Manufacturers Bank, etc. vs. Marfasam Co. Inc.

FACTS: Defendant Marfasam Company Inc. (Marfasam) applied for seven Letters of Credit to Manufacturers Bank and Trust Co. (Manufacturers) in seven separate transactions for purchase of machines and accessories from various countries. The application for Letters of Credit Agreement provided:

“In consideration of your arranging for the establishment of this commercial letter of credit (hereinafter referred to as Credit) substantially in accordance with the foregoing, the undersigned hereby jointly and severally agree to each and all of the following stipulated provisions:

‘For all drafts under or purporting to be drawn under the credit, to pay to you on demand in the Philippine currency, the equivalent og the amount of such drafts at the rate of exchange you may fix;…’”

Said applications for Letters of Credit were approved. Consequently, Manufacturers released the imported machineries and accessories to Marfasam with an agreement that the latter will merely hold them in trust but may nevertheless sell them and hand the proceeds to Manufacturers.

Upon failure of Marfasam to pay said Letters of Credits, Manufacturers brought the present complaint for collection. The lower court rendered judgement dismissing the 5 th, 6th, and 7th causes of action (referring to the 5th, 6th, 7th Letters of Credit) on the ground that said Letters of Credit were not secured by Trust Receipts. Hence, this appeal.

ISSUE: WON Marfasam is liable to pay despite the absence of a trust receipt oversaid Letters of Credit.

HELD: Yes. The abovequoted provision of the application agreement for the letter of credit was the inducement, the principal consideration which prompted Manufacturers to approve the corresponding Letters of Credit. From the approval of the applications and issuance of the Letters of Credit, said condition consequently becomes a contract binding upon them.

Marfasam is clearly liable under the provisions of the Section 135 of the Negotiable Instruments Law:

“An unconditional promise in writing to accept a bill before it is withdrawn is deemed an actual acceptance in favour of every person who, upon the faith thereof, receives the bill for value”