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PRUDENTIAL BANK v. INTERMEDIATE APPELLATE COURT,PHILIPPINE RAYON MILLS, INC. AND ANACLETO R. CHI

G.R. No. 74886, 8 Deceme! "##$, THIRD DI%ISION, &DA%IDE, 'R.,  J .(

“A letter of credit is dened as an engagement by a bank or other person made at therequest of a customer that the issuer will honor drafts or other demands for payment upon

compliance with the conditions specied in the credit. Through a letter of credit, the bankmerely substitutes its own promise to pay for one of its customers who in return promisesto pay the bank the amount of funds mentioned in the letter of credit plus credit orcommitment fees mutually agreed upon. There was no need for acceptance as the issueddrafts are sight drafts. Presentment for acceptance is necessary only in the cases expressly proided for in !ection "#$ of the %egotiable &nstruments 'aw(

Facts:Philippine Rayon Mills, Inc. (PMRI) entered into a contract with Nissho Co., Ltd.

of Japan for the iportation of te!tile achineries "nder a #$e%year deferred payent plan.&o e'ect payent for said achineries, the defendant%appellant applied for a coercial

letter of credit with the Pr"dential an and &r"st Copany in fa$or of Nissho. Pr"dential

an opened Letter of Credit No. *PP%+-+ for /01,231.-1 45ainst this letter ofcredit, drafts were drawn and iss"ed 6y Nissho, which were all paid 6y thePr"dential an thro"5h its correspondent in Japan, the an of &oyo, Ltd. &wo of the ori5inal drafts were accepted 6y PRMI thro"5h its president, 4nacleto R. Chi,while the others were not. 7pon the arri$al of the achineries, the Pr"dential anindorsed the shippin5 doc"ents to the defendant%appellant which accepted deli$ery of thesae. &o ena6le the defendant%appellant to tae deli$ery of the achineries, it e!ec"ted, 6yprior arran5eent with the Pr"dential an, a tr"st receipt which was si5ned 6y 4nacletoR. Chi in his capacity as President.

 4t the 6ac of the tr"st receipt was printed a for to 6e accoplished 6y s"reties who, 6y the $ery ters and conditions thereof, were to 6e 8ointly andse$erally lia6le to the Pr"dential an sho"ld the PRMI fail to pay the total ao"nt

or any portion of the drafts iss"ed 6y Nissho and paid for 6y Pr"dentialan. . PRMI was a6le to tae deli$ery of the te!tile achineries and installed thesae at its factory site. Chi ar5"ed that presentent for acceptance was necessaryto ae PRMI lia6le. &he trial co"rt r"led that that presentent for acceptancewas an indispensa6le re9"isite for Philippine Rayons lia6ility on the drafts toattach.

Iss"e:

;hether or not presentent for acceptance was needed in order for PRMI to 6elia6le "nder the draft.

R"lin5:

Presentent for acceptance is de#ned an the prod"ction of a 6ill ofe!chan5e to a drawee for acceptance. 4cceptance, howe$er, was not e$ennecessary in the #rst place 6eca"se the drafts which were e$ent"ally iss"ed weresi5ht drafts.

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lia6ility on the drafts to attach. Contrary to 6oth co"rts prono"nceents,

Philippine Rayon iediately 6ecae lia6le "pon an of 4ericas payent on

the letter of credit. >"ch is the essence of the letter of credit iss"ed 6y the

petitioner. 4 di'erent concl"sion wo"ld $iolate the principle "pon which

coercial letters of credit are fo"nded 6eca"se in s"ch a case, 6oth the

6ene#ciary and the iss"er, Nissho Copany Ltd. and the petitioner, respecti$ely,wo"ld 6e placed at the ercy of Philippine Rayon e$en if the latter had already

recei$ed the iported achinery and the petitioner had f"lly paid for it.

In fact, there was no need for acceptance as the iss"ed drafts are si5ht

drafts. Presentent for acceptance is necessary only in the cases e!pressly

pro$ided for in >ection 03 of the Ne5otia6le Instr"ents Law (NIL). In the instant

case then, the drawee was necessarily the herein the an of 4erica. It was to

the latter that the drafts were presented for payent.