Bank of America v. Inter-Resin
REITERATIONFacts
The Antecedents: Petitioner Bank of America (BA) received an Irrevocable Letter of Credit (LC) No. 20272/81 purportedly issued by Bank of Ayudhya for the account of General Chemicals, Ltd., in favor of respondent Inter-Resin Industrial Corporation (Inter-Resin) as beneficiary. BA acted as the advising bank. Inter-Resin sought confirmation, but BA stated it was unnecessary. Inter-Resin made a partial availment by submitting documents for a shipment valued at US$1,320,600.00, for which BA issued a Cashier's Check for P10,219,093.20. Subsequently, BA received a telex from Bank of Ayudhya declaring the LC fraudulent. BA stopped processing Inter-Resin's second availment and investigated. NBI agents discovered that the exported vans contained waste materials instead of ropes. Inter-Resin's officers were charged with estafa but the case was dismissed for lack of prima facie evidence. Procedural History: BA sued Inter-Resin to recover the P10,219,093.20 paid. Inter-Resin counterclaimed for the balance of the LC and to retain the amount paid. The Regional Trial Court (RTC) ruled in favor of Inter-Resin, holding BA liable for negligence in not verifying the LC's authenticity and that the goods were supervised by government officers. The Court of Appeals (CA) affirmed the RTC ruling. The Petition: BA elevated the case to the Supreme Court, raising issues on whether it warranted the LC's genuineness, whether it acted as an advising or confirming bank, whether Inter-Resin shipped the specified ropes, and whether BA could recover the payment after the LC was dishonored.
Issue(s)
Whether Bank of America acted merely as an advising bank or a confirming bank. Whether Bank of America, as an advising bank, incurred liability for failing to verify the authenticity of the letter of credit before transmitting it. Whether Bank of America, having paid Inter-Resin based on a disowned letter of credit, has a right to recover the amount paid. Whether the shipment contained the goods specified in the letter of credit.
Ruling
The Supreme Court SET ASIDE the assailed decision of the Court of Appeals. Respondent Inter-Resin Industrial Corporation is ORDERED to refund to petitioner Bank of America NT & SA the amount of P10,219,093.20 with legal interest from the filing of the complaint until fully paid.
Ratio Decidendi
On whether Bank of America acted as an advising or confirming bank: The Court held that Bank of America acted merely as an advising bank. This was evident from the LC itself, BA's letter of advice explicitly stating it "solely an advise" and "conveys no engagement by us," and Inter-Resin's payment of the advising fee. The Court clarified that merely asking Inter-Resin to submit documents and paying the proceeds did not make BA a confirming bank. The engagement to pay is that of the issuing bank, not the advising bank. The fact that the draft was drawn under the account of the buyer (General Chemicals) further indicated that payment was to be sought from the issuing bank (Bank of Ayudhya). On the liability of an advising bank for failure to verify authenticity: The Court ruled that as an advising bank, BA did not incur an obligation beyond notifying Inter-Resin of the LC. Its duty was to check the "apparent authenticity" of the LC, which it did. The statement by BA employees that there was no need for confirmation did not novate the LC or BA's letter of advice, nor did it impose total liability on BA. The Court found no real support in the Uniform Customs and Practice for Documentary Credits (U.C.P.) for the view that BA should have first checked the LC's authenticity with Bank of Ayudhya using advanced communication methods before dispatching it. Article 18 of the U.C.P. absolves banks from liability for delays or errors in transit of messages. On Bank of America's right to recover payment: The Court affirmed BA's right to recover the amount paid to Inter-Resin. It explained that in processing the partial availment, BA acted as a negotiating bank, saving Inter-Resin the trouble of presenting documents directly to Bank of Ayudhya. As a negotiating bank, BA has a right of recourse against the issuer bank for reimbursement. Since Bank of Ayudhya disowned the LC, BA could then turn to Inter-Resin, as the drawer of the draft, for restitution. The relationship between a seller and a negotiating bank is that of a drawer and purchaser of drafts, and unless drawn without recourse, the negotiating bank has a right of recourse against the seller in case of dishonor by the issuing bank. On whether the shipment contained the specified goods: The Court found this issue to be of no consequence to the controversy. It reiterated the principle that in the operation of a letter of credit, banks deal only with documents and not with the goods described in those documents. The genuineness of the documents and the conformity of the goods are matters between the buyer and the seller, not typically the concern of the banks involved in the LC transaction.
Main Doctrine
An advising bank, which merely notifies the beneficiary of a letter of credit, does not incur liability beyond checking the apparent authenticity of the credit. However, when acting as a negotiating bank, it has a right of recourse against the drawer (beneficiary) for restitution if the issuing bank disowns the letter of credit.