Rodzssen v. Far East Bank (Malit)

Case: Rodzssen Supply Co. Inc. v. Far East Bank & Trust G.R. No.
109087
Co.
Date: May 9, 2001 Ponente: J. Panganiban
TOPIC IN SYLLABUS: Parties to a Letters of Credit; Beneficiary
SUMMARY:
Rodzssen applied for and was granted a LOC with Far East Bank in favor of Ekman for
the purchase of five unit of hydraulic loaders. The LOC was to expire on October 16, 1979.
When the LOC expired, only three loaders were delivered. On March 14, 1980, after the LOC
had already expired, the remaining two loaders were delivered and Ekman presented the
LOC to Far East Bank. The latter paid even though the LOC was already expired. The
Supreme Court held that when both parties to a transaction are mutually negligent in the
performance of their obligations, the fault of one cancels the negligence of the
other. Rodzssen must still pay Far East even under the principles of quasi-contracts.
Payment to a Beneficiary under an expired Letter of Credit gives rise to a quasi-contract.
PROCEDURAL ANTECEDENTS:
FACTS:
 Rodzssen Supply Inc. opened a 30-day domestic Letter of Credit with Far East Bank in
the amount of P190,000.00 in favor of Ekman and Company, Inc. (Ekman) for the
purchase of five units of hydraulic loaders. The Letter of Credit was to expire on
February 15, 1979 but was subsequently amended extending the expiry date until
October 16, 1979.
 On March 16, 1979, three units of the hydraulic loaders were delivered to Rodzssen for
which Far East Bank paid Ekman the sum of P114,000.00 on March 26, 1979. Said
amount was also settled by Rodzssen with Far East Bank.
 The remaining two units of hydraulic loaders valued at P76,000.00 were delivered to
Rodzsen on March 14, 1980 after the Letter of Credit had expired.
 The Letter of Credit was then presented before the Far East Bank which readily paid
Ekman P 76,000.00.
 Far East demanded from Rodzssen that the latter pay them the remaining P76,000.00.
 Rodzssen refused to pay without any valid reason.
 Rodzssen argues that Far East had no cause of action, that there was a breach of
contract on the part of Far East because the latter paid Ekman knowing that the the
hydraulic loaders were delivered after the Letter of Credit expired.
 RTC: Rodzssen is liable to pay the amount of P 76,000.00 based on the existing
contract of sale between Rodzssen and Ekman. However, since Far East Bank
voluntarily paid the said amount, a quasi-contract arose between Rodzssen and Far
East Bank. Return of the hydraulic loaders is no longer feasible since this offer was
being made 3 years after Rodzssen receipt of the goods.
 CA: Affirmed. No bad faith on the part of Far East Bank even if it paid the Letter of Credit
after the expiry date.
ISSUES:
1. WON it is proper for a banking institution to pay a letter of credit which has long been
expired or cancelled?
2. WON there was a consummated sale between Rodzssen and Ekman? (i.e. WON
Rodzssen is liable to pay 76,000.00 to Far East?
3. WON the CA is correct in imposing the rate of 12% interest rate to Rodzssen?
PETITIONER’S ARGUMENT:
1. Far East Bank was negligent in paying for 2 hydraulic loaders , when it no longer had the
obligation to do so, in view of the expiration and cancellation of the Letters of Credit.
2. There was no need to pay Far East Bank. There was no unjust enrichment since it only
accepted the hydraulic loaders because it was bound to accept it under the companys
trust receipt arrangement with respondent bank.
3. None
RESPONDENT’S ARGUMENT:
1. Not mentioned in the case

2. A quasi-contract arose between Far East and Rodzssen when the former voluntarily paid
for the hydraulic loaders on the latter’s behalf.
3. None
HELD:
1. No. The Letter of Credit expressly restricted the negotiation to respondent bank and
specifically instructed Ekman and Company Inc. to tender the following documents: (1)
delivery receipt duly acknowledged by the buyer, (2) accepted draft, and (3) duly signed
commercial invoices. Clearly, the bank paid Ekman when the former was no longer bound to
do so under the subject Letter of Credit. The records show that respondent paid the
latter P76,000 for the last two hydraulic loaders on March 14, 1980, five months after the
expiration of the Letter of Credit on October 16, 1979. In fact, on December 27, 1979, the
bank had informed Rodzssen of the cancellation of the commercial paper and
credited P22,800 to the account of the latter.
2. Yes. Indeed, equitable considerations behoove us to allow recovery by
respondent. True, it erred in paying Ekman, but petitioner itself was not without fault in the
transaction. It must be noted that the latter had voluntarily received and kept the loaders
since October 1979. Granting that petitioner was bound under such arrangement to accept
the late delivery of the equipment, we note its unexplained inaction for almost four years
with regard to the status of the ownership or possession of the loaders. Bewildering was its
lack of action to validate the ownership and possession of the loaders, as well as its stolidity
over the purported failed sales transaction. Significant too is the fact that it formalized its
offer to return the two pieces of equipment only after respondents demand for payment,
which came more than three years after it accepted delivery.
3. No. Although the sum of money involved in this case was payable to a bank, the present
factual milieu clearly shows that it was not a loan or forbearance of money. Thus, pursuant
to established jurisprudence and Article 2009 of the Civil Code, petitioner is bound to pay
interest at 6 percent per annum, computed from April 7, 1983, the time respondent bank
demanded payment from petitioner. From the finality of the judgment until its satisfaction,
the interest shall be 12 percent per annum.

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Case: Rodzssen Supply Co. Inc. v. Far East Bank & Trust G.R. No.

1. Not mentioned in the case

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