Bank of the Philippine Islands vs De Reny Fabric Industries 35 SCRA 256

FACTS: The De Reny Fabric Industries, a Philippine corporation, through its president and secretary, applied to Bank of the Philippine Islands for four (4) irrevocable commercial letters of credit to cover the purchase by the corporation of goods described as dyestuffs of various colors from its American supplier, JB Distributing Company. As each shipment arrived in the Philippines, the De Reny Fabric Industries made partial payments to Bank of the Philippine Islands amounting to P90,000.00. Further payments were however, subsequently discontinued by the corporation when it was 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 the dyestuffs. The corporation also refused to take possession of such goods. The Bank of the Philippine Islands filed a complaint against De Reny Fabric Industries.

ISSUE: Whether the bank is liable for the defective delivery

HELD: No. Banks cannot be held responsible where the business transactions do not deal with the property to be exported but deal only with documents.

Philippine Virginia Tobacco Administration (PVTA) vs De los Angeles 164 SCRA 543

FACTS: Timoteo Sevilla, proprietor and General Manager of the Philippine Associated Resources (PAR) together with, the Nationwide Agro-Industrial Development Corp. and the Consolidated Agro-Producers Inc. were awarded in a public bidding the right to import Virginia leaf tobacco for blending purposes and exportation by them of PVTA and farmer's low-grade tobacco at a rate of one (1) kilo of imported tobacco for every nine (9) kilos of leaf tobacco actually exported. Subsequently, the other two entities assigned their rights to PVTA and Sevilla remained the only private entity accorded the privilege. The contract entered into between the PVTA and respondent Sevilla was for the importation of 85 million kilos of Virginia leaf tobacco and a counterpart exportation of 2.53 million kilos of PVTA and 5.1 million kilos of farmer's and/or PVTA at P3.00 a kilo. Thus, the subject contract which was amended because of the prevailing export or world market price under which respondent will be exporting at a loss was further amended to grant respondent the privileges under aforesaid law, subject to the following conditions: (1) that on the 2,101.470 kilos already purchased, and exported, the purchase price of about P3.00 a kilo was maintained; (2) that the unpaid balance of P3,713,908.91 was to be liquidated by paying PVTA the sum of P4.00 for every kilo of imported Virginia blending tobacco and; (3) that respondent Sevilla would open an irrevocable letter of credit No. 6232 with the Prudential Bank and Trust Co. in favor of the PVTA to secure the payment of said balance, drawable upon the release from the Bureau of Customs of the imported Virginia blending tobacco. While Sevilla was trying to negotiate the reduction of the procurement cost of the PVTA tobacco already exported which attempt was denied by petitioner and also by the Office of the President, PVTA prepared two drafts to be drawn against said letter of credit for amounts which have already become due and demandable. Sevilla then filed a complaint for damages with preliminary injunction against the petitioner in the amount of P5,000,000.00. But pending the resolution of respondent's motion and without notice to the petitioner, respondent judge issued the assailed Order of July 17, 1967 directing the Prudential Bank & Trust Co. to make the questioned release of funds from the Letter of Credit. Before petitioner could file a motion for reconsideration of said order, respondent Sevilla was able to secure the releaseof P300,000.00 and the rest of the amount.

ISSUE: Whether or not the respondent judge acted without or in excess of jurisdiction or with grave abuse of discretion when he issued the Order of

HELD: In issuing the Order, respondent Judge violated the irrevocability of the letter of credit issued by respondent Bank in favor of petitioner. An irrevocable letter of credit caretaker.2 during its lifetime be cancelled or modified without the express permission of the beneficiary (Miranda and Garrovilla, Principles of Money Credit and Banking, Revised Edition, p. 291).

Insular Bank Asia & America vs IAC 167 SCRA 450 FACTS: Spouses Ben Mendoza and Juanita Mendoza obtained two loans from Philippine American Life Insurance (Philam Life) in the amount of P600,000.00 to finance the construction of their residential house at Mandaue City. To secure payment, Philam Life required that amortizations be granted by an irrevocable standby letter of a commercial bank. Thus, the Mendozas contracted with Insular Bank of Asia and America (IBAA) for the issuance of two irrevocable standby letters of credit in favor of Philam Life for the amount of P600,000. The two irrevocable standby letters of credit were, in turn, secured by a real estate mortgage for the same amount on the property of the spouses in favor of IBAA. The Mendozas executed a promissory notes in favor of IBAA. Both Notes authorized IBAA to sell at public or private sale such securities or things for the purpose of applying their proceeds to such payments of any particular obligation or obligations the Mendozas may have to IBAA. The Mendozas failed to pay Philam Life. Both loans became due and demandable.

ISSUE: whether or not the partial payments made by the Mendozas to IBAA be deducted to IBAAs obligation

HELD: NO. In construing the terms of a Letter of Credit, as in other contracts, it is the intention of the parties that must govern. Letters of credit and contracts for the issuance of such letters are subject to the same rules of construction as are ordinary commercial contracts. They are to receive a reasonable and not a technical construction and although usage and custom cannot control express terms in letters of credit, they are to be construed with reference to all the surrounding facts and circumstances, to the particular and often varying terms in which they may be expressed, the circumstances and intention of the parties to them, and the usages of the particular trade of business contemplated. Unequivocally, the subject standby Letters of Credit secure the payment of any obligation of the Mendozas to Philam Life including all interests, surcharges and expenses thereon but not to exceed P600,000.00. But while they are a security arrangement, they are not converted thereby into contracts of guaranty. That would make them ultra vires rather than a letter of credit, which is within the powers of a bank. The standby L/Cs are, "in effect an absolute undertaking 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. Being separate and independent agreements, the payments made by the Mendozas cannot be added in computing IBAA's liability under its own standby letters of credit. Payments made by the Mendozas directly to Philam Life are in compliance with their own prestation under the loan agreements. And although these payments could result in the reduction of the actual amount which could ultimately be collected from IBAA, the latter's separate undertaking under its L/Cs remains. That there still remains a balance on the loan, Pursuant to its absolute undertaking under the L/Cs, therefore, IBAA cannot escape the obligation to pay Philam Life for this unexpended balance.

Feati Bank & Trust Company vs CA 196 SCRA 576 FACTS: Bernardo E. Villaluz agreed to sell to the then defendant Axel Christiansen 2,000 cubic meters of lauan logs. After inspecting the logs, Christiansen issued a purchase order. On the arrangements made and upon the instructions of the consignee, Hanmi Trade Development, Ltd., de Santa Ana, California, the Security Pacific National Bank of Los Angeles, California issued Irrevocable Letter of Credit available at sight in favor of Villaluz for the sum of $54,000.00. The letter of credit was mailed to the Feati Bank and Trust Company (now Citytrust) with the instruction to the latter that it "forward the enclosed letter of credit to the beneficiary." The letter of credit further provided that the draft to be drawn is on Security Pacific National Bank and that it be accompanied by certain documents, one of which is the Certification from Han-Axel Christiansen, Ship and Merchandise Broker, stating that logs have been approved prior to shipment in accordance with terms and conditions of corresponding purchase Order. After the loading of the logs was completed, the Chief Mate issued a mate receipt of the cargo which stated the same are in good condition. However, Christiansen refused to issue the certification as required in the letter of credit, despite several requests made by the private respondent. Because of the absence of the certification by Christiansen, the Feati Bank and Trust Company refused to advance the payment on the letter of credit. The letter of credit lapsed without the private respondent receiving any certification from Christiansen. Since the demands by the private respondent for Christiansen to execute the certification proved futile, Villaluz instituted an action for mandamus and specific performance against Christiansen and the Feati Bank and Trust Company. ISSUE: whether or not a correspondent bank is to be held liable under the letter of credit despite non-compliance by the beneficiary with the terms thereof HELD: No. In this case, the letter merely provided that the petitioner "forward the enclosed original credit to the beneficiary." Considering the aforesaid instruction to the petitioner by the issuing bank, the Security Pacific National Bank, it is indubitable that the petitioner is only a notifying bank and not a confirming bank as ruled by the courts below. Since the petitioner was only a notifying bank, its responsibility was solely to notify and/or transmit the documentary of credit to the private respondent and its obligation ends there. A notifying bank is not a privy to the contract of sale between the buyer and the seller, its relationship is only with that of the issuing bank and not with the beneficiary to whom he assumes no liability. It follows therefore that when the petitioner refused to negotiate with the private respondent, the latter has no cause of action against the petitioner for the enforcement of his rights under the letter. In order that the petitioner may be held liable under the letter, there should be proof that the petitioner confirmed the letter of credit. Whether therefore the petitioner is a notifying bank or a negotiating bank, it cannot be held liable. Absent any definitive proof that it has confirmed the letter of credit or has actually negotiated with the private respondent, the refusal by the petitioner to accept the tender of the private respondent is justified. As a mere notifying bank, not only does the petitioner not have any contractual relationship with the buyer, it has also nothing to do with the contract between the issuing bank and the buyer regarding the issuance of the letter of credit.

Prudential Bank and Trust Company (PBTC) vs IAC 216 SCRA 257

FACTS: Philippine Rayon Mills (PRM) entered into a contract with Nissho Co. for the importation of textile machineries under a 5-year deferred payment plan. PRM applied for a commercial letter of credit with PBTC in favor of Nissho. By virtue of said application, PBTC opened a letter of credit. Against this letter of credit, drafts were drawn and issued by Nissho which were all paid by PBTC through its correspondent bank in Japan. Upon the arrival of the machineries, the PBTC indorsed the shipping documents to PRM which accepted the delivery. To enable PRM to take the delivery of the machineries, a trust receipt was executed. Then, PRM ceased business operation. The obligation of PRM arising from the letter of credit and the trust receipt remained unpaid and unliquidated.

ISSUE: whether or not the presentment for acceptance of the drafts was indispensable to make PRM liable thereon

HELD: No. In the case, the drawee was necessarily the bank. It was to the latter that the drafts were presented for payment. In fact, there was no need for acceptance as the issued drafts are sight drafts.

Bank of America, NT & SA vs CA 228 SCRA 357

FACTS: Bank of America (BA) received an irrevocable letter of credit issued by Bank of Ayudhya Samyaek for the account of general chemicals to cover the sale of plastic ropes and agrifiles. BA transmitted to Inter-Resin the letter of credit. Inter-Resin sought to make partial availments under the letter of credit and after being satisfied with the letter of credit, BA issued the peso equivalent of the draft. When Inter-Resin tried to present a second availment, Bank of Ayudhya declared the letter of credit as fraudulent, so BA stopped the processing of InterResins document. It was discovered that the vans exported by Inter-Resin did not contain ropes but plastic strips, wrappers, rags and waste materials.

ISSUE: whether or not under the letter of credit BA is liable to Inter-Resin

HELD: No. Bank of America is only an advising bank. The letter of credit is an engagement of the issuing bank, not the advising bank, to pay. BA is only to check the apparent authenticity of the letter of credit.

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

FACTS: Petitioner Rodzssen opened with respondent Far East Bank and Trust Company (FEBTC) a letter of credit in favor of Ekman and Company for the purchase from the latter of 5 units of hydraulic loaders, to expire on February 15, 1979, and whose validity was extended to October 16, 1979. Three (3) units of hydraulic loaders were delivered to petitioner on March 16, 1979 for which FEBTC paid Ekman and which Rodzssen paid FEBTC before the expiry date of the LC. The remaining 2 units were readily received by Rodzssen after the expiration of the letter of credit. FEBTC paid the said goods despite the fact it no longer had the obligation to do so.

ISSUES: Whether or not it is proper for a banking institution to pay a letter of credit which has long expired or been cancelled

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

Ramon Abad vs CA 181 SCRA 191

FACTS: TOMCO, Inc., now known as Southeast Timber Co. (Phils.), Inc., applied for, and was granted by the Philippine Commercial and Industrial Bank (PCIB), a domestic letter of credit for in favor of its supplier, Oregon Industries, Inc., to pay for one Skagit Yarder with accessories. PCIB paid to Oregon Industries the cost of the machinery against a bill of exchange, with recourse, presentment and notice of dishonor waived, and with date of maturity. After making the required marginal deposit of P28,000, TOMCO, Inc. signed and delivered to the bank a trust receipt acknowledging receipt of the merchandise in trust for the bank, with the obligation "to hold the same in storage" as property of PCIB, with a right to sell the same for cash provided that the entire proceeds thereof are turned over to the bank, to be applied against acceptance(s) and any other indebtedness of TOMCO, Inc. In consideration of the release to TOMCO, Inc. by PCIB of the machinery covered by the trust receipt, petitioner Ramon Abad signed an undertaking entitled, "Deed of Continuing Guaranty" appearing on the back of the trust receipt, whereby he promised to pay the obligation jointly and severally with TOMCO, Inc. Except for TOMCO's P28,000 marginal deposit in the bank, no payment has been made to PCIB by either TOMCO, Inc. or its surety, Abad, on the letter of credit. Consequently, the bank sued TOMCO, Inc. and Abad in a Civil Case.

ISSUE: whether TOMCO's marginal deposit of P28,000 in the possession of the bank should first be deducted from its principal indebtedness before computing the interest and other charges due.

HELD: The marginal deposit requirement is a Central Bank measure to cut off excess currency liquidity which would create inflationary pressure. It is a collateral security given by the debtor, and is supposed to be returned to him upon his compliance with his secured obligation. Consequently, the bank pays no interest on the marginal deposit, unlike an ordinary bank deposit which earns interest in the bank. It is only fair then that the importer's marginal deposit, should be set off against his debt, for while the importer earns no interest on his marginal deposit, the bank, apart from being able to use said deposit for its own purposes, also earns interest on the money it loaned to the importer. It would be onerous to compute interest and other charges on the face value of the letter of credit which the bank issued, without first crediting or setting off the marginal deposit which the importer paid to the bank. Compensation is proper and should take effect by operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount (Art. 1290, Civil Code). Although Abad is only a surety, he may set up compensation as regards what the creditor owes the principal debtor, TOMCO.

Consolidated Bank and Trust Corporation vs CA 356 SCRA 671

FACTS: Continental Cement Corporation (CCC) and Gregory Lim obtained a letter of credit from Consolidated Bank. On the same day, CCC made a marginal deposit. The letter of credit was used to purchase 500,000 liters of bunker fuel of Petrophil Corporation. In relation to the same transaction, a trust receipt was executed by CCC, with Lim as signatory. Claiming that CCC and Lim failed to turn over the goods covered by the trust receipt or the proceeds thereof, Consolidated Bank filed a complaint for sum of money. In answer to the complaint, CCC and Lim averred that the transaction between them was a simple loan and not a trust receipt transaction. Consolidated Bank argues that the marginal deposit made by CCC should not be deducted from the amount of the letter of credit. The Bank argues that the marginal deposit should be considered only after computing the principal plus accrued interests and other charges.

ISSUE: whether or not the marginal deposit made by CCC should be deducted from the amount of the letter of credit

HELD: No. It would amount to a clear case of unjust enrichment. While a marginal deposit earns no interest in favor of the debtor-depositor, the bank is not only able to use the same for its own purposes, interest-free, but is also able to earn interest on the money loaned to CCC. Indeed, it would be onerous to compute interest and other charges on the face value of the letter of credit which the Bank issued, without first crediting or setting off the marginal deposit which CCC paid to it.

Bank of Commerce vs Teresita Serrano 451 SCRA 484

FACTS: Via Moda, represented by Serrano, obtained an export packing loan from Bank of Commerce, secured by a deed of assignment over an irrevocable letter of credit. Via Moda then opened a deposit account for the proceeds of said loan. Bank of Commerce issued to Via Moda the letter of credit for the purchase and importation of fabric and textile products from Tiger Ear Fabric. To secure the release of the goods covered, Serrano, in representation of Via Moda, executed a trust receipt. The goods covered by the trust receipt were shipped to Via Modas consignee in New Jersey, who sent an export letter of credit issued by the bank of New York, in favor of Bank of Commerce. The proceeds of the entrusted goods were not credited to the trust receipt but were applied by the bank to the principal penalties and interest of the export packing loan. Bank of Commerce sent a demand letter to Via Moda to pay the said amount plus the interests and charges, or to return the goods covered by the trust receipt.

ISSUE: Liability of Teresita Serrano

HELD: A letter of credit is a separate document from a trust receipt. Serrano cannot be held civilly liable under the trust receipt since she was not made personally liable nor was she a guarantor therein. The parties stipulated during the pre-trial that Serrano executed the trust receipt in representation of Via Moda, which is a separate personality from Serrano. Also, there was no misappropriation or conversion done by Serrano of the proceeds of the goods, subject of the trust receipt since the proceeds were actually received by Bank of Commerce but the latter applied the same to Via Modas other obligations under the export packing loan.

Metropolitan Waterworks and Sewerage System (MWSS) vs Daway 432 SCRA 559 FACTS: MWSS granted Maynilad under a concession agreement a 20-year period to manage, operate, and repair existing MWSS water delivery and sewerage services in the West Zone area, for which Maynilad undertook to pay the concession fees on the dates agreed on. To secure Maynilads performance of its obligation, it was required to put up a bond or other security acceptable to MWSS. In compliance therewith, Maynilad arranged for a 3-year facility with a number of foreign banks for the issuance of an irrevocable letter of credit. There had been repeated requests by Maynilad for a mechanism by which it hoped to recover the losses it had as a result of the depreciation of the Philippine Peso against the US Dollar. Maynilad repeatedly filed a Force Majeure Notice to unilaterally suspend the payment of concession fees. There had been an amendment of the agreement which includes the formula that would allow Maynilad to recover the foreign exchange losses it had. However, after a year Maynilad served upon MWSS a Notice of Event of Termination claiming that MWSS failed to comply with its obligation under the agreement regarding the adjustment mechanism that would cover Maynilads foreign exchange losses. The matter was brought to the Appeals Panel which order Maynilad to pay the concession fees. However, prior to this, Maynilad had filed a petition for rehabilitation which resulted to the issuance of a stay order.

ISSUE: Did the rehabilitation court acted in excess of authority or jurisdiction when it enjoined MWSS from seeking payment of the concession fees from the banks that issued the letters of credit

HELD: Yes. The rehabilitation court acted in excess of authority or jurisdiction when it enjoined MWSS from seeking payment of the concession fees from the banks that issued the letters of credit. It relied on the Interim Rules on Corporate Rehabilitation. The Banks do not hold any assets of Maynilad that would be material to the rehabilitation proceedings. Maynilads financial statement do not show that the irrevocable letter of credit was part of its assets and liabilities.

Transfield Philippines, Inc. vs Luzon Hydro Corporation 443 SCRA 307

FACTS: Transfield Philippines and Luzon Hydro Corporation (LHC) entered into a Turnkey Contract whereby petitioner, as Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station (Project). Transfield was given the sole responsibility for the design, construction, commissioning, testing and completion of the Project. The Turnkey Contract provides that: (1) the target completion date of the Project shall be on 1 June 2000, or such later date as may be agreed upon between petitioner and respondent LHC or otherwise determined in accordance with the Turnkey Contract; and (2) petitioner is entitled to claim extensions of time (EOT) for reasons enumerated in the Turnkey Contract, among which are variations, force majeure, and delays caused by LHC itself. Further, in case of dispute, the parties are bound to settle their differences through mediation, conciliation and such other means enumerated under Clause 20.3 of the Turnkey Contract. To secure performance of Transfieldss obligation, Transfield opened in favor of LHC two (2) standby letters of credit with the local branch of respondent Australia and New Zealand Banking Group Limited (ANZ Bank) and Standby Letter of Credit with Security Bank Corporation (SBC). In the course of the construction of the project, petitioner sought various EOT to complete the Project. The extensions were requested allegedly due to several factors which prevented the completion of the Project on target date, such as force majeure occasioned by typhoon Zeb, barricades and demonstrations. LHC denied the requests, however. This gave rise to a series of legal actions between the parties which culminated in the instant petition.

ISSUE: whether the independence principle on letters of credit may be invoked by a beneficiary thereof where the beneficiarys call thereon is wrongful or fraudulent

HELD: To say that the independence principle may only be invoked by the issuing banks would render nugatory the purpose for which the letters of credit are used in commercial transactions. As it is, the independence doctrine works to the benefit of both the issuing bank and the beneficiary. Letters of credit are employed by the parties desiring to enter into commercial transactions, not for the benefit of the issuing bank but mainly for the benefit of the parties to the original transactions. With the letter of credit from the issuing bank, the party who applied for and obtained it may confidently present the letter of credit to the beneficiary as a security to convince the beneficiary to enter into the business transaction. On the other hand, the other party to the business transaction, i.e., the beneficiary of the letter of credit, can be rest assured of being empowered to call on the letter of credit as a security in case the commercial transaction does not push through, or the applicant fails to perform his part of the transaction. It is for this reason that the party who is entitled to the proceeds of the letter of credit is appropriately called beneficiary.

Reliance Commodities, Inc vs Daewoo Industrial Co. 228 SCRA 545 FACTS: Reliance Commodities, Inc. and Daewoo Industrial Co., Ltd. ("Daewoo") entered into a contract of sale under the terms of which the latter undertook to ship and deliver to the former 2,000 metric tons of foundry pig iron for the price of US$404,000.00. Pursuant to this contract, Daewoo shipped from Pohang, Republic of Korea, 2,000 metric tons of foundry pig iron on board the M/S Aurelio III for delivery in Manila to its consignee, Reliance. Upon arrival in Manila, the subject cargo was found to be short of 135.655 metric tons as only 1,864.345 metric tons were discharged and delivered to Reliance. Daewoo acknowledged the short shipment of 135.655 metric tons under a contract and, to compensate bound itself to reduce the price by US$1 to US$2 per metric ton of pig iron for succeeding orders. Then another contract was entered into between the same parties for the purchase of another 2,000 metric tons of foundry pig iron. Daewoo acknowledged the short shipment of 135.655 metric tons under the 9 January 1980 contract and, to compensate Reliance therefor, bound itself to reduce the price by US$1 to US$2 per metric ton of pig iron for succeeding orders. However, the contract was not consummated and was later superseded by still another contract to be paid by an irrevocable of sight letter of credit in favor of Daewoo Industrial Co., Ltd. Reliance, through its Mrs. Samuel Chuason, filed with the China Banking Corporation, an application for a Letter of Credit (L/C) in favor of Daewoo covering the amount of US$380,600.00. The application was endorsed to the Iron and Steel Authority (ISA) or approval but the application was denied. Reliance was instead asked to submit purchase orders from end-users to support its application for a Letter of Credit. However, Reliance was not able to raise purchase orders for 2,000 metric tons. Reliance alleges that it was able to raise purchase orders for 1,900 metric tons. Daewoo, on the other hand, contends that Reliance was only able to raise purchase orders for 900 metric tons. An examination of the evidence presented by Reliance shows that only purchase orders for 900 metric tons were stamped "Received" by the ISA. The other purchase orders for 1,000 metric tons allegedly sent by prospective end users to Reliance were not shown to have been duly sent and exhibited to the ISA. Whatever the exact amount of the purchase orders was, Daewoo rejected the proposed L/C for the reason that the covered quantity fell short of the contracted tonnage. Thus, Reliance withdrew the application for the L/C. Subsequently, Daewoo learned that the failure of Reliance to open the L/C as stipulated in the contract was due to the fact that as early as May 1980, Reliance has already exceeded its foreign exchange allocation for 1980. Because of the failure of Reliance to comply with its undertaking under contract, Daewoo was compelled to sell the 2,000 metric tons to another buyer at a lower price, to cut losses and expenses Daewoo had begun to incur due to its inability to ship the 2000 metric tons to Reliance under their contract.

ISSUE: whether or not Reliance is liable for breach of contract for its failure to open a letter of credit in favor of Daewoo

HELD: Yes. The Court is compelled to agree with the Court of Appeals that the non-opening of the L/C was due to the failure of Reliance to comply with its duty under the contract. We believe and so hold that failure of a buyer seasonably to furnish an agreed letter of credit is a breach of he contract between buyer and seller. Where the buyer fails to open a letter of credit as stipulated, the seller or exporter is entitled to claim damages for such breach.

Land Bank of the Philippnes vs Monets Export and Manufacturing Corporation (MEMC) 453 SCRA 173

FACTS: Land Bank and MEMC executed an export packing credit line agreement under which MEMC was given a credit line of P250,000, secured by the proceeds of its export letter of credit, guaranty of Spouses Tagle and a third party mortgage. For failure of MEMC to pay the indebtedness to Land Bank, the bank filed a complaint. In their joint answers, MEMC and Spouses Tagle alleged that Land Bank failed and refused to collect the receivables on their export letter of credit against Wishbone Trading Company of Hong Kong, while it made unauthorized payment on their import letter of credit to Beutilike Limited which seriously damages the business interest of MEMC. The lower court and the Court of Appeals held that Land Bank was responsible for the mismanagemet of the Wishbone and Beutilike accounts of MEMC.

ISSUE: whether or not the fault or acts of mismanagement can be attributed to Land Bank relative to MEMCs import letter of credit

HELD: No fault can be attributed to Land Bank. Land Bank, as the issuing bank, only deals with documents and it is not involved in the contract of the parties. The relationship between the beneficiary and the issuer of a letter of credit is not strictly contractual because of the privity and meeting of the minds are absent.