G.R. No. 163935 - National Association of Electricity Consumers for Reform vs. Energy Regulatory Commission

On March 5, 1981, Bank of America, NT & SA (petitioner) in Manila received by registered mail Irrevocable Letter of Credit No. 20272/81 issued purportedly by Bank of Ayudhya, Samyaek Branch (Thailand), for the account of General Chemicals Ltd. of Thailand, in the amount of US$2,782,000.00.
The letter of credit covered the sale of plastic ropes and "agricultural files," with Bank of America as the advising bank and Inter-Resin Industrial Corporation (private respondent) as beneficiary.
On March 11, 1981, Bank of America notified Inter-Resin by letter and transmitted the letter of credit. Inter-Resin sent their counsel, Atty. Emiliano Tanay, to have the letter of credit confirmed, but Bank of America did not confirm it, assuring that the letter was genuine.

Between March 26 and April 10, 1981, Inter-Resin submitted documents for partial availment covering shipment of 24,000 bales of polyethylene rope valued at US$1,320,600.00. Documents included invoices, packing list, export declaration, and bill of lading.
Bank of America examined these documents and found them conforming to the letter of credit conditions. On April 10, 1981, Bank of America issued a cashier’s check for P10,219,093.20, the Peso equivalent of the draft excluding certain costs, which Inter-Resin’s Executive Vice-President Barcelina Tio collected.
Bank of America informed Bank of Ayudhya about the availment and requested reimbursement.

Inter-Resin then presented documents for a second availment under the same letter of credit.
Bank of Ayudhya sent a telex declaring the letter of credit fraudulent, stating it had been issued for a different account, amount, and beneficiary.
Bank of America stopped processing Inter-Resin’s documents and sought assistance from its Bangkok branch and the Philippine NBI.
The NBI agents found that the exported vehicles contained plastic strips, wrappers, rags, and waste materials instead of ropes.
Inter-Resin’s officers, Francisco Trajano and Barcelina Tio, were charged with estafa through falsification of commercial documents, but charges were dismissed by the Rizal Provincial Fiscal for lack of evidence.

Bank of America sued Inter-Resin to recover P10,219,093.20 paid for the partial availment. Inter-Resin counterclaimed for retention of the amount and the balance covering the second shipment.
On June 28, 1989, the trial court ruled in favor of Inter-Resin, finding that:

Bank of America’s assurances induced Inter-Resin to send merchandise;
The telex alleging fraud was hearsay and unverified; even if letter of credit was fake, Bank of America was negligent for not verifying the authenticity;
Government officers supervised loading of plastic products, presumed regularity in their functions;
No evidence showed Inter-Resin’s participation in fraud; estafa complaints dismissed.

The Court of Appeals affirmed the trial court decision.
Bank of America filed a petition raising three key issues about its liability and rights under the letter of credit and the shipment of goods.
Inter-Resin opposed, maintaining the first appeal issue was belated, that the ropes were shipped, and the petitioner cannot recover since Inter-Resin was not drawer of the letter of credit.

Letters of Credit provide a mechanism in international trade balancing interests of buyers and sellers: the buyer wants control over goods before payment; the seller wants assurance of payment before parting with goods.
The buyer procures a letter of credit from a bank (issuing bank) in favor of the seller (beneficiary), allowing the seller to draw drafts and obtain payment upon presentation of stipulated shipping documents.
Documents are examined only for apparent compliance; banks do not verify the underlying contract or quality/existence of goods ("independence principle").
Different banks may be involved: issuing bank, advising bank, confirming bank, negotiating bank, paying bank.
Philippine law has minimal provisions on letters of credit; therefore, the Uniform Customs and Practice for Documentary Credits (U.C.P.) governs such transactions, which the Court recognizes and applies.

Did Bank of America act merely as an advising (notifying) bank, or did it assume the role and obligations of a confirming bank, thus incurring liability?

Did Inter-Resin actually ship the polyethylene ropes as required by the letter of credit, or did it ship plastic waste?

Following the dishonor of the letter of credit by Bank of Ayudhya, can Bank of America recover the amount paid under the draft (partial availment) from Inter-Resin?