive any consideration therefor as the fact that the loan was granted to the principal debtor already constitutes a sufficient consideration.ISSUE: W/N Ang is liable as accomodation party even without consideration and his co-accomodation party was granted accomodation w/o his knowledge

HELD: CAAFFIRMED At the time the complaint was filed in the trial court, it was the Asset Privatization Trust which had the authority to enforce its claims against both debtors accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person petitioner signed the promissory note as a solidary co-maker and not as a guarantor. This is patent even from the first sentence of the promissory note which states as follows: "Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest x x x at the rate of SIXTEEN (16) per cent per annum until fully paid." immaterial so far as the bank is concerned whether one of the signers, particularly petitioner, has or has not received anything in payment of the use of his name. since the liability of an accommodation party remains not onlyprimarybut alsounconditionalto a holder for value, even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value is concerned, he is a solidary co-debtor.TRADERS ROYAL BANK V. RPN 390 SCRA 608 FACTS: RPN, IBC and BBC were all assessed for tax by the BIR. To pay the assessed taxes, they bought managers checks from petitioner bank. None of these checks were paid to the BIR. They were found to have been deposited in the account of a third person in Security Bank. As the taxes remained unpaid, the BIR issued a levy, distraint and garnishment against the three networks. An action was filed wherein it was decided that the networks should be reimbursed for the amounts of the checks by petitioner bank and the latter in turn, must be reimbursed by Security Bank. In the appellate court, it was held that Traders Bank should be the only bank liable. HELD: Petitioner ought to have known that where a check is drawn payable to the order of one person and is presented for payment by another and purports upon its face to have been duly indorsed by the payee of the check, it is the primary duty of the petitioner to know that the check was duly indorsed by the original payee, and it pays the amount of the check to the third person, who has forged the signature of the payee, the loss falls upon the petitioner who cashed the check. Its only remedy is against the person to whom it paid the money. It should be further noted that one of the checks was a crossed check. The crossing of the check should have put petitioner on guard; it was duty-bound to ascertain the indorsers title to the check or the nature of his possession.

YANG V. COURT OF APPEALS409 SCRA 159 FACTS:Yang and Chandimari entered into an agreement that the latter would issue to the former a managers check in exchange for two checks that Yang has payable to the order of David. The difference in amount would be the profit of the two of them. It was further agreed upon that Yang wouldsecure a dollar draft, which Chandimari would exchange with another dollar draft to be secured from a Hong Kong bank. At the agreed time of rendezvous, it was reported by Yangs messenger that Chandimari didn't show up and the drafts and checks were allegedly stolen. This wasn't true however. Chandimari was able to get hold of the drafts and checks. He was even able to deliver to David the two checks and was able to get money in return. Consequently, Yang asked for the stoppage of payment of the checks she believe to be lost, relying on the report of her messenger. The stoppage order was eventually lifted by the banks and the drafts and checks were able to be encashed. Yang then filed an action for injunction and damages against the banks, Chandimari and David. The trial court and CA held in favor of David as a holder in due course. HELD:Every holder of a negotiable instrument is presumed to be a holder in due course. This is specially true if one is a holder because he is the payee or indorsee of the instrument. In the case at bar, it is evident that David was the payee of the checks. The prima facie presumption of him being a holder in due course is in his favor. Nonetheless, this presumption is disputable. On whether he took the check under the conditions set forth in Section 52 must be proven. Petitioner relies on two arguments on whyDavid isnt a holder in due coursefirst, because he took the checks without valuable consideration; and second, he failed to inquire on Chandimaris title to the checks given to him. The law gives rise to the presumption of valuable consideration. Petitioner has the burden of debunking such presumption, which it failed to do so. Her allegation that David received the checks without consideration is unsupported and devoid of any evidence. Furthermore, petitioner wasn't able to show any circumstance which should have placed David in inquiry as to why and wherefore of the possession of the checks by Chandimari. David wasn't a privy to the transactions between Yang and Chandimari. Instead, Chandimari and David had the agreement between themselves of the delivery of the checks. David even inquired with the banks on the genuineness of the checks in issue. At that time, he wasn't aware of any request for the stoppage of payment. Under these circumstances, David had no obligation to ascertain from Chandimari what the nature of the latters title to the checks was, if any, or the nature of his possession.G.R. No. 152071May 8, 2009PRODUCERS BANK OF THE PHILIPPINESvs.EXCELSA INDUSTRIES, INC.

Facts: Excelsa Industries, Inc. is a manufacturer and exporter of fuel products, particularlycharcoal briquettes, as an alternative fuel source. Sometime in January 1987, Excelsa appliedfor a packing credit line or a credit export advance with Producers Bank of the Philippines.

The application was supported by Letter of Credit No. M3411610NS2970 dated 14 October1986. Kwang Ju Bank, Ltd. of Seoul, Korea issued the letter of credit through its correspondent bank, the Bank of the Philippine Islands, in the amount of US$23,000.00 for the account of Shin Sung Commercial Co., Ltd., also located in Seoul, Korea. T.L. World DevelopmentCorporation was the original beneficiary of the letter of credit. On 05 December 1986, for value received, T.L. World transferred to respondent all its rights and obligations under the said letter of credit. Petitioner approved respondents application for a packing credit line in the amount of P300,000.00, of which about P96,000.00 in principal remained outstanding. Respondentexecuted the corresponding promissory notes evidencing the indebtedness.

Prior to the application for the packing credit line, respondent had obtained a loan frompetitioner in the form of a bill discounted and secured credit accommodation in the amount of P200,000.00, of which P110,000.00 was outstanding at the time of the approval of the packing credit line. The loan was secured by a real estate mortgage dated 05 December 1986 overrespondents properties.Significantly, the real estate mortgage contained the following clause:For and in consideration of those certain loans, overdraft and/or other credit accommodationson this date obtained from the MORTGAGEE, and to secure the payment of the same, theprincipal of all of which is hereby fixed at FIVE HUNDRED THOUSAND PESOS ONLY(P500,000.00) Pesos, Philippine Currency, as well as those that the MORTGAGEE may hereafterextend to the MORTGAGOR, including interest and expenses or any other obligation owing tothe MORTGAGEE, the MORTGAGOR does hereby transfer and convey by way of mortgage untothe MORTGAGEE, its successors or assigns, the parcel(s) of land which is/are described in thelist inserted on the back of this document, and/or appended hereto, together with all thebuildings and improvements now existing or which may hereafter be erected or constructedthereon, of which the MORTGAGOR declares that he/it is the absolute owner, free from all liensand encumbrances.

On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner through cable that the Korean buyer refused to pay respondents export documents on account of typographical discrepancies. Kwang Ju Bank, Ltd. returned to petitioner the export documents.Upon learning about the Korean importers non-payment, respondent sent petitioner a letterdated 27 July 1987, informing the latter that respondent had brought the matter before theKorea Trade Court and that it was ready to liquidate its past due account with petitioner.

Respondent sent another letter dated 08 September 1987, reiterating the same assurance. In a letter 05 October 1987, Kwang Ju Bank, Ltd. informed petitioner that it would be returning the export documents on account of the non-acceptance by the importer.

Petitioner demanded from respondent the payment of the peso equivalent of the exportdocuments, plus interest and other charges, and also of the other due and unpaid loans.Due to respondents failure to heed the demand, petitioner moved for the extrajudicial foreclosure on the real estate mortgage over respondents properties.

At the public auction held on 05 January 1988, the Sheriff of Antipolo, Rizal issued a Certificateof Sale in favor of petitioner as the highest bidder. The certificate of sale was registered on 24March 1988.

On 12 June 1989, petitioner executed an affidavit of consolidation over the foreclosedproperties after respondent failed to redeem the same. As a result, the Register of Deeds of Marikina issued new certificates of title in the name of petitioner.On 17 November 1989, respondent instituted an action for the annulment of the extrajudicial foreclosure with prayer for preliminary injunction and damages against petitioner and the Register of Deeds of Marikina.On 18 December 1997, the RTC rendered a decision upholding the validity of the extrajudicial foreclosure and ordering the issuance of a writ of possession in favor of petitioner, as the RTC also found that by its admission, respondent had other loan obligations obtained frompetitioner which were due and demandable; hence, petitioner correctly exercised its right to foreclose the real estate mortgage, which provided that the same secured the payment of not only the loans already obtained but also the export advances.The CA invalidated the extrajudicial foreclosure of the real estate mortgage on the ground thatthe posting and publication of the notice of extrajudicial foreclosure proceedings did not complywith the personal notice requirement under paragraph 12 of the real estate mortgage executedbetween petitioner and respondent. The Court of Appeals also overturned the RTCs finding thatrespondent was guilty of estoppel by laches in questioning the extrajudicial foreclosure sale.

Issue: Was there a valid foreclosure of the real estate mortgage?

Held: Respondent executed a real estate mortgage containing a "blanket mortgage clause,"also known as a "dragnet clause." It has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand assecurity if from the four corners of the instrument the intent to secure future and otherindebtedness can be gathered.In Union Bank of the Philippines v. Court of Appeals, the nature of a dragnet clause was explained, thus:Is one which is specifically phrased to subsume all debts of past and future origins. Suchclauses are "carefully scrutinized and strictly construed." Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known oranticipated at the time, and they avoid the expense and inconvenience of executing a newsecurity on each new transaction. A "dragnet clause" operates as a convenience andaccommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera.x x xPetitioner, therefore, was not precluded from seeking the foreclosure of the real estatemortgage based on the unpaid drafts drawn by respondent. In any case, respondent hadadmitted that aside from the unpaid drafts, respondent also had due and demandable loans secured from another account as evidenced by Promissory Notes (PN Nos.) BDS-001-87, BDS030/86 A, BDS-PC-002-/87 and BDS-005/87.

However, the Court of Appeals invalidated the extrajudicial foreclosure of the mortgage on the ground that petitioner had failed to furnish respondent personal notice of the sale contrary to the stipulation in the real estate mortgage.

Petitioner, on the other hand, claims that under paragraph 12 of the real estate mortgage,personal notice of the foreclosure sale is not a requirement to the validity of the foreclosuresale.

A perusal of the records of the case shows that a notice of sheriffs sale was sent by registeredmail to respondent and received in due course. Yet, respondent claims that it did not receivethe notice but only learned about it from petitioner. In any event, paragraph 12 of the realestate mortgage requires petitioner merely to furnish respondent with the notice and does notoblige petitioner to ensure that respondent actually receives the notice. On this score, the Courtholds that petitioner has performed its obligation under paragraph 12 of the real estatemortgage.

As regards the issue of whether respondent may still question the foreclosure sale, the RTC held that the sale was conducted according to the legal procedure, to wit:Plaintiff is estopped from questioning the foreclosure. The plaintiff is guilty of laches and cannotat this point in time question the foreclosure of the subject properties. Defendant bank madedemands against the plaintiff for the payment of plaintiffs outstanding loans and advances withthe defendant as early as July 1997. Plaintiff acknowledged such outstanding loans andadvances to the defendant bank and committed to liquidate the same. For failure of the plaintiffto pay its obligations on maturity, defendant bank foreclosed the mortgage on subjectproperties on January 5, 1988 the certificate of sale was annotated on March 24, 1988 andthere being no redemption made by the plaintiff, title to said properties were consolidated inthe name of defendant in July 1989. Undeniably, subject foreclosure was done in accordancewith the prescribed rules as may be borne out by the exhibits submitted to this Court which areExhibit "33," a notice of extrajudicial sale executed by the Sheriff of Antipolo, Exhibit "34"certificate posting of extrajudicial sale, Exhibit "35" return card evidencing receipt by plaintiff of the notice of extrajudicial sale and Exhibit "21" affidavit of publication.The Court adopts and approves the aforequoted findings by the RTC, the same being fully supported by the evidence on record.

METROBANK V. CABLIZO 510 SCRA 259 FACTS: Cablizo maintained an account with petitioner. It drew a check payable to cash payable to a certain Marquez, for the latters sales commission. The check was subsequently deposited in Westmont bank and the latter submitted it with Metrobank for clearing. The check was cleared. Thereafter, the banks representative asked Cablizo if he issued a check for P91,000. The answer was in the negative. This prompted Cablizo to call Metrobank and ask for the recrediting of P90,000 but petitioner failed to recredit the amount prompting Cablizo to file an action against it. HELD: An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in the instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of the party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the NIL. The check in issue was materially altered when its amount was increased from P1000 to P91000. Cablizo was not the one who authorized or made such increase. There is no showing that he was negligent in exercising what was due in a prudent man which could have otherwise prevented the loss. Cablizo was never remiss in the preparation and issuance of the check. The doctrine of equitable estoppel is inapplicable against Cablizo. This doctrine states that when one of the two innocent person, each guiltiness of an intentional or moral wrong, must suffer a loss, it must be borne by the one whose erroneous conduct, either by omission or commission, was the cause of the injury. Negligence is never presumed. Metrobank was actually the one remiss in its duties. The CA took into consideration that the alterations were actually visible in the eye and yet the bank allowed someone not acquainted with the examination of checks to do the same. Furthermore, it cannot rely on the indorsement of Westmont Bank of the check. It should have exercised meticulous care in handling the affairs of its clients especially if the clients money is involved.

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