Posted by: Elmer Brabante | September 1, 2009

Rodzssen Supply Co. vs. Far East Band and Trust Company


GR No. 109087

May 9, 2001 



                Petitioner Rodzssen, on January 15, 1979, opened with respondent Far East Bank and Trust Company (FEBTC) a letter of credit (LC) in the amount of P190,000 in favor of Ekman and Company for the purchase from the latter of 5 units of hydraulic loaders, to expire on February 15, 1979, and whose validity was extended to October 16, 1979.  three (3) units of hydraulic loaders were delivered to petitioner on March 16, 1979 for which FEBTC paid Ekman P114,000, and which amount Rodzssen paid FEBTC before the expiry date of the LC.  The remaining 2 units valued at P76,000 were readily received by Rodzssen before the expiry date of LC, FEBTC paid Ekman the amount of P76,000.  But upon demand by FEBTC, Rodzssen refused to pay without any valid reason. 

                FEBTC then filed an action before the RTC of Bacolod City for the payment by Rodzssen of P76,000 plus interest. 

                Rodzssen defended that FEBTC had no cause of action since there was a breach of contract on the part of FEBTC who in bad faith paid Ekman, knowing that the 2 units of hydraulic loaders had been delivered to Rodzssen after the expiry date of the LC.  Rodzssen offered to return to FEBTC the 2 units of hydraulic loaders which FEBTC refused. 

                The RTC rendered judgment in favor of herein respondent, stating that upon delivery by Ekman of the loaders, Rodzssen became liable for the payment of the units.  In the honest belief that it was still under obligation to, and upon presentation of necessary documents by Ekman, FEBTC was in good faith in paying Ekman.  The RTC further noted that Rodzssen’s offer to return the 2 units to FEBTC  was made only 3 years after it received the goods and when FEBTC pressed for the payments. 


  1. Whether or not it is proper for a banking institution to pay a letter of credit which has long expired or been cancelled;
  2. Whether or not the petitioner was liable to respondent. 


Clearly the bank paid Ekman when the former was no longer bound to do so under the subject LC.  Records show that respondent paid Ekman P76000 for the last 2 loaders on March 14, 1980. five months after the expiration of the LC on October 16, 1979.  respondent even informed petitioner in December 1979 of the cancellation of the LC and credited P22800 to the account of petitioner, which represented the marginal deposit which petitioner had been required to put up for the unnegotiated portion of the LC.  The subject LC had become invalid upon the lapse of the period fixed therein.  Thus, respondent should not have paid Ekman since it was not obliged to do so. 

Of no moment was Ekman’s presentation of all the documents necessary for collection as the LC had already expired and had in fact been cancelled. 

FEBTC’s right to seek recovery from petitioner is anchored not upon the inefficacious LC, but on Article 2142 of the Civil Code, which reads, “Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another.” 

When both parties to a transaction are mutually negligent in the performance of their obligations, the fault of one cancels the negligence of the other, as in this case, and their rights and obligations may be determined equitably under the law proscribing unjust enrichment.


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