G.R. No. L-24821 - OCTOBER 1970 - PHILIPPINE JURISPRUDENCE CASE NUMBERCASE TITLE G.R. No. L-24821 October 16, 1970 Bank of the Philippine Islands vs. De Reny Fabric Industries, Inc., et al. G.R. No. L-26327 October 16, 1970 In Re: Feliciano T. Tan. Feliciano T. Tan vs. Republic of the Philippines G.R. No. L-26419 October 16, 1970 Gedeon G. Quijano, et al. vs. Development Bank of the Philippines , et al. G.R. No. L-26754 October 16, 1970 Mateo Casela vs. Court of Appeals,et al. G.R. No. L-27971 October 16, 1970 Tan Ty vs. Land Tenure Administration, et al. G.R. No. L-31105 October 16, 1970 Negros Ice House Corp. vs. Inocencio Chua, et al. G.R. No. L-32546 October 17, 1970 Anacleto D. Badoy, Jr. vs. Jaime N. Ferrer, et al. Separate OpinionJustice Reyes Concurring OpinionJustice Makalintal Concurring OpinionJustice Castro Dissenting OpinionJustice Fernando Dissenting OpinionJustice Barredo Dissenting OpinionJustice Teehankee A.C. No. 95 October 20, 1970 Clemente M. Soriano vs. Enrique Medina G.R. No. L-21203 October 20, 1970 Felipa Jolatoria, et al. vs. Simplicio Apolinario, et al. G.R. No. L-24148 October 20, 1970 Primo Zuñiga vs. Pablo Marquez, et al. G.R. No. L-26403 October 20, 1970 Cecilia Del Valle-Tiongson, et al. vs. Melecio Fernandez, et al. G.R. No. L-32476 October 20, 1970 Simeon G. Del Rosario vs. Ubaldo Carbonell, et al G.R. No. L-23868 October 22, 1970 Zacarias C. Aquino vs. Francisco Socorro, et al. Concurring OpinionJustice Barredo G.R. No. L-26151 October 22, 1970 Alberto Valino vs. Emanuel M. Muñoz, et al. G.R. No. L-30083 October 22, 1970 Industrial Company, Inc. vs. Court of Appeals, et al. G.R. No. L-32485 October 22, 1970 In Re: Kay Villegas Kami, Inc. Concurring OpinionJustice Fernando Concurring OpinionJustice Villamor Dissenting OpinionJustice Barredo Dissenting OpinionJustice Teehankee G.R. Nos. L-32560-61 October 22, 1970 Esmeraldo M. Gatchalian vs. Commission on Elections G.R. No. L-24011 October 24, 1970 Manuel Bastida vs. Acting Commissioner of Customs, et al. G.R. No. L-27699 October 24, 1970 Camotes Shipping Corp. vs. Julian Otadoy, et al. G.R. No. L-28574 October 24, 1970 People of the Philippines vs. Reynaldo C. Villaseñor G.R. No. L-32096 October 24, 1970 Romeo F. Edu vs. Vicente G. Ericta, et al. G.R. No. L-29061 October 29, 1970 People of the Philippines vs. July Lacsamana G.R. No. L-25375 October 30, 1970 Anicia T. Reyes vs. Gregorio Apostol, et al. G.R. No. L-25510 October 30, 1970 Candelaria Pecson Jose, et al. vs. Priscila Santos, et al. G.R. No. L-25984 October 30, 1970 Alhambra Industries, Inc. vs. Court of Industrial Relations, et al. G.R. No. L-26768 October 30, 1970 Faustino Gojo vs. Segundo Goyala, et al. G.R. No. L-26966 October 30, 1970 De La Rama Steamship Co. vs. National Development Co. G.R. No. L-27651 October 30, 1970 Leonida Cruz, et al. vs. Ricardo T. Franco G.R. No. L-28114 October 30, 1970 In Re: Angela Tuazon De Perez. G.R. No. L-28115 October 30, 1970 Apolinario Okol, et al. vs. Tayug Rural Bank, Inc., et al. G.R. No. L-28604 October 30, 1970 Jesus Contemprate vs. Acting Commissioner of Immigration, et al. G.R. No. L-29057 October 30, 1970 People of the Philippines vs. Bermillo Soriano, et al. G.R. No. L-29144 October 30, 1970 People of the Philippines vs. Eustaquio Modelo The Lawphil Project - Arellano Law Foundation, Inc. Bank of the Philippine Islands vs. De Reny Fabric Industries, Inc., et al. In Re: Feliciano T. Tan. Feliciano T. Tan vs. Republic of the Philippines Gedeon G. Quijano, et al. vs. Development Bank of the Philippines , et al. Mateo Casela vs. Court of Appeals,et al. Tan Ty vs. Land Tenure Administration, et al. Negros Ice House Corp. vs. Inocencio Chua, et al. Anacleto D. Badoy, Jr. vs. Jaime N. Ferrer, et al. Separate OpinionJustice Reyes Concurring OpinionJustice Makalintal Concurring OpinionJustice Castro Dissenting OpinionJustice Fernando Dissenting OpinionJustice Barredo Dissenting OpinionJustice Teehankee Clemente M. Soriano vs. Enrique Medina Felipa Jolatoria, et al. vs. Simplicio Apolinario, et al. Primo Zuñiga vs. Pablo Marquez, et al. Cecilia Del Valle-Tiongson, et al. vs. Melecio Fernandez, et al. Simeon G. Del Rosario vs. Ubaldo Carbonell, et al Zacarias C. Aquino vs. Francisco Socorro, et al. Concurring OpinionJustice Barredo Alberto Valino vs. Emanuel M. Muñoz, et al. Industrial Company, Inc. vs. Court of Appeals, et al. In Re: Kay Villegas Kami, Inc. Concurring OpinionJustice Fernando Concurring OpinionJustice Villamor Dissenting OpinionJustice Barredo Dissenting OpinionJustice Teehankee Esmeraldo M. Gatchalian vs. Commission on Elections Manuel Bastida vs. Acting Commissioner of Customs, et al. Camotes Shipping Corp. vs. Julian Otadoy, et al. People of the Philippines vs. Reynaldo C. Villaseñor Romeo F. Edu vs. Vicente G. Ericta, et al. People of the Philippines vs. July Lacsamana Anicia T. Reyes vs. Gregorio Apostol, et al. Candelaria Pecson Jose, et al. vs. Priscila Santos, et al. Alhambra Industries, Inc. vs. Court of Industrial Relations, et al. Faustino Gojo vs. Segundo Goyala, et al. De La Rama Steamship Co. vs. National Development Co. Leonida Cruz, et al. vs. Ricardo T. Franco In Re: Angela Tuazon De Perez. Apolinario Okol, et al. vs. Tayug Rural Bank, Inc., et al. Jesus Contemprate vs. Acting Commissioner of Immigration, et al. People of the Philippines vs. Bermillo Soriano, et al. People of the Philippines vs. Eustaquio Modelo The Lawphil Project - Arellano Law Foundation, Inc.

Manila

EN BANC

G.R. No. L-24821 October 16, 1970

BANK OF THE PHILIPPINE ISLANDS,plaintiff-appellee,
vs.
DE RENY FABRIC INDUSTRIES, INC., AURORA T. TUYO and AURORA CARCERENY alias AURORA C. GONZALES,defendants-appellants.

Aviado and Aranda for plaintiff-appellee.

S. Emiliano Calma for defendants-appellants.

CASTRO,J.:.

This is an appeal from the decision of the Court of First Instance of Manila ordering the defendants-appellants to pay to the Bank of the Philippine Islands (hereinafter referred to as the Bank), jointly and severally, the value of the credit it extended to them in several letters of credit which the Bank opened at the behest of the defendants appellants to finance their importation of dyestuffs from the United States, which however turned out to be mere colored chalk upon arrival and inspection thereof at the port of Manila.

The record shows that on four (4) different occasions in 1961, the De Reny Fabric Industries, Inc., a Philippine corporation through its co-defendants-appellants, Aurora CarcerenyaliasAurora C. Gonzales, and Aurora T. Tuyo, president and secretary, respectively of the corporation, applied to the Bank for four (4) irrevocable commercial letters of credit to cover the purchase by the corporation of goods described in the covering L/C applications as "dyestuffs of various colors" from its American supplier, the J.B. Distributing Company. All the applications of the corporation were approved, and the corresponding Commercial L/C Agreements were executed pursuant to banking procedures. Under these agreements, the aforementioned officers of the corporation bound themselves personally as joint and solidary debtors with the corporation. Pursuant to banking regulations then in force, the corporation delivered to the Bank peso marginal deposits as each letter of credit was opened.

The dates and amounts of the L/Cs applied for and approved as well as the peso marginal deposits made were, respectively, as follows:.

By virtue of the foregoing transactions, the Bank issued irrevocable commercial letters of credit addressed to its correspondent banks in the United States, with uniform instructions for them to notify the beneficiary thereof, the J.B. Distributing Company, that they have been authorized to negotiate the latter's sight drafts up to the amounts mentioned the respectively, if accompanied, upon presentation, by a full set of negotiable clean "on board" ocean bills of lading covering the merchandise appearing in the LCs that is, dyestuffs of various colors. Consequently, the J.B. Distributing Company drew upon, presented to and negotiated with these banks, its sight 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 up to the amounts appearing in the L/Cs as above indicated. These correspondent banks then debited the account of the Bank of the Philippine Islands with them up to the full value of the drafts presented by the J.B. Distributing Company, plus commission thereon, and, thereafter, endorsed and forwarded all documents to the Bank of the Philippine Islands.

In the meantime, as each shipment (covered by the above-mentioned letters of credit) arrived in the Philippines, the De Reny Fabric Industries, Inc. made partial payments to the Bank amounting, in the aggregate, to P90,000. 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 below on December 10, 1962.

On October 24, 1963 the lower court rendered its decision ordering the corporation and its co-defendants (the herein appellants) to pay to the plaintiff-appellee the amount of P291,807.46, with interest thereon, as provided for in the L/C Agreements, at the rate of 7% per annum from October 31, 1962 until fully paid, plus costs.

It is the submission of the defendants-appellants 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.

We can appreciate the sweep of the appellants' argument, but we also find that it is nestled hopelessly inside a salient where the valid contract between the parties and the internationally accepted customs of the banking trade must prevail.1

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.2

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.ℒαwρhi৷

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 Bank introduced in evidence a provision contained in the "Uniform Customs and Practices for Commercial Documentary Credits Fixed for the Thirteenth Congress of International Chamber of Commerce," to which the Philippines is a signatory nation. Article 10 thereof provides: .

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.

ACCORDINGLY,the judgmenta quois affirmed, at defendants-appellants' cost. This is without prejudice to the Bank, in proper proceedings in the court below in this same case proving and being reimbursed additional expenses, if any, it has incurred by virtue of the continued storage of the goods in question up to the time this decision becomes final and executory.

Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

Concepcion, C.J., is on leave.

Footnotes