Facts:

This case involves Bank of America, NT & SA as the petitioner against the Court of Appeals, Inter-Resin Industrial Corporation, and individuals Francisco Trajano, John Doe, and Jane Doe as respondents, decided on December 10, 1993, under G.R. No. 105395. The dispute arose from an irrevocable letter of credit issued by the Bank of Ayudhya, Thailand, for an amount of US$2,782,000.00, covering a sale involving plastic ropes and agricultural files. On March 5, 1981, Bank of America received this letter of credit, which had been issued for General Chemicals, Ltd. of Thailand, and it acted as the advising bank for Inter-Resin, the beneficiary. Upon informing Inter-Resin about the credit, the bank did not confirm its genuineness but provided an explanation to Inter-Resin's attorney, assuring that the letter would not have been transmitted if it were not genuine.

Inter-Resin subsequently sought to partially avail of the credit and presented the necessary documents for the shipme

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Facts:

Background and Transaction Initiation

• On March 5, 1981, petitioner Bank of America, NT & SA, Manila, received via registered mail an Irrevocable Letter of Credit No. 20272/81.
• The letter of credit was purportedly issued by Bank of Ayudhya, Samyaek Branch, for the account of General Chemicals, Ltd. of Thailand in favor of private respondent Inter-Resin Industrial Corporation, covering the sale of plastic ropes and “agricultural files” in the amount of US$2,782,000.00.
• Bank of America acted as the advising bank, transmitting the letter of credit to Inter-Resin on March 11, 1981.

Communication and Request for Confirmation

• Upon receiving the letter-advice and attached letter of credit, Inter-Resin sent its representative, Atty. Emiliano Tanay, to Bank of America to have the letter of credit confirmed.
• Bank employee Reynaldo Duenas explained that there was no need for separate confirmation because the LC would not have been transmitted if it were not genuine.

Partial Availment and Payment Processing

• Between March 26 and April 10, 1981, Inter-Resin initiated a partial availment under the letter of credit by submitting invoices, a packing list, an export declaration, and a bill of lading for the shipment of 24,000 bales of polyethylene rope valued at US$1,320,600.00.
• Satisfied that the documents conformed to the LC’s conditions, Bank of America issued a cashier’s check in favor of Inter-Resin for P10,219,093.20 (the peso equivalent of the US$1,320,600.00 draw under the LC), which was picked up by Inter-Resin’s Executive Vice-President, Barcelina Tio.

Discovery of Fraud and Subsequent Developments

• On April 10, 1981, soon after receiving a telex from Bank of Ayudhya declaring the letter of credit fraudulent (noting discrepancies regarding the beneficiary, amount, and description of goods), Bank of America halted further processing of documents for the second availment.
• Bank of America coordinated with its branch in Bangkok and sought the assistance of the National Bureau of Investigation (NBI) to verify the authenticity of the letter of credit.
• With support from the Philippine Embassy at Bangkok and local Thai authorities (police and customs), the NBI discovered that the vans exported by Inter-Resin contained plastic strips, wrappers, rags, and waste materials—not the ropes described.
• Investigations also involved Inter-Resin’s President, Francisco Trajano, and Executive Vice-President, Barcelina Tio, who were criminally charged for estafa through falsification of commercial documents; however, the case was eventually dismissed due to insufficient evidence.

Litigation and Procedural History

• Bank of America filed a suit against Inter-Resin for the recovery of the P10,219,093.20 disbursed on the partial availment of the now-disowned letter of credit.
• Inter-Resin counterclaimed, arguing it was entitled not only to retain the amount received for the first shipment but also to claim the balance of US$1,461,400.00 for a second shipment.
• The trial court ruled in favor of Inter-Resin on grounds including alleged assurances by Bank of America and the handling of communications, and noted the absence of prima facie evidence linking Inter-Resin to the fraud claims.
• The Court of Appeals sustained the trial court’s decision, which led to the present appeal by Bank of America.

Issue:

Characterization of the Bank’s Role

• Whether Bank of America acted solely as an advising (or notifying) bank or had assumed the obligations of a confirming bank.
• Whether the bank’s conduct in transmitting the letter of credit—despite indicating its advisory nature—effectively created additional liability or an engagement to pay.

Authenticity and Performance of the Letter of Credit

• Whether the letter of credit was genuine and if Inter-Resin actually shipped the goods (the plastic ropes) specified therein.
• The significance of the telex from Bank of Ayudhya declaring the letter of credit fraudulent and its implications on the transaction.

Right of Recovery under the Discounting Arrangement

• Given that Bank of America processed a partial availment (acting as a negotiating bank in discounting the draft), whether it is entitled to recover the amount paid, particularly after the issuing bank (Bank of Ayudhya) disowned the letter of credit.
• How the principles surrounding negotiable instruments and recourse rights apply in this factor of the dispute.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)