Letters of Credit 2. BPI vs.

De Reny Fabrics Industries Facts: De Reny Fabrics Industries, a Philippine Corporation entered into a contract with its American Supplier, J.B. Distributing Company purchasing dyestuffs of various colors. De Reny fabrics applied for letters of credit to cover these transactions. BPI, the bank accepted the application of De Reny Fabrics. The distributing effected the drafts covering the amounts of the merchandise ostensibly being exported by it, together with clean bills of lading, and collected the full value of the drafts. These drafts were debited to the account of the Bank of the Philippine Islands with them up to the full value of the drafts presented by the Distributing Company, plus commission thereon, and, thereafter, endorsed and forwarded all documents to the Bank of the Philippine Islands. Shipments were made, De Reny Fabrics made partial fulfillments, further payments were discontinued by the corporation when they found out that the goods that were shipped are not actually dyes but colored chalks. They blamed the bank and refused to take possession of the goods, and for this reason, the Bank caused them to be deposited with a bonded warehouse The corporation contends as a defense that it was the duty of the foreign correspondent banks of the Bank of the Philippine Islands to take the necessary precaution to insure that the goods shipped under the covering L/Cs conformed with the item appearing therein, and, that the foregoing banks having failed to perform this duty, no claim for recoupment against the defendants-appellants, arising from the losses incurred for the non-delivery or defective delivery of the articles ordered, could accrue. Issue: Whether or not it was really the duty of the bank to physically check the goods that will be delivered. Held. It was held by the SC that De Reny Fabrics is liable and it is not the duty of the bank to check the good s that will be delivered. Application for the letter of credit of De Reny Fabrics contained the stipulation that the correspondent bank will pay upon presentation of genuine shipping documents which De Reny is bound Also, 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.

3. Insular Bank of Asia & America vs. IAC Facts: Spouses Mendoza obtained loans from PHILAM Life that will be liquidated in equal amortizations over a period of five (5) years from March 1977 to March 1982., to secure payment, Philam Life required that amortizations be guaranteed by an irrevocable letter of credit. Thus the Mendozas applied for a letter of credit into the Insular Bank then their application was granted by the said bank. The Mendozas failed to pay Philam Life the amortization that fell due on 1 June 1978 so that Philam Life informed IBAA that it was declaring both loans as "entirely due and demandable" Now the Insular Bank contends that they only act as mere guarantor of the Mendozas who are the principal debtors, and they are not liable for the entirety of the obligation because the Mendoza paid partial payments already. Issue Whether or not the contention of the Insular Bank that they only act as a mere guarantor which precludes them in assuming to pay the obligation on its entirety. Held: It was held by the SC that the letter of credit constitutes the primary obligation, and not merely an accessory contract, of the issuing bank separate from underlying contract that it may support. Consequently, the beneficiary of a letter of credit issued to secure payment of a loan may collect of its entirety, even if the borrower claims it made partial payments already. 4. People vs. Nitafan Facts: Failing in his argument that B.P. 22, otherwise known as the "Bouncing Check Law", is unconstitutional, private respondent now argues that the check he issued, a memorandum check, is in the nature of a promissory note, hence, outside the purview of the statute. Here, his argument must also fail Private Respondent Mariano Lim issued a check amounting to P143,000.00well knowing that at the time of issue he . . . did not have sufficient funds in or credit with the drawee bank . . . which check . . . was subsequently dishonored by the drawee bank for insufficiency of funds, and despite receipt of notice of such dishonor, said accused failed to pay said Fatima Cortez Sasaki the amount of said check or to make arrangement for full payment of the same within five (5) banking days after receiving said notice. Private Respndent that the check he issued was a memorandum check which was in the nature of a promissory note, perforce, civil in nature.

Issue: Whether or not the contention of private respondent that the issuance of a memorandum check is in the nature of a promissory note which precludes the court in convicting him under BP22 because of its civil character. Held It was held by the SC that a memorandum check, which is in the form of an ordinary check, is still drawn on a bank and should therefore be distinguished from a promissory note, which is but a mere promise to pay. A check is also defined as " [a] written order or request to a bank or persons carrying on the business of banking, by a party having money in their hands, desiring them to pay, on presentment, to a person therein named or bearer, or to such person or order, a named sum of money, A memorandum check must therefore fall within the ambit of B.P. 22 which does not distinguish but merely provides that "[a]ny person who makes or draws and issues any check knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank . . . which check is subsequently dishonored . . . shall be punished by imprisonment A memorandum check, upon presentment, is generally accepted by the bank. Hence it does not matter whether the check issued is in the nature of a memorandum as evidence of indebtedness or whether it was issued is partial fulfillment of a pre-existing obligation, for what the law punishes is the issuance itself of a bouncing check 15 and not the purpose for which it was issuance. The mere act of issuing a worthless check, whether as a deposit, as a guarantee, or even as an evidence of a pre-existing debt, is malum prohibitum.