Payment Function - Bank Debit System - Letters of Credit

PAYMENT FUNCTION – BANK DEBIT SYSTEM – LETTERS OF Liable na agad si bank upon presentment of letters of credit.
Hindi defense
CREDIT yung hindi pa nagbayad sa kanya si buyer. The Court emphasized that there
are 3 obligations created when letters of credit is involved. Buyer-Bank,
G.R. No. 183486 Bank-Seller, Buyer-Seller. So yung obligation ni Bank to seller is
independent, magbayad man o hindi si buyer sa Bank.
THE HONGKONG & SHANGHAI BANKING CORPORATION,
LIMITED, Petitioner, In simpler terms, the various transactions that give rise to a letter of credit
vs. proceed as follows: Once the seller ships the goods, he or she obtains the
NATIONAL STEEL CORPORATION and CITYTRUST BANKING documents required under the letter of credit. He or she shall then present
CORPORATION (NOW BANK OF THE PHILIPPINE these documents to the issuing bank which must then pay the amount
ISLANDS), Respondents. identified under the letter of credit after it ascertains that the documents are
complete. The issuing bank then holds on to these documents which the
buyer needs in order to claim the goods shipped. The buyer reimburses the
NSC sold 1,200 metric tons of prime cold rolled coils to Klockner. Klockner issuing bank for its payment at which point the issuing bank releases the
applied for an irrevocable letter of credit with HSBC in favor of NSC as the
documents to the buyer. The buyer is then able to present these documents
beneficiary in the amount of US$468,000. The Letter of Credit stated that it is in order to claim the goods. At this point, all the transactions are completed.
governed by the International Chamber of Commerce Uniform Customs and
The seller received payment for his or her performance of his obligation to
Practice for Documentary Credits, Publication No. 400 (UCP 400). Under deliver the goods. The issuing bank is reimbursed for the payment it made
UCP 400, HSBC as the issuing bank, has the obligation to immediately pay
to the seller. The buyer received the goods purchased.
NSC upon presentment of the documents listed in the Letter of Credit.
Thus, a touchstone of any law or custom governing letters of credit is an

NSC coursed the collection of its payment from Klockner through CityTrust
emphasis on the imperative that issuing banks respect their obligation to
Banking Corporation (CityTrust). CityTrust sent a collection order to HSBC pay, and that seller-beneficiaries may reasonably expect payment, in
respecting the collection of payment from Klockner. Further, the Collection
accordance with the terms of a letter of credit.
Order stated that proceeds should be remitted to Standard Chartered Bank
of Australia, Ltd., Offshore Branch Manila (SCB-M) which was, in turn, in
charge of remitting the amount to CityTrust. HSBC sent a cablegram to CITYTRUST is liable din sana. However, NSC has not raised any claim
CityTrust acknowledging receipt of the Collection Order. against CityTrust at any point in these proceedings. Thus, this Court cannot
make any finding of liability against CityTrust in favor of NSC.
Di nakapagbayad ngayon si Klockner (Buyer). HSBC then noted that under
URC 322, Klockner has no duty to provide a reason for the refusal. HSBC
stated that it considered itself discharged of its duty under the transaction. It
also asked for payment of handling charges. On the contrary, since the
documents required under the Letter of Credit have been properly sent to
HSBC, Citytrust demanded payment from it.
ISSUE: SINO ANG DAPAT MAGBAYAD KAY NSC (SELLER)? HSBC
HELD:
A letter of credit-trust receipt arrangement is endowed with its own
distinctive features and characteristics. Under that set-up, a bank
PAYMENT FUNCTION – BANK DEBIT SYSTEM – LETTERS OF extends a loan covered by the Letter of Credit, with the trust receipt
CREDIT as a security for the loan. In other words, the transaction involves a
loan feature represented by the letter of credit, and a security
feature which is in the covering trust receipt.
PNB VS PINEDA
PNB's possession of the subject machinery and equipment being precisely as

In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo
a form of security for the advances given to TCC under the Letter of Credit,
Spouses), obtained a loan of P580,000.00 from petitioner bank to purchase said possession by itself cannot be considered payment of the loan secured
60% of the subscribed capital stock, and thereby acquire the controlling
thereby. Payment would legally result only after PNB had foreclosed on said
interest of private respondent Tayabas Cement Company, Inc. (TCC).2 As securities, sold the same and applied the proceeds thereof to TCC's loan
security for said loan, the spouses Arroyo executed a real estate mortgage
obligation.
over a parcel of land covered by Transfer Certificate of Title No. 55323 of the
Register of Deeds of Quezon City known as the La Vista property.
Thereafter, TCC filed with petitioner bank an application and agreement for
letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of
Tokyo, Japan, to cover the importation of a cement plant machinery and
equipment.
Upon approval of said application and opening of an L/C by PNB in favor

of Toyo Menka Kaisha, Ltd. for the account of TCC, the Arroyo spouses
executed a surety to secure this loan accommodation: Surety Agreement
dated August 5, 19643 and Covenant dated August 6, 1964.4
The imported cement plant machinery and equipment arrived from Japan
and were released to TCC under a trust receipt agreement. Subsequently,
Toyo Menka Kaisha, Ltd. made the corresponding drawings against the L/C
as scheduled. TCC, however, failed to remit and/or pay the corresponding
amount covered by the drawings. Thus, on May 19, 1968, pursuant to the
trust receipt agreement, PNB notified TCC of its intention to repossess, as it
later did, the imported machinery and equipment for failure of TCC to settle
its obligations under the L/C.5
ISSUE: whether or not the Corporation’s liability has been extinguished by

the repossession of PNB of the imported cement plant machinery and
equipment. NO.
HELD:

Payment Function - Bank Debit System - Letters of Credit

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PAYMENT FUNCTION – BANK DEBIT SYSTEM – LETTERS OF Liable na agad si bank upon presentment of letters of credit.

Thus, a touchstone of any law or custom governing letters of credit is an

ISSUE: SINO ANG DAPAT MAGBAYAD KAY NSC (SELLER)? HSBC

PNB's possession of the subject machinery and equipment being precisely as

Upon approval of said application and opening of an L/C by PNB in favor

ISSUE: whether or not the Corporation’s liability has been extinguished by

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