Bank of America, NT and SA v. CA 8.

Bank of America stopped the processing of Inter-Resin’s document and

G.R. No. 105395 | 228 SCRA 357 | Dec 10, 1993 | Vitug, J. sent a telex to its branch in Bangkok requesting assistance in
Petition: Petition for review of decision of CA determining the authenticity of the letter of credit.
Petitioners: Bank of America, NT & SA 9. Bank of America sought assistance of NBI
Respondents: CA, Inter-Resin Industrial Corp., Francisco Trajano, John and a. NBI who were sent to Thailand: discovered that the vans
Jane Doe exported by Inter-Resin did not contain ropes but plastic strips,
wrappers, rags and waste materials.
DOCTRINE b. NBI In Phils: filed charge for estafa through falsification of
• An advising or notifying bank does not incur any obligation more than commercial document against EVP
just notifying the seller. It is bound only to check the “apparent 10. Bank of America sued Inter-Resin for the recovery of the peso equivalent
authenticity” of the letter of credit. of value of the draft on the partial availment of the now disowned letter of
• A negotiating bank has right of recourse against the issuer bank and, credit
until reimbursement is obtained, the drawer of the draft continues to 11. RTC: in favor of Inter-Resin
assume a contingent liability thereon. a. Bank of America made assurances that enticed Inter-Resin to
send the merchandise to Thailand
FACTS b. The fault should be borne by the BA which was careless and
1. March 8, 1981 -- Bank of America received by registered mail an negligent for failing to utilize its modern means of communication
Irrevocable Letter of Credit purportedly issued by Bank of Ayudhya, to verify with Bank of Ayudhya the authenticity of the letter of
Samyaek Branch fot the account of General Chemicals, Ltd of Thailand. credit before sending the same to Inter-Resin
a. This is to cover the sale of plastic ropes and agricultural filed c. Loading of plastic products into the vans were under strict
b. Advisory Bank: Bank of America supervision by officers who have in their favor presumption of
c. Beneficiary: Inter-Resin Industrial Corporation regularity in the performance f their funcitions
d. Issuing Bank: Bank of Ayudhya d. BA failed to prove the participation of Inter-Resin in the alleged
2. Match 11, 1981 – Bank of America wrote Inter-Resin informing it of the fraud
letter of credit 12. CA: affirmed
a. Inter-Resin sent Atty Tanay to Bank of America to have the letter
of credit confirmed ISSUES
i. The bank did not but an employee said that there was no 1. W/N Bank of America was liable – No
need of confirmation because the letter of credit would
not have been transmitted if it were not genuine. RULING & RATIO
3. Inter-Resin sought to make a partial availment under the letter of credit 1. No, as an advising bank, it does not incur any obligation more than just
by submitting to Bank of America invoices covering the shipment of notifying the seller.
24,000 bales of polyethylene rope to Gen Chemicals, the packing list, 2. A letter of credit is a financial device developed by merchants as a
export declaration and bill of lading. convenient and relatively safe mode of dealing with sales of goods to
4. After being satisfied that Inter-Resin’s documents conformed with the satisfy the seemingly irreconcilable interests of:
conditions expressed in the letter of credit, Bank of America issued in a. Parties:
favor of Inter-Resin a Cashier’s Check i. Seller – who refuses to part with goods before he is paid
a. The check was picked up by Inter-Resin Executive VP ii. Buyer – who wants to have control of the goods before
5. Bank of America wrote to Bank of Ayudhya advising the latter of the paying
availment under the letter of credit and sought the corresponding b. Process:
reimbursement. i. Buyer may be required to contract a bank to issue a
6. Inter-Resin again presented to Bank of America documents for second letter of credit in favor of seller – issuing bank can
availment of same letter of credit. authorize seller to draw drafts and engage to pay them
7. Bank of Ayudhya sent a telefax declaring the letter of credit fraudulent upon their presentment
ii. Buyer and seller agree on what goods are to be
presented for payment
Kool Kids 2016 | ALS 2D N-LC-01 Bank of America v. CA.pdf
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 iii. Seller ships the goods to the buyer, and in the process 8. While BA failed to allege material facts in its complaint that might have
secures the required shipping documents of title. likewise warranted the application of NIL, this failure, nonetheless does
iv. To get paid, seller executes a draft and presents it not preclude petitioner bank’s right of recovery from Inter-Resin itself.
together with required documents to the issuing bank. a. Inter-Resin admits having received 10M from Bank of America
v. Issuing bank redeems draft and pays cash to the seller if on the letter of credit transaction and in having executed the
it finds that the documents submitted by the seller corresponding draft.
conform with what the letter of credit requires b. That payment to Inter-Resin has given Bank of America the right
vi. Buyer reimburses issuing bank of reimbursement from issuing bank, Bank of Ayudhya, which
c. 3 parties in a letter of credit could then seek indemnification from the buyer (Gen. Chemicals)
i. buyer c. Since Bank of Ayudhya disowned the letter of credit, Bank of
ii. bank America may now turn to Inter-Resin for restitution.
iii. seller 9. In summary, court holds that:
1. the no of parties may be increased (e.g. advising a. Petitioner BA has acted merely as a notifying bank and did not
bank, confirming bank, paying bank, negotiating assume the responsibility of a confirming bank
bank) b. Petitioner BA, as a negotiating bank, is entitled to recover on
3. Bank of America has only been an advising, not confirming bank. Inter-Resin’s partial availment as beneficiary of the letter of credit
a. This is clearly evident by: which has been disowned by the alleged issuer bank.
i. the provisions of the letter of credit itself,
ii. the BA’s letter of advice, DISPOSITION
iii. its request for payment of advising fee, • Assailed decision is set aside, and respondent Inter-Resin is ordered to
iv. and the admission of Inter-Resin that it has paid the refund BA 10M with legal interest from filing of the complaint.
same
b. That BA has asked Inter-Resin to submit docs required by the
letter of credit and eventually has paid the proceeds thereof did
not make it a confirming bank.
c. The fact that the draft required by the letter of credit is to be
drawn under the account of General Chemicals (buyer) only
means that the same had to be presented to Bank of Ayudhya
(issuing bank) for payment.
d. The written reservation by BA in limiting its obligation only to
being an advising bank is in consonance with the provisions of
U.C.P.
4. As an advising bank, it 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.
5. It was only bound to check the “apparent authenticity” of the letter of
credit.
6. Inter-Resin cannot claim to be totally free from fault.
a. As the seller, the issuance of the letter of credit should have
been a great concern to it.
7. Since the transaction was a discounting arrangement, Bank of America
can recover what it has paid under the letter of credit.
a. 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.
Kool Kids 2016 | ALS 2D N-LC-01 Bank of America v. CA.pdf
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