Prudential Bank v. Intermediate Appellate Court

Summary

Prudential Bank sought reimbursement from Philippine Rayon Mills Inc. and its president Anacleto Chi for $128,548.78 paid under a letter of credit for imported textile machinery. Lower courts limited Philippine Rayon's liability to two accepted drafts, dismissed claims on ten unaccepted drafts, and absolved Chi entirely. The Supreme Court reversed, holding that sight drafts under letters of credit do not require acceptance by the buyer-importer, making Philippine Rayon liable for the full amount upon the bank's payment to the supplier. The Court also ruled that Chi, as guarantor under the trust receipt, was secondarily liable but rejected claims of solidary liability due to incomplete execution of the guaranty clause. The decision clarifies important principles regarding letter of credit operations, trust receipt obligations, and guaranty relationships in commercial transactions, emphasizing that banks' rights to reimbursement are protected regardless of whether drafts are formally accepted by importers.