GR 24821; (October, 1970) (Digest)
G.R. No. L-24821 October 16, 1970
BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. DE RENY FABRIC INDUSTRIES, INC., AURORA T. TUYO and AURORA CARCERENY alias AURORA C. GONZALES, defendants-appellants.
FACTS
The defendant corporation, De Reny Fabric Industries, Inc., through its officers (co-defendants Aurora Carcereny and Aurora T. Tuyo), applied for and obtained four irrevocable commercial letters of credit from the Bank of the Philippine Islands (BPI) in 1961 to finance the importation of “dyestuffs of various colors” from the J.B. Distributing Company in the United States. The officers bound themselves personally as joint and solidary debtors with the corporation. BPI issued the letters of credit to its correspondent U.S. banks, which negotiated the seller’s sight drafts accompanied by clean “on board” ocean bills of lading and paid the seller. The correspondent banks then debited BPI’s account and forwarded the documents to BPI. Upon arrival in Manila, the shipments were found to be colored chalk, not dyestuffs, as confirmed by a National Science Development Board test. The corporation made partial payments totaling P90,000 but then refused further payment and to take possession of the goods. BPI stored the goods in a bonded warehouse and filed a complaint to recover the amounts due under the letters of credit.
ISSUE
Whether the defendants-appellants (the corporation and its officers) are liable to pay the Bank of the Philippine Islands the value of the letters of credit, despite the shipment being non-conforming goods (colored chalk instead of dyestuffs).
RULING
Yes, the defendants-appellants are liable. The judgment of the lower court ordering them to pay jointly and severally is affirmed. The Bank’s claim is based on the Commercial Letter of Credit Agreements, wherein the defendants agreed that the Bank would not be responsible for the character, quality, quantity, or value of the property, or for any fraud by the shipper. Furthermore, under internationally accepted banking customs, specifically the Uniform Customs and Practices for Commercial Documentary Credits, all parties in documentary credit operations deal only in documents, not in goods. The Bank’s duty was to honor the drafts upon presentation of the specified documents (clean bills of lading), which it did. The risk of fraud or non-conformity in the goods lies with the buyer (the defendants), not the issuing or correspondent banks. The defendants’ recourse is against their seller, not the Bank.