LETTER OF CREDIT

PNB vs SMC

The so-called "independence principle" assures the seller or the beneficiary of prompt payment
independent of any breach of the main contract and precludes the issuing bank from determining whether
the main contract is actually accomplished or not. Under this principle, banks assume no liability or
responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any
documents, or for the general and/or particular conditions stipulated in the documents or superimposed
thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality,
condition, packing, delivery, value or existence of the goods represented by any documents, or for the
good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or
the insurers of the goods, or any other person whomsoever

Where the trial court rendered a decision finding the applicant of a letter of credit solely liable to pay the
beneficiary and omitted by inadvertence to insert in its decision the phrase ‘without prejudice to the
decision that will be made against the issuing bank,’ the bank cannot evade responsibility base on this
ground. The Independence Principle assures the seller or the beneficiary of prompt payment independent
of any breach of the main contract and precludes the issuing bank from determining whether the main
contract is actually accomplished or not.

In other words, PNB cannot evade responsibility on the sole ground that the RTC judgment found Goroza
liable and ordered him to pay the amount sought to be recovered by SMC. PNB's liability, if any, under the
letter of credit is yet to be determined.

Hongkong and Shanghai Banking Corporation Limited v. National Steel Corporation and Citytrust
Banking Corporation
The Court upheld the CA’s decision. HSCB is liable to pay NSC. Under the independence principle, the
issuing bank's obligation to pay under the letter of credit is separate from the compliance of the parties
in the main contract.

UCP 400 states that an irrevocable credit payable on sight, such as the Letter of Credit in this case,
constitutes a definite undertaking of the issuing bank to pay, provided that the stipulated documents are
presented and that the terms and conditions of the credit are complied with. Further, UCP 400 provides
that an issuing bank has the obligation to examine the documents with reasonable care. Thus, when
CityTrust forwarded the Letter of Credit with the attached documents to HSBC, it had the duty to make a
determination of whether its obligation to pay arose by properly examining the documents.

TRUST RECEIPT LAW

BANGKO SENTRAL NG PILIPINAS v. AGUSTIN LIBO-ON

BSP does not have any right to foreclose the mortgage.

Two obligations in a trust receipt transaction: the first refers to money received under the obligation
involving the duty to turn it over to the owner of the merchandise sold, while, the second refers to the
merchandise received under the obligation to "return" it to the owner.

Concept of trust receipt is inconsistent with that of an assignment of credit where there is an absolute
conveyance of title that would have in effect given authority to BSP to foreclose the subject mortgage.

Without a valid assignment of credit, as in this case, BSP has no authority to foreclose the mortgaged
property of the Spouses Libo-on to the Rural Bank of Hinigaran. Moreso, BSP could not possibly sell the
subject property without violating the prohibition against pactum commissorium since without a valid
assignment of credit, BSP cannot ipso facto appropriate for itself the Spouses Libo-on's mortgaged
property to the Rural Bank of Hinigaran.

Language is comprised of works like "remise," "release and quitclaim" and clauses like "the title and right
of possession to said accounts receivable is to remain in said assignee" who "shall have the right to collect
directly from the debtor." Intent is also suggested by the use of the words "agent and representative of
the assignee" in referring to the assignor. This concept of complete alienation of title and rights in an
assignment of credit is lacking.

NEGOTIABLE INSTRUMENT