Metropolitan Bank and Trust Company Vs Hon. Reynaldo B. Daway and MAYNILAD WATER SERVICES, INC., (G.R. NO. 160732. June 21, 2004)

Title METROPOLITAN BANK AND TRUST COMPANY vs HON. REYNALDO B.
DAWAY AND
MAYNILAD WATER SERVICES, INC., [G.R. NO. 160732. June 21, 2004]
Ponente AZCUNA, J.
Doctrine REHABILITATION
Facts  Petitioner MWSS granted Private Respondent Maynilad under a Concession
Agreement a 20 year period to manage, operate, repair, decommission and
refurbish the existing MWSS water delivery and sewerage services in the West
Zone Service Area, for which Maynilad undertook to pay the corresponding
concession fees.
 In compliance with this requirement, Maynilad arranged on July 14, 2000 for a
three-year facility with a number of foreign banks, led by Citicorp International
Limited, for the issuance of an Irrevocable Standby Letter of Credit in the amount
of US$120,000,000 in favor of MWSS.
 In an effort to salvage the Concession Agreement the parties entered into a
Memorandum of Agreement (MOA), on June 8, 2001 wherein Maynilad was
allowed to recover foreign exchange losses under a formula agreed upon between
them known as Amendment No. 1.
 Maynilad served upon MWSS a Notice of Event of Termination, claiming that
MWSS failed to comply with its obligations under the Concession Agreement and
Amendment No. 1 regarding the adjustment mechanism that would cover
Maynilad’s foreign exchange losses. The dispute between the parties was
submitted to the Appeals Panel.
 The Appeals Panel ruled that there was no Event of Termination as defined under
Art. 10.2 (ii) or 10.3 (iii) of the Concession Agreement and that, therefore,
Maynilad should pay the concession fees that had fallen due.
 However, Maynilad had filed a petition for rehabilitation before the court a
quo which resulted in the issuance of the Stay Order from making any
payment of its liabilities, outstanding as at the date of the filing of the
petition.
 MWSS, thereafter, submitted a written notice to Citicorp International
Limited, as agent for the participating banks, that by virtue of Maynilad’s failure
to perform its obligations under the Concession Agreement, it was drawing on
the Irrevocable Standby Letter of Credit and thereby demanded
payment in the amount of US$98,923,640.15.
Lower Courts RTC issued an Order that declared that the act of MWSS in commencing the process
for payment of US$98 million out of the US$120 million standby Letter of Credit is
violative of the Court’s Stay Order.
Issue Whether or not the Court erred in enjoining the MWSS from seeking payment of the
concession fees from the banks that issued the standby Letter of Credits in its favor?
SC Ruling YES. The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does
not apply to herein petitioner as the prohibition is on the enforcement of
claims against guarantors or sureties of the debtors whose obligations are
not solidary with the debtor. The participating banks obligation are solidary with
respondent Maynilad in that it is a primary, direct, definite and an absolute
undertaking to pay and is not conditioned on the prior exhaustion of the debtors
assets. These are the same characteristics of a surety or solidary obligor.
What distinguishes letters of credit from other accessory contracts, is the
engagement of the issuing bank to pay the seller once the draft and other required
shipping documents are presented to it. They are definite undertakings to pay at sight
once the documents stipulated therein are presented.
Being solidary, the claims against them can be pursued separately from and
independently of the rehabilitation case, as held in Traders Royal Bank v. Court of
Appeals and reiterated in Philippine Blooming Mills, Inc. v. Court of Appeals , where
we said that property of the surety cannot be taken into custody by the rehabilitation
receiver (SEC) and said surety can be sued separately to enforce his liability as surety
for the debts or obligations of the debtor. The debts or obligations for which a surety
may be liable include future debts, an amount which may not be known at the time
the surety is given.
The terms of the Irrevocable Standby Letter of Credit do not show that the
obligations of the banks are not solidary with those of respondent Maynilad. On the
contrary, it is issued at the request of and for the account of Maynilad Water Services,
Inc., in favor of the Metropolitan Waterworks and Sewerage System, as a bond for
the full and prompt performance of the obligations by the concessionaire under the
Concession Agreement and herein petitioner is authorized by the banks to draw on it
by the simple act of delivering to the agent a written certification substantially in the
form Annex B of the Letter of Credit. It provides further in Sec. 6, that for as long as
the Standby Letter of Credit is valid and subsisting, the Banks shall honor any written
Certification made by MWSS in accordance with Sec. 2, of the Standby Letter of Credit
regardless of the date on which the event giving rise to such Written Certification
arose.
Taking into consideration our own rulings on the nature of letters of credit and the
customs and usage developed over the years in the banking and commercial practice
of letters of credit, we hold that except when a letter of credit specifically stipulates
otherwise, the obligation of the banks issuing letters of credit are solidary with that of
the person or entity requesting for its issuance, the same being a direct, primary,
absolute and definite undertaking to pay the beneficiary upon the presentation of the
set of documents required therein.

Metropolitan Bank and Trust Company Vs Hon. Reynaldo B. Daway and MAYNILAD WATER SERVICES, INC., (G.R. NO. 160732. June 21, 2004)

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Title METROPOLITAN BANK AND TRUST COMPANY vs HON. REYNALDO B.

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