TRANSFIELD PHILIPPINES Vs. LUZON HYDRO ELECTRIC CORP.

Facts :
11 Transfield entered into a turn-key contract with Luzon Hydro Corp. (LHC). Under the
contract, Transfield were to construct a hydro-electric plants in Benguet and Ilocos. The
contract provides for a period for which the project is to be completed and also allows
for the extension of the period provided that the extension is based on justifiable
grounds such as fortuitous event. In order to guarantee performance by Transfield, two
stand-by letters of credit were required to be opened. During the construction of the
plant, Transfield requested for extension of time citing fortuitous events brought about
by typhoon, barricades and demonstration. LHC did not give due course to the
extension of the period prayed for but referred the matter to arbitration committee. In the
meanwhile, because of the delay in the construction of the plant, LHC called on the
stand-by letters of credit because of default. However, the demand was objected by
Transfield on the ground that there is still pending arbitration on their request for
extension of time. LHC invoked the independence principle. On the other hand,
Transfield claims fraud on the part of LHC on calling the stand-by letters of credit. Under
the independence principle, a LC accommodation is entirely distinct and separate,
independent agreement. It is not supposed to be affected by the main contract upon
which it rests.
Issue:
Whether or not it is only the issuing bank that may invoke the independence
principle Whether or not there is a necessity of resolving first any dispute by the parties
before the beneficiary is entitled to call on the letter of credit
Ruling:
Following the independence principle, even granting that there is still issue to be
resolved arising from the turn-key project. This issue is not supposed to affect the
obligation of the bank to pay the letter of credit in question. The court stressed that a LC
accommodation is intended to benefit not only the beneficiary therein but the applicant
thereon. On the issue of fraud, the SC held that there is nothing in the turn-key contract
which states that all issues between the parties must be resolved first before LHC can
call on the stand-by LC but the contract provides that if Transfield defaults, then LHC
can call on these stand-by LC.

BANK & TRUST COMPANY vs. THE COURT OF APPEALS, and BERNARDO E.
VILLALUZ
Facts :
Bernardo E. Villaluz agreed to sell to the then defendant Axel Christiansen 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, the Security Pacific National Bank of Los Angeles, California issued
Irrevocable Letter of Credit available at sight in favor of Villaluz the total purchase price
of the lauan logs. 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
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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 the following
documents: 1. Signed Commercial Invoice in four copies showing the number of the
purchase order and certifying that all terms and conditions of the purchase order have
been complied with, etc. 2. Tally sheets 3. 2/3 Original Clean on Board Ocean Bills of
Lading with Consignee and Parties to be advised by Hans Axel Christiansen, showing
Freight Prepaid and marked. 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.nBecause of the absence of
the certification by Christiansen, the Feati Bank and Trust Company refused to advance
the payment on the letter of credit which 4 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. While the case was still pending trial, Christiansen left the
Philippines without informing the Court and his counsel. Hence, Villaluz, filed an
amended complaint to make the petitioner solidarily liable with Christiansen.
Issue:
Whether or not a correspondent bank is to be held liable under the letter of credit
despite noncompliance by the beneficiary with the terms thereof
Ruling:
It is a settled rule in commercial transactions involving letters of credit that the
documents tendered must strictly conform to the terms of the letter of credit. The tender
of documents by the beneficiary must include all documents required by the letter. A
correspondent bank which departs from what has been stipulated under the letter of
credit, as when it accepts a faulty tender, acts on its own risks and it may not thereafter
be able to recover from the buyer or the issuing bank, as the case may be, the money
thus paid to the beneficiary Thus the rule of strict compliance. The bank may only
negotiate, accept or pay, if the documents tendered to it are on their face in accordance
with the terms and conditions of the documentary credit. And since a correspondent
bank principally deals only with documents, the absence of any document required in
the documentary credit justifies the refusal by the correspondent bank to negotiate,
accept or pay the beneficiary, as it is not its obligation to look beyond the documents. It
merely has to rely on the completeness of the documents tendered by the beneficiary.
Also 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. 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. In order
that the petitioner may be held liable under the letter, there should be proof that the
petitioner confirmed the letter of credit. Finally, even if the petitioner is a confirming
bank, the petitioner cannot be forced to pay the amount under the letter because there
was a failure on the part of the private respondent to comply with the terms of the letter
of credit.

[G.R. NO. 117913. February 1, 2002]

CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD
VELASCO and ALFONSO CO, petitioners, vs. COURT OF APPEALS and
PHILIPPINE BANK OF COMMUNICATIONS, respondents.
Facts:
On March 2, 1979, Charles Lee, as President of MICO wrote private respondent
Philippine Bank of Communications (PBCom) requesting for a grant of a discounting
loan/credit line in the sum of Three Million Pesos (P3,000,000.00) for the purpose of
carrying out MICOs line of business as well as to maintain its volume of business.
On the same day, Charles Lee requested for another discounting loan/credit line of
Three Million Pesos (P3,000,000.00) from PBCom for the purpose of opening letters of
credit and trust receipts.
As per agreement, the proceeds of all the loan availments were credited to MICOs
current checking account with PBCom. To induce the PBCom to increase the credit line
of MICO, petitioners executed another surety agreement in favor of PBCom on July 28,
1980, whereby they jointly and severally guaranteed the prompt payment on due dates
or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of
exchange, trust receipts and all other obligations of any kind and nature for which MICO
may be held accountable by PBCom
Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a
demand for payment. Private respondent PBCom extrajudicially foreclosed MICOs real
estate mortgage upon repeated demands & emerged as the highest bidder. For the
unpaid balance, PBCom then demanded the settlement of the aforesaid obligations
from herein petitioners-sureties who, however, refused to acknowledge their obligations
to PBCom under the surety agreements. Hence, PBCom filed a complaint with prayer
for writ of preliminary attachment before the Regional Trial Court of Manila.
Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the
complaint filed by respondent PBCom, and alleged that: a) MICO was not granted the
alleged loans and neither did it receive the proceeds of the aforesaid loans; b) Chua
Siok Suy was never granted any valid Board Resolution to sign for and in behalf of
MICO; c) PBCom acted in bad faith in granting the alleged loans and in releasing the
proceeds thereof; d) petitioners were never advised of the alleged grant of loans and
the subsequent releases therefor, if any; e) since no loan was ever released to or
received by MICO, the corresponding real estate mortgage and the surety agreements
signed concededly by the petitioners-sureties are null and void.
Issue: WON the proceeds of the loans or the goods under the trust receipts were ever
delivered to and received by MICO.
Held: It is clear that letters of credit, being usually bank to bank transactions, involve
more than just one bank. Consequently, there is nothing unusual in the fact that the
drafts presented in evidence by respondent bank were not made payable to PBCom.
A trust receipt is considered as a security transaction intended to aid in financing
importers and retail dealers who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be able to acquire credit
except through utilization, as collateral of the merchandise imported or purchased.
A trust receipt, therefor, is a document of security pursuant to which a bank acquires a
security interest in the goods under trust receipt. Under a letter of credit-trust receipt
arrangement, a bank extends a loan covered by a letter of credit, with the trust receipt
as a security for the loan. The transaction involves a loan feature represented by a letter
of credit, and a security feature which is in the covering trust receipt which secures an
indebtedness.
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Cargill Inc. vs Intra Strata Assurance Corporation

Facts:
Cargill (foreign) is a corporation organized and existing under the laws of the
State of Delaware. Cargill executed a contract with Northern Mindanao Corporation
(NMC) (domestic), whereby NMC agreed to sell to petitioner 20,000 to 24,000 metric
tons of molasses to be delivered from Jan 1 to 30 1990 for $44 per metric ton The
contract provided that CARGILL was to open a Letter of Credit with the BPI. NMC was
permitted to draw up 500,000 representing the minimum price of the contract The
contract was amended 3 times (in relation to the amount and the price). But the third
amendment required NMC to put up a performance bond which was intended to
guarantee NMCs performance to deliver the molasses during the prescribed shipment
periods In compliance, INTRA STRATA issued a performance bond to guarantee
NMCs delivery. NMC was only able to deliver 219551 metric tons out of the agreed
10,500. Thus CARGILL sent demand letters to INTRA claiming payment under the
performance and surety bonds. When INTRA failed to pay, CARGILL filed a complaint.
CARGILL NMC and INTRA entered into a compromise agreement approved by the
court, such provided that NMC would pay CARGILL 3 million upon signing and would
deliver to CARGILL 6,991 metric tons of molasses. But NMC still failed to comply RTC
in favor of CARGILL CA CARGILL does not have the capacity to file suit since it
was a foreign corporation doing business in the PH without the requisite license. The
purchase of molasses were in pursuance of its basic business and not just mere
isolated and incidental transactions.
Issue:
Whether or not petitioner is doing or transacting business in the Philippines in
contemplation of the law and established jurisprudence/ Whether or not CARGILL, an
unlicensed foreign corporation, has legal capacity to sue before Philippine courts.
Held:
YES According to Article 123 of the Corporation Code, a foreign corporation
must first obtain a license and a certificate from the appropriate government agency
before it can transact business in the Philippines. Where a foreign corporation does
business in the Philippines without the proper license, it cannot maintain any action or
proceeding before Philippine courts, according to Article 133 of the Corporation Code
Doing Business o .. and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance
of acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the
business organization.
Since INTRA is relying on Section 133 of the Corporation Code to bar petitioner
from maintaining an action in Philippine courts, INTRA bears the burden of proving that
CARGILL was doing business in the PH. In this case, we find that INTRA failed to prove
that CARGILLs activities in the Philippines constitute doing business as would prevent it
from bringing an action.
There is no showing that the transactions between petitioner and NMC signify
the intent of petitioner to establish a continuous business or extend its operations in the
Philippines.
In this case, the contract between petitioner and NMC involved the purchase of
molasses by petitioner from NMC. It was NMC, the domestic corporation, which derived
income from the transaction and not petitioner. To constitute doing business, the
activity undertaken in the Philippines should involve profit-making.
Other factors which support the finding that petitioner is not doing business in
the Philippines are: (1) petitioner does not have an office in the Philippines; (2)
petitioner imports products from the Philippines through its non-exclusive local broker,
whose authority to act on behalf of petitioner is limited to soliciting purchases of
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products from suppliers engaged in the sugar trade in the Philippines; and (3) the local
broker is an independent contractor and not an agent of petitioner.
To be doing or transacting business in the Philippines for purposes of Section
133 of the Corporation Code, the foreign corporation must actually transact business in
the Philippines , that is, perform specific business transactions within the Philippine
territory on a continuing basis in its own name and for its own account
CARGILL is a foreign company merely importing molasses from a Philipine
exporter. A foreign company that merely imports goods from a Philippine exporter,
without opening an office or appointing an agent in the Philippines, is not doing
business in the Philippines.