Prudential Bank vs IAC
sight drafts. Presentment for
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
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.
A letter of credit is defined as 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. 11Through a letter of credit, the bank
merely substitutes its own promise to pay for
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. 12 In the instant
case then, the drawee was necessarily the
herein petitioner. 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. Presentment for
acceptance is necessary only in the cases
expressly provided for in Section 143 of the
Negotiable Instruments Law (NIL).
The typical setting and purpose of a letter of
credit are described in Hibernia Bank and Trust
Co.vs. J. Aron & Co., Inc., 19 thus:
Commercial letters of credit have come
into general use in international sales
transactions where much time
necessarily elapses between the sale
and the receipt by a purchaser of the
merchandise, during which interval
great price changes may occur. Buyers
and sellers struggle for the advantage
of position. The seller is desirous of
being paid as surely and as soon as
possible, realizing that the vendee at a
distant point has it in his power to reject
on trivial grounds merchandise on
arrival, and cause considerable
hardship to the shipper. Letters of
credit meet this condition by affording
celerity and certainty of payment. Their
purpose is to insure to a seller payment
of a definite amount upon presentation
of documents. The bank deals only with
documents. It has nothing to do with
the quality of the merchandise.
Disputes as to the merchandise
shipped may arise and be litigated later
between vendor and vendee, but they
may not impede acceptance of drafts
and payment by the issuing bank when
the proper documents are presented.
Bank of America vs CA
On 05 March 1981, petitioner Bank of America,
NT & SA, Manila, received by registered mail
an Irrevocable Letter of Credit No. 20272/81
purportedly issued by Bank of Ayudhya,
Samyaek Branch, for the account of General
Chemicals, Ltd., of Thailand in the amount of
US$2,782,000.00 to cover the sale of plastic
ropes and "agricultural files," with the petitioner
as advising bank and private respondent Inter-
Resin Industrial Corporation as beneficiary.
On 11 March 1981, Bank of America wrote
Inter-Resin informing the latter of the foregoing
and transmitting, along with the bank's
communication,
the latter of credit. Upon receipt of the letter-
advice with the letter of credit, Inter-Resin sent
Atty. Emiliano Tanay to Bank of America to
have the letter of credit confirmed. The bank
did not. Reynaldo Dueñas, bank employee in
charge of letters of credit, however, explained
to Atty. Tanay that there was no need for
confirmation because the letter of credit would
not have been transmitted if it were not
genuine.
Between 26 March to 10 April 1981, Inter-Resin
sought to make a partial availment under the
letter of credit by submitting to Bank of America
invoices, covering the shipment of 24,000
bales of polyethylene rope to General
Chemicals valued at US$1,320,600.00, the
corresponding packing list, export declaration
and bill of lading. Finally, after being satisfied
that Inter-Resin's documents conformed with
the conditions expressed in the letter of credit,
Bank of America issued in favor of Inter-Resin
a Cashier's Check for P10,219,093.20, "the
Peso equivalent of the draft (for)
US$1,320,600.00 drawn by Inter-Resin, after
deducting the costs for documentary stamps,
postage and mail issuance." 1 The check was
picked up by Inter-Resin's Executive Vice-
President Barcelina Tio. On 10 April 1981,
Bank of America wrote Bank of Ayudhya
advising the latter of the availment under the
letter of credit and sought the corresponding
reimbursement therefor.
Meanwhile, Inter-Resin, through Ms. Tio,
presented to Bank of America the documents
for the second availment under the same letter
of credit consisting of a packing list, bill of
lading, invoices, export declaration and bills in
set, evidencing the second shipment of goods.
Immediately upon receipt of a telex from the
Bank of Ayudhya declaring the letter of credit
fraudulent, 2 Bank of America stopped the
processing of Inter-Resin's documents and
sent a telex to its branch office in Bangkok,
Thailand, requesting assistance in determining
the authenticity of the letter of credit. 3 Bank of
America kept Inter-Resin informed of the
developments. Sensing a fraud, Bank of
America sought the assistance of the National
Bureau of Investigation (NBI). With the help of
the staff of the Philippine Embassy at Bangkok,
as well as the police and customs personnel of
Thailand, the NBI agents, who were sent to
Thailand, discovered that the vans exported by
Inter-Resin did not contain ropes but plastic
strips, wrappers, rags and waste materials.
Here at home, the NBI also investigated Inter-
Resin's President Francisco Trajano and
Executive Vice President Barcelina Tio, who,
thereafter, were criminally charged for estafa
through falsification of commercial documents.
The case, however, was eventually dismissed
by the Rizal Provincial Fiscal who found
no prima facieevidence to warrant prosecution.

Bank of America sued Inter-Resin for the

recovery of P10,219,093.20, the peso
equivalent of the draft for US$1,320,600.00 on
the partial availment of the now disowned letter
of credit. On the other hand, Inter-Resin
claimed that not only was it entitled to retain
P10,219,093.20 on its first shipment but also to
the balance US$1,461,400.00 covering the
second shipment.