Case Digest (G.R. No. 79962) Core Legal Reasoning Model
Core Legal Reasoning Model
Facts:
This case involves Feati Bank & Trust Company (now Citytrust Banking Corporation) as the petitioner, and Bernardo E. Villaluz as the private respondent, with the Court of Appeals also being a party respondent. The controversy arose from a timber sale agreement executed on June 3, 1971, whereby Villaluz agreed to sell 2,000 cubic meters of lauan logs to defendant Axel Christiansen at a price of $27.00 per cubic meter on FOB terms. Christiansen issued a purchase order after inspecting the logs. Payment was secured through an Irrevocable Letter of Credit (No. IC-46268) issued by Security Pacific National Bank of Los Angeles, California, in favor of Villaluz for $54,000.00. The letter of credit incorporated specific conditions requiring the presentation of several documents including a certification from Christiansen approving the logs prior to shipment.
The letter of credit was forwarded to Feati Bank & Trust Company with instructions to notify the beneficiary, Villaluz. T
Case Digest (G.R. No. 79962) Expanded Legal Reasoning Model
Expanded Legal Reasoning Model
Facts:
- Parties and contract formation
- Bernardo E. Villaluz agreed to sell 2,000 cubic meters of lauan logs to Axel Christiansen at $27.00 per cubic meter FOB on June 3, 1971.
- Christiansen issued purchase order No. 76171 after inspecting the logs.
- An Irrevocable Letter of Credit No. IC-46268 for $54,000.00 was issued by Security Pacific National Bank of Los Angeles in favor of Villaluz, forwarded through Feati Bank and Trust Company (now Citytrust).
- Terms of the Letter of Credit (L/C)
- The draft to be drawn on Security Pacific National Bank must be accompanied by:
- Signed commercial invoice certifying compliance with terms and logs’ quality.
- Sets of shipping and other documents to be airmailed to consignee and other parties.
- Tally sheets and original bills of lading with specified details.
- Certification from Hans Axel Christiansen, ship and merchandise broker, approving logs prior to shipment.
- The Uniform Customs and Practice for Documentary Credits (UCP, 1962 revision) was incorporated by reference.
- Shipping and inspection
- Logs were loaded on the vessel "Zenlin Glory" chartered by Christiansen.
- Custom inspectors and Bureau of Forestry representatives certified logs to be in good condition and exportable.
- Chief Mate issued a mate receipt confirming good cargo condition.
- Christiansen refused to issue the required certification stipulated in the L/C despite multiple requests.
- Consequences of refusal and Central Bank ruling
- Feati Bank refused payment on the L/C due to absence of Christiansen’s certification.
- The L/C lapsed on June 30, 1971, extended to July 31, 1971, with no certification received.
- Villaluz brought the matter before the Central Bank; a memorandum dated August 16, 1971 ruled that certification by buyer's agent is not a valid condition precedent to negotiation in log exports; only Bureau of Forestry inspector certification is required.
- Further transactions and litigation
- Logs arrived in Korea and were received by consignee Hanmi Trade Development Company.
- Christiansen sold the logs for a higher price, making a profit.
- Villaluz filed an action for mandamus and specific performance against Christiansen and Feati Bank, asking:
- Christiansen to issue the required certification.
- Feati Bank to pay upon receipt or waive condition if unnecessary.
- Christiansen to pay damages.
- Christiansen left the Philippines during trial; Villaluz amended complaint to include Feati Bank as solidarily liable.
- Trial court found:
- Christiansen liable for purchase price; acted in bad faith and intended to defraud Villaluz.
- Feati Bank liable jointly with Christiansen for refusing payment despite Central Bank ruling.
- Feati Bank held liable under principles of trust and estoppel for failing to negotiate payment.
- Judgment ordered defendants to pay Villaluz $54,000 plus fees, damages, and attorney’s fees with interest.
- Appeals and proceedings
- Feati Bank appealed; trial court allowed immediate execution despite appeal.
- Court of Appeals granted certiorari petition and enjoined execution against Feati Bank’s properties.
- Court of Appeals affirmed trial court decision on June 29, 1990 ruling Feati Bank acted as a guarantor of the issuing bank and should have honored the L/C.
- Petitioner Feati Bank filed petition for review before the Supreme Court.
Issues:
- Whether Feati Bank, as a correspondent bank and notifying bank, is liable under the irrevocable letter of credit despite the beneficiary’s (Villaluz) non-compliance with the terms of the credit.
- Whether the act of notifying the beneficiary of the L/C automatically confirms the credit and makes the notifying bank a guarantor or confirming bank with corresponding obligations.
- Whether Feati Bank can be held liable as a trustee or under estoppel for refusing to negotiate the L/C due to non-compliance with conditions.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)