[G.R. No. 83889. February 9, 1993.

SURIGAO CENTURY SAWMILL, CO., INC., Petitioner, v. COURT OF APPEALS and

PHOENIX ASSURANCE CO., INC., Respondents.

Tomas L. Echivarre for Petitioner.

Enrico R. Castro for Private Respondent.

SYLLABUS

1. REMEDIAL LAW; VENUE OF ACTIONS; FOR PURPOSES OF VENUE IN THIS CASE THE
BILL OF LADING SHOULD PREVAIL OVER THE LEASE CONTRACT; REASON. — The main
issue then which needs to be settled in this case is whether the bill of lading should prevail over
the lease contract for purposes of venue. The matter was correctly resolved by the Court of
Appeals, to which We concur, to wit: ". . . the cause of action is the recovery of the damage ex-
contractu on account and on the basis of the bill of lading. . . "Scrutiny of the complaint will
readily show that plaintiff therein, now private respondent, never asserted violation of any term
and condition of the lease agreement. Neither can it be said that there was any ‘disagreement
or dispute arising out of the lease’ which would perforce result in the settlement by the parties in
the ‘proper court of Surigao del Norte’. "What was claimed in litigation was the shipment of ‘140
crates . . . . or 7,000 Panel Plywood . . . covered by Bill of Lading No. 1,’ which shipment was
not received by consignee, ‘resulting in the damage, loss and prejudice to plaintiff in the amount
of P490,000.00.’ While reference was made of the lease of the barge, the cause of action was
not based on any provision of the lease, but precisely on the bill of lading." The present action
does not concern or refer to any disagreement of dispute arising out of the lease of the barge
which under the lease contract needs to be settled by the parties in the proper court of the
Province of Surigao del Norte; with all, this is an action of respondent Phoenix, as subrogor to
recover sum of money and damages from petitioner as debtor arising out of marine subrogation
recovery and on the basis of the bill of lading.

2. A STATEMENT IN A CONTRACT WHERE VENUE SHOULD BE LAID DOES NOT

PRECLUDE THE FILING OF SUITS AT THE ELECTION OF THE PLAINTIFF; IN ORDER FOR
SECTION 3, RULE 4 TO PREVAIL OVER SECTION 2(B) OF THE SAME RULE, THE
WRITTEN AGREEMENT SHOULD CLEARLY AND EXPLICITLY STATE THE INTENTION OF
THE PARTIES RESTRICTING THE FILING OF ACTION TO A PARTICULAR COURT OR TO
THE EXCLUSION OF OTHER COURTS. — We have previously held that a statement in a
contract where venue should be laid does not preclude the filing of suits at the election of the
plaintiff. Section 3, Rule 4 of the Rules of Court provides an alternative to Sec. 2(b) of the same
rule such that parties may, by written agreement, change or transfer venue of an action from
one province to another. But such written agreement should clearly and explicitly state the
intention of the parties restricting the filing of action to a particular court or to the exclusion of
other courts. Thus, in the case of Polytrade Corporation v. Blanco, We said: "An accurate
reading, however, of the stipulation, `The parties agree to sue and be sued in the Courts of
Manila,’ does not preclude the filing of suits in the residence of plaintiff or defendant. The plain
meaning is that the parties merely consented to be sued in Manila. Qualifying or restrictive
words which would indicate that Manila and Manila alone is the venue are totally absent
therefrom. . . The parties solely agreed to add the courts of Manila as tribunals to which they
may resort. They did not waive their right to pursue remedy in the courts specifically mentioned
in Section 2(b) of Rule 4."cralaw virtua1aw library

3. IN DETERMINING WHICH DOCUMENT SHOULD PREVAIL, THE REAL INTENT OF THE

PARTIES AND/OR THE CHARACTERISTIC OF THE DOCUMENTS SHOULD BE LOOKED
INTO. — In determining which document should prevail, we should look into the real intent of
the parties and/or the characteristic of the documents. A bill of lading serves three distinct
functions: first, as a receipt for the goods; second, as contract of carriage; and third, as
documentary evidence of title to the goods. The reliance, therefore, of private respondent
Phoenix on the bill of lading which serves in the contract of carriage to support its cause of
action against petitioner is well-taken.

4. BY FILING A MOTION TO DISMISS WITH THE TRIAL COURT, PETITIONER IN EFFECT

HYPOTHETICALLY ADMITS THE FACTUAL ALLEGATIONS IN THE COMPLAINT. —
Petitioner cannot belatedly present as evidence a purported similar bill of lading in its motion for
reconsideration with the Court of Appeals. In filing a motion to dismiss with the trial court,
petitioner in effect hypothetically admitted the factual allegations in the complaint.

DECISION

NOCON, J.:

This is a petition for review, by way of appeal on certiorari, seeking to nullify the decision of the
Court of Appeals in CA-G.R. No. 08874-SP, date February 16, 1988, 1 and the Resolution
dated June 15, 1988 denying petitioner’s motion for reconsideration. Said decision affirmed the
order of the trial court in Civil Case No. 83-14947, entitled "Phoenix assurance Co., LTD v.
Surigao Century Sawmill Company, Inc." which denied petitioner’s Motion to Dismiss on the
ground of improper venue.

Records show that on January 4, 1982 Standard Plywood Corporation (STANDARD) leased a
barge, LCT "TANTOY," from Surigao Century Sawmill Co., Inc. (SURIGAO), manned by the
latter’s crew for delivery of plywood from Butuan City to its consignee, A-1 Construction, Inc. in
Surigao City. This was covered by a Contract of Lease, 2 dated January 4, 1982 and a bill of
lading, 3 dated January 8, 1982.

The contract of lease specifically provides that the subject of the lease is the LCT "Tantoy," to
load at Butuan City between January 7 or 8, 1982 7,000 pieces of panel plywood in 140 creates,
with the shipper being Standard Plywood Corporation of Butuan City, for delivery to its
consignee A-1 Construction, Inc. at Surigao City.

The shipment loaded on "TANTOY" on January 7 and 8, 1982 failed to reach the consignee
resulting in damages to STANDARD in the amount of P490,000.00. However, since the cargo
was insured by the shipper (STANDARD) in the amount of P490,000.00 with Phoenix
Assurance Co., Inc. (PHOENIX) under Certificate of Insurance No. OP-204-516; PHOENIX
settled its obligation to STANDARD in the aforesaid amount; hence as a legal consequence,
PHOENIX was subrogated to the rights and interests of the shipper, STANDARD.chanrobles
law library

Failing to satisfy its demand from SURIGAO, PHOENIX filed a complaint with the Regional Trial
Court of Manila. Instead of filing an answer, SURIGAO filed a motion to dismiss on the ground
of improper venue, citing paragraph 12 of the lease contract of the barge, which
provides:jgc:chanrobles.com.ph

"12. Any disagreement or dispute arising out of the lease shall be settled by the parties in the
proper court in the Province of Surigao del Norte." 4

The trial court on the other hand, denied the motion calling attention to Sec. 2, Rule 4 of the
Rules of Court, giving the choice of venue to the plaintiff.

Since PHOENIX, as insurer of STANDARD, was subrogated to the rights and interest of the
latter as shipper for failure of Surigao to satisfy the written demands of Phoenix whose offices
are located in Manila, the complaint was filed the RTC of said City.

The main issue then which needs to be settled in this case is whether the bill of lading should
prevail over the lease contract for purposes of venue.

The matter was correctly resolved by the Court of Appeals, to which We concur, to
wit:jgc:chanrobles.com.ph

". . . the cause of action is the recovery of the damage ex-contractu on account and on the basis
of the bill of lading . . .

"Scrutiny of the complaint will readily show that plaintiff therein, now private respondent, never
asserted violation of any term and condition of the lease agreement. Neither can it be said that
there was any `disagreement or dispute arising out of the lease’ which would perforce result in
the settlement by the parties in the `proper court of Surigao del Norte.’chanrobles virtual
lawlibrary

"What was claimed in litigation was the shipment of `140 crates . . . or 7,000 Panel Plywood . . .
covered by Bill of Lading No. 1,’ which shipment was not received by consignee, `resulting in
the damage, loss and prejudice to plaintiff in the amount of P490,000.00.’ While reference was
made of the lease of the barge, the cause of action was not based on any provision of the lease,
but precisely on the bill of lading." 5

Petitioner anchors its petition on Our pronouncement in the case of Home Insurance Co. v.
American Steamship Agencies, Inc. where We said:jgc:chanrobles.com.ph

". . . in a charter of the entire vessel, the bill of lading issued by the master to the charterer, as
shipper, is in fact and legal contemplation merely a receipt and a document of title not a
contract, for the contract is the charter party." 6

The court a quo opined and to which We agree that petitioner cannot rely on the ruling of the
above case because the facts are not in four-square with the present case. In Home Insurance,
supra, there was stamped on the face of the bill of lading "Freight prepaid as per charter party.
Subject to all terms, conditions and exceptions of charter party . . .," a condition which is not
present in the dispute before Us. Instead, the bill of lading in this case contains a provision
"subject to the condition printed in the original of this bill of lading."cralaw virtua1aw library
The present action does not concern or refer to any disagreement or dispute arising our of the
lease of the barge which under the lease contract needs to be settled by the parties in the
proper court of the Province of Surigao del Norte; with all, this is an action of respondent
Phoenix, as subrogor to recover sum of money and damages from petitioner as debtor arising
out of marine subrogation recovery and on the basis of the bill of lading.

Petitioner cannot belatedly present as evidence a purported similar bill of lading in its motion for
reconsideration with the Court of Appeals. In filing a motion to dismiss with the trial court,
petitioner in effect hypothetically admitted the factual allegations in the complaint.

Even assuming arguendo that the contract of lease should prevail over the bill of lading, We
have previously held that a statement in a contract where venue should be laid does not
preclude the filing of suits at the election of the plaintiff. 7 Sec. 3, Rule 4 of the Rules of Court
provides an alternative to Sec. 2(b) of the same rule such that parties may, by written
agreement, change or transfer venue of an action from one province to another. But such
written agreement should clearly and explicitly state the intention of the parties restricting the
filing of action to a particular court or to the exclusion of other courts. Thus, in the case of
Polytrade Corporation v. Blanco, We said:jgc:chanrobles.com.ph

"An accurate reading, however, of the stipulation, `The parties agree to sue and be sued in the
Courts of Manila,’ does not preclude the filing of suits in the residence of plaintiff or defendant.
The plain meaning is that the parties merely consented to be sued in Manila. Qualifying or
restrictive words which would indicate that Manila and Manila alone is the venue are totally
absent therefrom . . . The parties solely agreed to add the courts of Manila as tribunals to which
they may resort. They did not waive their right to pursue remedy in the courts specifically
mentioned in Section 2(b) of Rule 4." 8

We, however, would like to comment on the obiter made by the Court of Appeals where it said
that assuming there is conflict between the terms of the lease contract and the bill of lading, the
bill of lading should prevail over the lease contract, simply because the former is a subsequent
covenant and shall, therefore, take precedence in determining the intent of the parties. 9

In determining which document should prevail, we should look into the real intent of the parties
and/or the characteristic of the documents. A bill of lading serves three distinct functions: first,
as a receipt for the goods; 10 second, as contract of carriage; 11 and third, as documentary
evidence of title to the goods. 12 The reliance, therefore, of private respondent Phoenix on the
bill of lading which serves in the contract of carriage to support its cause of action against
petitioner is well-taken.chanrobles virtual lawlibrary

Premises considered, We hold that respondent has the choice of venue of where to file its
complaint for a sum of money and damages against petitioner.

WHEREFORE, the judgment of the Court of Appeals is hereby AFFIRMED. Let this case be
remanded to the court of origin for further proceedings and reception of evidence.

SO ORDERED.
 [G.R. NO. 146717 : November 22, 2004]

TRANSFIELD PHILIPPINES, INC., Petitioner, v. LUZON HYDRO CORPORATION,

AUSTRALIA and NEW ZEALAND BANKING GROUP LIMITED and SECURITY BANK
CORPORATION, Respondents.

DECISION

TINGA, J.:

Subject of this case is the letter of credit which has evolved as the ubiquitous and most
important device in international trade. A creation of commerce and businessmen, the letter of
credit is also unique in the number of parties involved and its supranational character.

Petitioner has appealed from the Decision1 of the Court of Appeals in CA-G.R. SP No. 61901
entitled "Transfield Philippines, Inc. v. Hon. Oscar Pimentel, et al.," promulgated on 31 January
2001.2

On 26 March 1997, petitioner and respondent Luzon Hydro Corporation (hereinafter, LHC)
entered into a Turnkey Contract3 whereby petitioner, as Turnkey Contractor, undertook to
construct, on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station at the
Bakun River in the provinces of Benguet and Ilocos Sur (hereinafter, the Project). Petitioner was
given the sole responsibility for the design, construction, commissioning, testing and completion
of the Project.4

The Turnkey Contract provides that: (1) the target completion date of the Project shall be on 1
June 2000, or such later date as may be agreed upon between petitioner and respondent LHC
or otherwise determined in accordance with the Turnkey Contract; and (2) petitioner is entitled
to claim extensions of time (EOT) for reasons enumerated in the Turnkey Contract, among
which are variations, force majeure, and delays caused by LHC itself.5 Further, in case of
dispute, the parties are bound to settle their differences through mediation, conciliation and such
other means enumerated under Clause 20.3 of the Turnkey Contract.6

To secure performance of petitioner's obligation on or before the target completion date, or such
time for completion as may be determined by the parties' agreement, petitioner opened in favor
of LHC two (2) standby letters of credit both dated 20 March 2000 (hereinafter referred to as
"the Securities"), to wit: Standby Letter of Credit No. E001126/8400 with the local branch of
respondent Australia and New Zealand Banking Group Limited (ANZ Bank)7 and Standby Letter
of Credit No. IBDIDSB-00/4 with respondent Security Bank Corporation (SBC)8 each in the
amount of US$8,988,907.00.9

In the course of the construction of the project, petitioner sought various EOT to complete the
Project. The extensions were requested allegedly due to several factors which prevented the
completion of the Project on target date, such as force majeure occasioned by typhoon Zeb,
barricades and demonstrations. LHC denied the requests, however. This gave rise to a series of
legal actions between the parties which culminated in the instant petition.

The first of the actions was a Request for Arbitration which LHC filed before the Construction
Industry Arbitration Commission (CIAC) on 1 June 1999.10 This was followed by another
Request for Arbitration, this time filed by petitioner before the International Chamber of
Commerce (ICC)11 on 3 November 2000. In both arbitration proceedings, the common issues
presented were: [1) whether typhoon Zeb and any of its associated events constituted force
majeure to justify the extension of time sought by petitioner; and [2) whether LHC had the right
to terminate the Turnkey Contract for failure of petitioner to complete the Project on target date.

Meanwhile, foreseeing that LHC would call on the Securities pursuant to the pertinent provisions
of the Turnkey Contract,12 petitioner in two separate letters13 both dated 10 August 2000 advised
respondent banks of the arbitration proceedings already pending before the CIAC and ICC in
connection with its alleged default in the performance of its obligations. Asserting that LHC had
no right to call on the Securities until the resolution of disputes before the arbitral tribunals,
petitioner warned respondent banks that any transfer, release, or disposition of the Securities in
favor of LHC or any person claiming under LHC would constrain it to hold respondent banks
liable for liquidated damages.

As petitioner had anticipated, on 27 June 2000, LHC sent notice to petitioner that pursuant to
Clause 8.214 of the Turnkey Contract, it failed to comply with its obligation to complete the
Project. Despite the letters of petitioner, however, both banks informed petitioner that they
would pay on the Securities if and when LHC calls on them.15

LHC asserted that additional extension of time would not be warranted; accordingly it declared
petitioner in default/delay in the performance of its obligations under the Turnkey Contract and
demanded from petitioner the payment of US$75,000.00 for each day of delay beginning 28
June 2000 until actual completion of the Project pursuant to Clause 8.7.1 of the Turnkey
Contract. At the same time, LHC served notice that it would call on the securities for the
payment of liquidated damages for the delay.16

On 5 November 2000, petitioner as plaintiff filed a Complaint for Injunction, with prayer for
temporary restraining order and writ of preliminary injunction, against herein respondents as
defendants before the Regional Trial Court (RTC) of Makati.17 Petitioner sought to restrain
respondent LHC from calling on the Securities and respondent banks from transferring, paying
on, or in any manner disposing of the Securities or any renewals or substitutes thereof. The
RTC issued a seventy-two (72)-hour temporary restraining order on the same day. The case
was docketed as Civil Case No. 00-1312 and raffled to Branch 148 of the RTC of Makati.

After appropriate proceedings, the trial court issued an Order on 9 November 2000, extending
the temporary restraining order for a period of seventeen (17) days or until 26 November 2000.18

The RTC, in its Order19 dated 24 November 2000, denied petitioner's application for a writ of
preliminary injunction. It ruled that petitioner had no legal right and suffered no irreparable injury
to justify the issuance of the writ. Employing the principle of "independent contract" in letters of
credit, the trial court ruled that LHC should be allowed to draw on the Securities for liquidated
damages. It debunked petitioner's contention that the principle of "independent contract" could
be invoked only by respondent banks since according to it respondent LHC is the ultimate
beneficiary of the Securities. The trial court further ruled that the banks were mere custodians of
the funds and as such they were obligated to transfer the same to the beneficiary for as long as
the latter could submit the required certification of its claims.

Dissatisfied with the trial court's denial of its application for a writ of preliminary injunction,
petitioner elevated the case to the Court of Appeals via a Petition for Certiorari under Rule 65,
with prayer for the issuance of a temporary restraining order and writ of preliminary
injunction.20 Petitioner submitted to the appellate court that LHC's call on the Securities was
premature considering that the issue of its default had not yet been resolved with finality by the
CIAC and/or the ICC. It asserted that until the fact of delay could be established, LHC had no
right to draw on the Securities for liquidated damages.

Refuting petitioner's contentions, LHC claimed that petitioner had no right to restrain its call on
and use of the Securities as payment for liquidated damages. It averred that the Securities are
independent of the main contract between them as shown on the face of the two Standby
Letters of Credit which both provide that the banks have no responsibility to investigate the
authenticity or accuracy of the certificates or the declarant's capacity or entitlement to so certify.

In its Resolution dated 28 November 2000, the Court of Appeals issued a temporary restraining
order, enjoining LHC from calling on the Securities or any renewals or substitutes thereof and
ordering respondent banks to cease and desist from transferring, paying or in any manner
disposing of the Securities.

However, the appellate court failed to act on the application for preliminary injunction until the
temporary restraining order expired on 27 January 2001. Immediately thereafter,
representatives of LHC trooped to ANZ Bank and withdrew the total amount of
US$4,950,000.00, thereby reducing the balance in ANZ Bank to US$1,852,814.00.

On 2 February 2001, the appellate court dismissed the petition for certiorari . The appellate
court expressed conformity with the trial court's decision that LHC could call on the Securities
pursuant to the first principle in credit law that the credit itself is independent of the underlying
transaction and that as long as the beneficiary complied with the credit, it was of no moment
that he had not complied with the underlying contract. Further, the appellate court held that even
assuming that the trial court's denial of petitioner's application for a writ of preliminary injunction
was erroneous, it constituted only an error of judgment which is not correctible by certiorari ,
unlike error of jurisdiction.

Undaunted, petitioner filed the instant Petition for Review raising the following issues for
resolution:

WHETHER THE "INDEPENDENCE PRINCIPLE" ON LETTERS OF CREDIT MAY BE

INVOKED BY A BENEFICIARY THEREOF WHERE THE BENEFICIARY'S CALL THEREON IS
WRONGFUL OR FRAUDULENT.

WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE SECURITIES BEFORE THE
RESOLUTION OF PETITIONER'S AND LHC'S DISPUTES BY THE APPROPRIATE
TRIBUNAL.

WHETHER ANZ BANK AND SECURITY BANK ARE JUSTIFIED IN RELEASING THE
AMOUNTS DUE UNDER THE SECURITIES DESPITE BEING NOTIFIED THAT LHC'S CALL
THEREON IS WRONGFUL.

WHETHER OR NOT PETITIONER WILL SUFFER GRAVE AND IRREPARABLE DAMAGE IN

THE EVENT THAT:
A. LHC IS ALLOWED TO CALL AND DRAW ON, AND ANZ BANK AND SECURITY BANK
ARE ALLOWED TO RELEASE, THE REMAINING BALANCE OF THE SECURITIES PRIOR
TO THE RESOLUTION OF THE DISPUTES BETWEEN PETITIONER AND LHC.

B. LHC DOES NOT RETURN THE AMOUNTS IT HAD WRONGFULLY DRAWN FROM THE
SECURITIES.21

Petitioner contends that the courts below improperly relied on the "independence principle" on
letters of credit when this case falls squarely within the "fraud exception rule." Respondent LHC
deliberately misrepresented the supposed existence of delay despite its knowledge that the
issue was still pending arbitration, petitioner continues.

Petitioner asserts that LHC should be ordered to return the proceeds of the Securities pursuant
to the principle against unjust enrichment and that, under the premises, injunction was the
appropriate remedy obtainable from the competent local courts.

On 25 August 2003, petitioner filed a Supplement to the Petition22 and Supplemental

Memorandum,23 alleging that in the course of the proceedings in the ICC Arbitration, a number
of documentary and testimonial evidence came out through the use of different modes of
discovery available in the ICC Arbitration. It contends that after the filing of the petition facts and
admissions were discovered which demonstrate that LHC knowingly misrepresented that
petitioner had incurred delays' notwithstanding its knowledge and admission that delays were
excused under the Turnkey Contract to be able to draw against the Securities. Reiterating that
fraud constitutes an exception to the independence principle, petitioner urges that this warrants
a ruling from this Court that the call on the Securities was wrongful, as well as contrary to law
and basic principles of equity. It avers that it would suffer grave irreparable damage if LHC
would be allowed to use the proceeds of the Securities and not ordered to return the amounts it
had wrongfully drawn thereon.

In its Manifestation dated 8 September 2003,24 LHC contends that the supplemental pleadings
filed by petitioner present erroneous and misleading information which would change
petitioner's theory on appeal.

In yet another Manifestation dated 12 April 2004,25 petitioner alleges that on 18 February 2004,
the ICC handed down its Third Partial Award, declaring that LHC wrongfully drew upon the
Securities and that petitioner was entitled to the return of the sums wrongfully taken by LHC for
liquidated damages.

LHC filed a Counter-Manifestation dated 29 June 2004,26 stating that petitioner's Manifestation

dated 12 April 2004 enlarges the scope of its Petition for Review of the 31 January 2001
Decision of the Court of Appeals. LHC notes that the Petition for Review essentially dealt only
with the issue of whether injunction could issue to restrain the beneficiary of an irrevocable letter
of credit from drawing thereon. It adds that petitioner has filed two other proceedings, to wit: (1)
ICC Case No. 11264/TE/MW, entitled "Transfield Philippines Inc. v. Luzon Hydro Corporation,"
in which the parties made claims and counterclaims arising from petitioner's
performance/misperformance of its obligations as contractor for LHC; and (2) Civil Case No. 04-
332, entitled "Transfield Philippines, Inc. v. Luzon Hydro Corporation" before Branch 56 of the
RTC of Makati, which is an action to enforce and obtain execution of the ICC's partial award
mentioned in petitioner's Manifestation of 12 April 2004.
In its Comment to petitioner's Motion for Leave to File Addendum to Petitioner's Memorandum,
LHC stresses that the question of whether the funds it drew on the subject letters of credit
should be returned is outside the issue in this appeal. At any rate, LHC adds that the action to
enforce the ICC's partial award is now fully within the Makati RTC's jurisdiction in Civil Case No.
04-332. LHC asserts that petitioner is engaged in forum-shopping by keeping this appeal and at
the same time seeking the suit for enforcement of the arbitral award before the Makati court.

Respondent SBC in its Memorandum, dated 10 March 200327 contends that the Court of
Appeals correctly dismissed the petition for certiorari . Invoking the independence principle,
SBC argues that it was under no obligation to look into the validity or accuracy of the
certification submitted by respondent LHC or into the latter's capacity or entitlement to so certify.
It adds that the act sought to be enjoined by petitioner was already fait accompli and the present
petition would no longer serve any remedial purpose.

In a similar fashion, respondent ANZ Bank in its Memorandum dated 13 March 200328 posits
that its actions could not be regarded as unjustified in view of the prevailing independence
principle under which it had no obligation to ascertain the truth of LHC's allegations that
petitioner defaulted in its obligations. Moreover, it points out that since the Standby Letter of
Credit No. E001126/8400 had been fully drawn, petitioner's prayer for preliminary injunction had
been rendered moot and academic.

At the core of the present controversy is the applicability of the "independence principle" and
"fraud exception rule" in letters of credit. Thus, a discussion of the nature and use of letters of
credit, also referred to simply as "credits," would provide a better perspective of the case.

The letter of credit evolved as a mercantile specialty, and the only way to understand all its
facets is to recognize that it is an entity unto itself. The relationship between the beneficiary and
the issuer of a letter of credit is not strictly contractual, because both privity and a meeting of the
minds are lacking, yet strict compliance with its terms is an enforceable right. Nor is it a third-
party beneficiary contract, because the issuer must honor drafts drawn against a letter
regardless of problems subsequently arising in the underlying contract. Since the bank's
customer cannot draw on the letter, it does not function as an assignment by the customer to
the beneficiary. Nor, if properly used, is it a contract of suretyship or guarantee, because it
entails a primary liability following a default. Finally, it is not in itself a negotiable instrument,
because it is not payable to order or bearer and is generally conditional, yet the draft presented
under it is often negotiable.29

In commercial transactions, a letter of credit is a financial device developed by merchants as a

convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly
irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a
buyer, who wants to have control of the goods before paying.30 The use of credits in commercial
transactions serves to reduce the risk of nonpayment of the purchase price under the contract
for the sale of goods. However, credits are also used in non-sale settings where they serve to
reduce the risk of nonperformance. Generally, credits in the non-sale settings have come to be
known as standby credits.31

There are three significant differences between commercial and standby credits. First,
commercial credits involve the payment of money under a contract of sale. Such credits become
payable upon the presentation by the seller-beneficiary of documents that show he has taken
affirmative steps to comply with the sales agreement. In the standby type, the credit is payable
upon certification of a party's nonperformance of the agreement. The documents that
accompany the beneficiary's draft tend to show that the applicant has not performed. The
beneficiary of a commercial credit must demonstrate by documents that he has performed his
contract. The beneficiary of the standby credit must certify that his obligor has not performed the
contract.32

By definition, a letter of credit is a written instrument whereby the writer requests or authorizes
the addressee to pay money or deliver goods to a third person and assumes responsibility for
payment of debt therefor to the addressee.33 A letter of credit, however, changes its nature as
different transactions occur and if carried through to completion ends up as a binding contract
between the issuing and honoring banks without any regard or relation to the underlying
contract or disputes between the parties thereto.34

Since letters of credit have gained general acceptability in international trade transactions, the
ICC has published from time to time updates on the Uniform Customs and Practice (UCP) for
Documentary Credits to standardize practices in the letter of credit area. The vast majority of
letters of credit incorporate the UCP.35 First published in 1933, the UCP for Documentary
Credits has undergone several revisions, the latest of which was in 1993.36

In Bank of the Philippine Islands v. De Reny Fabric Industries, Inc.,37 this Court ruled that the
observance of the UCP is justified by Article 2 of the Code of Commerce which provides that in
the absence of any particular provision in the Code of Commerce, commercial transactions shall
be governed by usages and customs generally observed. More recently, in Bank of America, NT
& SA v. Court of Appeals,38 this Court ruled that there being no specific provisions which govern
the legal complexities arising from transactions involving letters of credit, not only between or
among banks themselves but also between banks and the seller or the buyer, as the case may
be, the applicability of the UCP is undeniable.

Article 3 of the UCP provides that credits, by their nature, are separate transactions from the
sales or other contract(s) on which they may be based and banks are in no way concerned with
or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in
the credit. Consequently, the undertaking of a bank to pay, accept and pay draft(s) or negotiate
and/or fulfill any other obligation under the credit is not subject to claims or defenses by the
applicant resulting from his relationships with the issuing bank or the beneficiary. A beneficiary
can in no case avail himself of the contractual relationships existing between the banks or
between the applicant and the issuing bank.

Thus, the engagement of the issuing bank is to pay the seller or beneficiary of the credit once
the draft and the required documents are presented to it. 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.39
The independent nature of the letter of credit may be: (a) independence in toto where the credit
is independent from the justification aspect and is a separate obligation from the underlying
agreement like for instance a typical standby; or (b) independence may be only as to the
justification aspect like in a commercial letter of credit or repayment standby, which is identical
with the same obligations under the underlying agreement. In both cases the payment may be
enjoined if in the light of the purpose of the credit the payment of the credit would constitute
fraudulent abuse of the credit.40

Can the beneficiary invoke the independence principle?chanroblesvirtualawlibrary

Petitioner insists that the independence principle does not apply to the instant case and
assuming it is so, it is a defense available only to respondent banks. LHC, on the other hand,
contends that it would be contrary to common sense to deny the benefit of an independent
contract to the very party for whom the benefit is intended. As beneficiary of the letter of credit,
LHC asserts it is entitled to invoke the principle.

As discussed above, in a letter of credit transaction, such as in this case, where the credit is
stipulated as irrevocable, there is a definite undertaking by the issuing bank to pay the
beneficiary provided that the stipulated documents are presented and the conditions of the
credit are complied with.41 Precisely, the independence principle liberates the issuing bank from
the duty of ascertaining compliance by the parties in the main contract. As the principle's
nomenclature clearly suggests, the obligation under the letter of credit is independent of the
related and originating contract. In brief, the letter of credit is separate and distinct from the
underlying transaction.

Given the nature of letters of credit, petitioner's argument that it is only the issuing bank that
may invoke the independence principle on letters of credit does not impress this Court. To say
that the independence principle may only be invoked by the issuing banks would render
nugatory the purpose for which the letters of credit are used in commercial transactions. As it is,
the independence doctrine works to the benefit of both the issuing bank and the beneficiary.

Letters of credit are employed by the parties desiring to enter into commercial transactions, not
for the benefit of the issuing bank but mainly for the benefit of the parties to the original
transactions. With the letter of credit from the issuing bank, the party who applied for and
obtained it may confidently present the letter of credit to the beneficiary as a security to
convince the beneficiary to enter into the business transaction. On the other hand, the other
party to the business transaction, i.e., the beneficiary of the letter of credit, can be rest assured
of being empowered to call on the letter of credit as a security in case the commercial
transaction does not push through, or the applicant fails to perform his part of the transaction. It
is for this reason that the party who is entitled to the proceeds of the letter of credit is
appropriately called "beneficiary."

Petitioner's argument that any dispute must first be resolved by the parties, whether through
negotiations or arbitration, before the beneficiary is entitled to call on the letter of credit in
essence would convert the letter of credit into a mere guarantee. Jurisprudence has laid down a
clear distinction between a letter of credit and a guarantee in that the settlement of a dispute
between the parties is not a pre-requisite for the release of funds under a letter of credit. In other
words, the argument is incompatible with the very nature of the letter of credit. If a letter of credit
is drawable only after settlement of the dispute on the contract entered into by the applicant and
the beneficiary, there would be no practical and beneficial use for letters of credit in commercial
transactions.

Professor John F. Dolan, the noted authority on letters of credit, sheds more light on the issue:

The standby credit is an attractive commercial device for many of the same reasons that
commercial credits are attractive. Essentially, these credits are inexpensive and efficient. Often
they replace surety contracts, which tend to generate higher costs than credits do and are
usually triggered by a factual determination rather than by the examination of documents.

Because parties and courts should not confuse the different functions of the surety contract on
the one hand and the standby credit on the other, the distinction between surety contracts and
credits merits some reflection. The two commercial devices share a common purpose. Both
ensure against the obligor's nonperformance. They function, however, in distinctly different
ways.

Traditionally, upon the obligor's default, the surety undertakes to complete the obligor's
performance, usually by hiring someone to complete that performance. Surety contracts, then,
often involve costs of determining whether the obligor defaulted (a matter over which the surety
and the beneficiary often litigate) plus the cost of performance. The benefit of the surety contract
to the beneficiary is obvious. He knows that the surety, often an insurance company, is a strong
financial institution that will perform if the obligor does not. The beneficiary also should
understand that such performance must await the sometimes lengthy and costly determination
that the obligor has defaulted. In addition, the surety's performance takes time.

The standby credit has different expectations. He reasonably expects that he will receive cash
in the event of nonperformance, that he will receive it promptly, and that he will receive it before
any litigation with the obligor (the applicant) over the nature of the applicant's performance takes
place. The standby credit has this opposite effect of the surety contract: it reverses the financial
burden of parties during litigation.

In the surety contract setting, there is no duty to indemnify the beneficiary until the beneficiary
establishes the fact of the obligor's performance. The beneficiary may have to establish that fact
in litigation. During the litigation, the surety holds the money and the beneficiary bears most of
the cost of delay in performance.

In the standby credit case, however, the beneficiary avoids that litigation burden and receives
his money promptly upon presentation of the required documents. It may be that the applicant
has, in fact, performed and that the beneficiary's presentation of those documents is not rightful.
In that case, the applicant may sue the beneficiary in tort, in contract, or in breach of warranty;
but, during the litigation to determine whether the applicant has in fact breached the obligation
to perform, the beneficiary, not the applicant, holds the money. Parties that use a standby credit
and courts construing such a credit should understand this allocation of burdens. There is a
tendency in some quarters to overlook this distinction between surety contracts and standby
credits and to reallocate burdens by permitting the obligor or the issuer to litigate the
performance question before payment to the beneficiary.42

While it is the bank which is bound to honor the credit, it is the beneficiary who has the right to
ask the bank to honor the credit by allowing him to draw thereon. The situation itself
emasculates petitioner's posture that LHC cannot invoke the independence principle and
highlights its puerility, more so in this case where the banks concerned were impleaded as
parties by petitioner itself.

Respondent banks had squarely raised the independence principle to justify their releases of
the amounts due under the Securities. Owing to the nature and purpose of the standby letters of
credit, this Court rules that the respondent banks were left with little or no alternative but to
honor the credit and both of them in fact submitted that it was "ministerial" for them to honor the
call for payment.43

Furthermore, LHC has a right rooted in the Contract to call on the Securities. The relevant
provisions of the Contract read, thus:

4.2.1. In order to secure the performance of its obligations under this Contract, the Contractor at
its cost shall on the Commencement Date provide security to the Employer in the form of two
irrevocable and confirmed standby letters of credit (the "Securities"), each in the amount of
US$8,988,907, issued and confirmed by banks or financial institutions acceptable to the
Employer. Each of the Securities must be in form and substance acceptable to the Employer
and may be provided on an annually renewable basis.44

8.7.1 If the Contractor fails to comply with Clause 8.2, the Contractor shall pay to the Employer
by way of liquidated damages ("Liquidated Damages for Delay") the amount of US$75,000 for
each and every day or part of a day that shall elapse between the Target Completion Date and
the Completion Date, provided that Liquidated Damages for Delay payable by the Contractor
shall in the aggregate not exceed 20% of the Contract Price. The Contractor shall pay
Liquidated Damages for Delay for each day of the delay on the following day without need of
demand from the Employer.

8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount
of such damages from any monies due, or to become due to the Contractor and/or by drawing
on the Security."45

A contract once perfected, binds the parties not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which according to their nature, may be in
keeping with good faith, usage, and law.46 A careful perusal of the Turnkey Contract reveals the
intention of the parties to make the Securities answerable for the liquidated damages
occasioned by any delay on the part of petitioner. The call upon the Securities, while not an
exclusive remedy on the part of LHC, is certainly an alternative recourse available to it upon the
happening of the contingency for which the Securities have been proffered. Thus, even without
the use of the "independence principle," the Turnkey Contract itself bestows upon LHC the right
to call on the Securities in the event of default.

Next, petitioner invokes the "fraud exception" principle. It avers that LHC's call on the Securities
is wrongful because it fraudulently misrepresented to ANZ Bank and SBC that there is already a
breach in the Turnkey Contract knowing fully well that this is yet to be determined by the arbitral
tribunals. It asserts that the "fraud exception" exists when the beneficiary, for the purpose of
drawing on the credit, fraudulently presents to the confirming bank, documents that contain,
expressly or by implication, material representations of fact that to his knowledge are untrue. In
such a situation, petitioner insists, injunction is recognized as a remedy available to it.
Citing Dolan's treatise on letters of credit, petitioner argues that the independence principle is
not without limits and it is important to fashion those limits in light of the principle's purpose,
which is to serve the commercial function of the credit. If it does not serve those functions,
application of the principle is not warranted, and the commonlaw principles of contract should
apply.

It is worthy of note that the propriety of LHC's call on the Securities is largely intertwined with
the fact of default which is the self-same issue pending resolution before the arbitral tribunals.
To be able to declare the call on the Securities wrongful or fraudulent, it is imperative to resolve,
among others, whether petitioner was in fact guilty of delay in the performance of its obligation.
Unfortunately for petitioner, this Court is not called upon to rule upon the issue of default'such
issue having been submitted by the parties to the jurisdiction of the arbitral tribunals pursuant to
the terms embodied in their agreement.47

Would injunction then be the proper remedy to restrain the alleged wrongful draws on the
Securities?chanroblesvirtualawlibrary

Most writers agree that fraud is an exception to the independence principle. Professor Dolan
opines that the untruthfulness of a certificate accompanying a demand for payment under a
standby credit may qualify as fraud sufficient to support an injunction against payment.48 The
remedy for fraudulent abuse is an injunction. However, injunction should not be granted unless:
(a) there is clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the independent
purpose of the letter of credit and not only fraud under the main agreement; and (c) irreparable
injury might follow if injunction is not granted or the recovery of damages would be seriously
damaged.49

In its complaint for injunction before the trial court, petitioner alleged that it is entitled to a total
extension of two hundred fifty-three (253) days which would move the target completion date. It
argued that if its claims for extension would be found meritorious by the ICC, then LHC would
not be entitled to any liquidated damages.50

Generally, injunction is a preservative remedy for the protection of one's substantive right or
interest; it is not a cause of action in itself but merely a provisional remedy, an adjunct to a main
suit. The issuance of the writ of preliminary injunction as an ancillary or preventive remedy to
secure the rights of a party in a pending case is entirely within the discretion of the court taking
cognizance of the case, the only limitation being that this discretion should be exercised based
upon the grounds and in the manner provided by law.51

Before a writ of preliminary injunction may be issued, there must be a clear showing by the
complaint that there exists a right to be protected and that the acts against which the writ is to
be directed are violative of the said right.52 It must be shown that the invasion of the right sought
to be protected is material and substantial, that the right of complainant is clear and
unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious
damage.53 Moreover, an injunctive remedy may only be resorted to when there is a pressing
necessity to avoid injurious consequences which cannot be remedied under any standard
compensation.54

In the instant case, petitioner failed to show that it has a clear and unmistakable right to restrain
LHC's call on the Securities which would justify the issuance of preliminary injunction. By
petitioner's own admission, the right of LHC to call on the Securities was contractually rooted
and subject to the express stipulations in the Turnkey Contract.55 Indeed, the Turnkey Contract
is plain and unequivocal in that it conferred upon LHC the right to draw upon the Securities in
case of default, as provided in Clause 4.2.5, in relation to Clause 8.7.2, thus:

4.2.5 The Employer shall give the Contractor seven days' notice of calling upon any of the
Securities, stating the nature of the default for which the claim on any of the Securities is to be
made, provided that no notice will be required if the Employer calls upon any of the Securities
for the payment of Liquidated Damages for Delay or for failure by the Contractor to renew or
extend the Securities within 14 days of their expiration in accordance with Clause 4.2.2.56

8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount
of such damages from any monies due, or to become due, to the Contractor and/or by drawing
on the Security.57

The pendency of the arbitration proceedings would not per se make LHC's draws on the
Securities wrongful or fraudulent for there was nothing in the Contract which would indicate that
the parties intended that all disputes regarding delay should first be settled through arbitration
before LHC would be allowed to call upon the Securities. It is therefore premature and absurd to
conclude that the draws on the Securities were outright fraudulent given the fact that the ICC
and CIAC have not ruled with finality on the existence of default.

Nowhere in its complaint before the trial court or in its pleadings filed before the appellate court,
did petitioner invoke the fraud exception rule as a ground to justify the issuance of an
injunction.58 What petitioner did assert before the courts below was the fact that LHC's draws on
the Securities would be premature and without basis in view of the pending disputes between
them. Petitioner should not be allowed in this instance to bring into play the fraud exception rule
to sustain its claim for the issuance of an injunctive relief. Matters, theories or arguments not
brought out in the proceedings below will ordinarily not be considered by a reviewing court as
they cannot be raised for the first time on appeal.59 The lower courts could thus not be faulted
for not applying the fraud exception rule not only because the existence of fraud was
fundamentally interwoven with the issue of default still pending before the arbitral tribunals, but
more so, because petitioner never raised it as an issue in its pleadings filed in the courts below.
At any rate, petitioner utterly failed to show that it had a clear and unmistakable right to prevent
LHC's call upon the Securities.

Of course, prudence should have impelled LHC to await resolution of the pending issues before
the arbitral tribunals prior to taking action to enforce the Securities. But, as earlier stated, the
Turnkey Contract did not require LHC to do so and, therefore, it was merely enforcing its rights
in accordance with the tenor thereof. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith.60 More importantly,
pursuant to the principle of autonomy of contracts embodied in Article 1306 of the Civil
Code,61 petitioner could have incorporated in its Contract with LHC, a proviso that only the final
determination by the arbitral tribunals that default had occurred would justify the enforcement of
the Securities. However, the fact is petitioner did not do so; hence, it would have to live with its
inaction.

With respect to the issue of whether the respondent banks were justified in releasing the
amounts due under the Securities, this Court reiterates that pursuant to the independence
principle the banks were under no obligation to determine the veracity of LHC's certification that
default has occurred. Neither were they bound by petitioner's declaration that LHC's call thereon
was wrongful. To repeat, respondent banks' undertaking was simply to pay once the required
documents are presented by the beneficiary.

At any rate, should petitioner finally prove in the pending arbitration proceedings that LHC's
draws upon the Securities were wrongful due to the non-existence of the fact of default, its right
to seek indemnification for damages it suffered would not normally be foreclosed pursuant to
general principles of law.

Moreover, in a Manifestation,62 dated 30 March 2001, LHC informed this Court that the subject
letters of credit had been fully drawn. This fact alone would have been sufficient reason to
dismiss the instant petition.

Settled is the rule that injunction would not lie where the acts sought to be enjoined have
already become fait accompli or an accomplished or consummated act.63 In Ticzon v. Video
Post Manila, Inc.64 this Court ruled that where the period within which the former employees
were prohibited from engaging in or working for an enterprise that competed with their former
employer the very purpose of the preliminary injunction 'has expired, any declaration upholding
the propriety of the writ would be entirely useless as there would be no actual case or
controversy between the parties insofar as the preliminary injunction is concerned.

In the instant case, the consummation of the act sought to be restrained had rendered the
instant petition moot for any declaration by this Court as to propriety or impropriety of the non-
issuance of injunctive relief could have no practical effect on the existing controversy.65 The
other issues raised by petitioner particularly with respect to its right to recover the amounts
wrongfully drawn on the Securities, according to it, could properly be threshed out in a separate
proceeding.

One final point. LHC has charged petitioner of forum-shopping. It raised the charge on two
occasions. First, in its Counter-Manifestation dated 29 June 200466 LHC alleges that petitioner
presented before this Court the same claim for money which it has filed in two other
proceedings, to wit: ICC Case No. 11264/TE/MW and Civil Case No. 04-332 before the RTC of
Makati. LHC argues that petitioner's acts constitutes forum-shopping which should be punished
by the dismissal of the claim in both forums. Second, in its Comment to Petitioner's Motion for
Leave to File Addendum to Petitioner's Memorandum dated 8 October 2004, LHC alleges that
by maintaining the present appeal and at the same time pursuing Civil Case No. 04-332 wherein
petitioner pressed for judgment on the issue of whether the funds LHC drew on the Securities
should be returned petitioner resorted to forum-shopping. In both instances, however, petitioner
has apparently opted not to respond to the charge.

Forum-shopping is a very serious charge. It exists when a party repetitively avails of several
judicial remedies in different courts, simultaneously or successively, all substantially founded on
the same transactions and the same essential facts and circumstances, and all raising
substantially the same issues either pending in, or already resolved adversely, by some other
court.67 It may also consist in the act of a party against whom an adverse judgment has been
rendered in one forum, of seeking another and possibly favorable opinion in another forum other
than by appeal or special civil action of certiorari , or the institution of two or more actions or
proceedings grounded on the same cause on the supposition that one or the other court might
look with favor upon the other party.68 To determine whether a party violated the rule against
forum-shopping, the test applied is whether the elements of litis pendentia are present or
whether a final judgment in one case will amount to res judicata in another.69 Forum-shopping
constitutes improper conduct and may be punished with summary dismissal of the multiple
petitions and direct contempt of court.70

Considering the seriousness of the charge of forum-shopping and the severity of the sanctions
for its violation, the Court will refrain from making any definitive ruling on this issue until after
petitioner has been given ample opportunity to respond to the charge.

WHEREFORE, the instant petition is DENIED, with costs against petitioner.

Petitioner is hereby required to answer the charge of forum-shopping within fifteen (15) days
from notice.

SO ORDERED.
G.R. No. L-1405             July 31, 1948

BENJAMIN ABUBAKAR, petitioner,
vs.
THE AUDITOR GENERAL, respondent.

Viray and Viola Viray for petitioner.

First Assistant Solicitor General Roberto A. Gianzon and Solicitor Manuel Tomacruz for respondent.

BENGZON, J.:

We are asked to overrule the decision of the Auditor General refusing to authorize the payment of
Treasury warrant No. A-2867376 for P1,000 which was issued in favor of Placido S. Urbanes on
December 10, 1941, but is now in the hands of herein petitioner Benjamin Abubakar.

For his refusal the respondent gave two reasons: first, because the money available for the
redemption of treasury warrants issued before January 2, 1942, is appropriated by Republic Act No.
80 (Item F-IV-8) and this warrant does not come within the purview of said appropriation; and
second, because on of the requirements of his office had not been complied with, namely, that it
must be shown that the holders of warrants covering payment or replenishment of cash advances for
official expenditures (as this warrant is) received them in payment of definite government obligations.

Finding the first reason to be sufficiently valid we shall not discuss, nor pass upon the second.

There is no doubt as to the authenticity and date of the treasury warrant. There is no question that it
was regularly indorsed by the payee and is now in the custody of the herein petitioner who is a
private individual. On the other hand, it is admitted that the warrant was originally made payable to
Placido S. Urbanes in his capacity as disbursing officer of the Food Administration for "additional
cash advance for Food Production Campaign in La Union" (Annex A). It is thus apparent that this is
a treasury warrant issued in favor of a public officer or employee and held in possession by a private
individual. Such being the case, the Auditor General can hardly be blamed for not authorizing its
redemption out of an appropriation specifically for "treasury warrants issued ... in favor of and held in
possession by private individuals." (Republic Act No. 80, Item F-IV-8.) This warrant was not
issued in favor of a private individual. It was issued in favor of a government employee.

The distinction is not without a difference. Outstanding treasury warrants issued prior to January 2,
1942, amount to more than four million pesos. The appropriation herein mentioned is only for
P1,750,000. Obviously Congress wished to provide for redemption of one class of warrants — those
issued to private individuals — as distinguished from those issued in favor of government officials.
Basis for the discrimination is not lacking. Probably the Government is not so sure that those
warrants to officials have all been properly used by the latter during the Japanese occupation or
maybe it wants to conduct further inquiries as to the equities of the present holders thereof.

The petitioner argues that he is a holder in good faith and for value of a negotiable instrument an dis
entitled to the rights and privileges of a holder in due course, free from defenses. But this treasury
warrant is not within the scope of the negotiable instruments law. For one thing, the document
bearing on its face the words "payable from the appropriation for food administration," is actually an
order for payment out of "a particular fund," and is not unconditional, and does not fulfill one of the
essential requirements of a negotiable instrument. (Section 3 last sentenced and section 1[b] of the
Negotiable Instruments Law.) In the United States, government warrants for the payment of money
are not negotiable instruments nor commercial proper 1

Anyway the question here is not whether the Government should eventually pay this warrant, or is
ultimately responsible for it, but whether the Auditor General erred in refusing to permit payment out
of the particular appropriation in Item F-IV-8 of Republic Act No. 80. We think that he did not.
Petition dismissed, with costs.

Paras, Actg. C.J., Feria, Pablo, Perfecto, Briones, and Padilla, JJ., concur.
 G.R. No. 148582 : January 16, 2002

FAR EAST BANK AND TRUST COMPANY, Petitioner, vs. ESTRELLA O.

QUERIMIT, respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari seeking review of the decision, dated March 6, 2001,
and resolution, dated June 19, 2001, of the Court of Appeals1 in CA-G.R. CV No. 67147, entitled
Estrella O. Querimit v. Far East Bank and Trust Company, which affirmed with modification the
decision of the Regional Trial Court, Branch 38, Manila,2 ordering petitioner Far East Bank and
Trust Co. (FEBTC) to allow respondent Estrella O. Querimit to withdraw her time deposit with
the FEBTC.

The facts are as follows:

Respondent Estrella O. Querimit worked as internal auditor of the Philippine Savings Bank
(PSB) for 19 years, from 1963 to 1992.3 On November 24, 1986, she opened a dollar savings
account in petitioners Harrison Plaza branch,4 for which she was issued four (4) Certificates of
Deposit (Nos. 79028, 79029, 79030, and 79031), each certificate representing the amount of
$15,000.00, or a total amount of $60,000.00. The certificates were to mature in 60 days,
on January 23, 1987, and were payable to bearer at 4.5% interest per annum. The certificates
bore the word accrued, which meant that if they were not presented for encashment or pre-
terminated prior to maturity, the money deposited with accrued interest would be rolled over by
the bank and annual interest would accumulate automatically.5 The petitioner banks manager
assured respondent that her deposit would be renewed and earn interest upon maturity even
without the surrender of the certificates if these were not indorsed and withdrawn.6 Respondent
kept her dollars in the bank so that they would earn interest and so that she could use the fund
after she retired.7cräläwvirtualibräry

In 1989, respondent accompanied her husband Dominador Querimit to the United States for
medical treatment. She used her savings in the Bank of the Philippine Islands (BPI) to pay for
the trip and for her husbands medical expenses.8 In January 1993, her husband died and
Estrella returned to the Philippines. She went to petitioner FEBTC to withdraw her deposit but,
to her dismay, she was told that her husband had withdrawn the money in deposit.9 Through
counsel, respondent sent a demand letter to petitioner FEBTC. In another letter, respondent
reiterated her request for updating and payment of the certificates of deposit, including interest
earned.10 As petitioner FEBTC refused respondents demands, the latter filed a complaint,
joining in the action Edgardo F. Blanco, Branch Manager of FEBTC Harrison Plaza Branch, and
Octavio Espiritu, FEBTC President.11cräläwvirtualibräry

Petitioner FEBTC alleged that it had given respondents late husband Dominador an
accommodation to allow him to withdraw Estrellas deposit.12 Petitioner presented certified true
copies of documents showing that payment had been made, to wit:

1. Four FEBTC Harrison Plaza Branch Dollar Demand Drafts Nos. 886694903, 886694904,
886694905 and 886694906 for US$15,110.96 each, allegedly issued by petitioner to
 respondents husband Dominador after payment on the certificates of
deposit;13cräläwvirtualibräry

2. A letter of Alicia de Bustos, branch cashier of FEBTC at Harrison Plaza, dated January 23,
1987, which was sent to Citibank, N.A., Citibank Center, Paseo de Roxas, Makati, Metro Manila,
informing the latter that FEBTC had issued the four drafts and requesting Citibank New York to
debit from petitioners account $60,443.84, the aggregate value of the four
drafts;14cräläwvirtualibräry

3. Citicorp Remittance Service: Daily Summary and Payment Report dated January 23,
1987;15cräläwvirtualibräry

4. Debit Ticket dated January 23, 1987, showing the debit of US$60,443.84 or its equivalent at
the time of P1,240,912.04 from the FEBTC Harrison Plaza Branch;16 and

5. An Interbranch Transaction Ticket Register or Credit Ticket dated January 23, 1987 showing
that US$60,443.84 or P1,240,912.04 was credited to petitioners International Operation Division
(IOD).17cräläwvirtualibräry

On May 6, 2000, the trial court rendered judgment for respondent. The dispositive portion of the
decision stated:

WHEREFORE, judgment is hereby rendered in favor of plaintiff [Estrella O. Querimit] and

against defendants [FEBTC et al.]:

1. ORDERING defendants to allow plaintiff to withdraw her U.S.$ Time Deposit of $60,000.00 plus
accrued interests;

2. ORDERING defendants to pay moral damages in the amount of P50,000.00;

3. ORDERING defendants to pay exemplary damages in the amount of P50,000.00;

4. ORDERING defendants to pay attorneys fees in the amount of P100,000.00 plus P10,000.00 per
appearance of counsel; and

5. ORDERING defendants to pay the costs of the suit.

SO ORDERED.[18cräläwvirtualibräry

On May 15, 2000, petitioner appealed to the Court of Appeals which, on March 6, 2001,
affirmed through its Fourteenth Division the decision of the trial court, with the modification that
FEBTC was declared solely liable for the amounts adjudged in the decision of the trial court.
The appeals court stated that petitioner FEBTC failed to prove that the certificates of deposit
had been paid out of its funds, since the evidence by the [respondent] stands unrebutted that
the subject certificates of deposit until now remain unindorsed, undelivered and unwithdrawn by
[her].19 But the Court of Appeals held that the individual defendants, Edgardo F. Blanco,
FEBTC-Harrison Plaza Branch Manager, and Octavio Espiritu, FEBTC President, could not be
held solidarily liable with the FEBTC because the latter has a personality separate from its
officers and stockholders.20cräläwvirtualibräry
Hence this appeal.

As stated by the Court of Appeals, the main issue in this case is whether the subject certificates
of deposit have already been paid by petitioner.21 Petitioner contends that-

I. Petitioner is not liable to respondent for the value of the four (4) Certificates of Deposit,
including the interest thereon as well as moral and exemplary damages, attorneys and
appearance fees.

II. The aggregate value - both principal and interest earned at maturity - of the four (4)
certificates of deposit was already paid to or withdrawn at maturity by the late Dominador
Querimit who was the respondents deceased husband.

III. Respondent is guilty of laches since the four (4) certificates of deposit were all issued on 24
November 1986 but she attempted to withdraw their aggregate value on 29 July 1996 only on or
after the lapse of more than nine (9) years and eight (8) months.

IV. Respondent is not liable to petitioner for attorneys fees.[22cräläwvirtualibräry

After reviewing the records, we find the petition to be without merit.

First. Petitioner bank failed to prove that it had already paid Estrella Querimit, the bearer and
lawful holder of the subject certificates of deposit. The finding of the trial court on this point, as
affirmed by the Court of Appeals, is that petitioner did not pay either respondent Estrella or her
husband the amounts evidenced by the subject certificates of deposit. This Court is not a trier of
facts and generally does not weigh anew the evidence already passed upon by the Court of
Appeals.23 The finding of respondent court which shows that the subject certificates of deposit
are still in the possession of Estrella Querimit and have not been indorsed or delivered to
petitioner FEBTC is substantiated by the record and should therefore stand.24cräläwvirtualibräry

A certificate of deposit is defined as a written acknowledgment by a bank or banker of the

receipt of a sum of money on deposit which the bank or banker promises to pay to the
depositor, to the order of the depositor, or to some other person or his order, whereby the
relation of debtor and creditor between the bank and the depositor is created. The principles
governing other types of bank deposits are applicable to certificates of deposit,25 as are the
rules governing promissory notes when they contain an unconditional promise to pay a sum
certain of money absolutely.26 The principle that payment, in order to discharge a debt, must be
made to someone authorized to receive it is applicable to the payment of certificates of deposit.
Thus, a bank will be protected in making payment to the holder of a certificate indorsed by the
payee, unless it has notice of the invalidity of the indorsement or the holders want of title.27 A
bank acts at its peril when it pays deposits evidenced by a certificate of deposit, without its
production and surrender after proper indorsement.28 As a rule, one who pleads payment has
the burden of proving it. Even where the plaintiff must allege non-payment, the general rule is
that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove
payment. The debtor has the burden of showing with legal certainty that the obligation has been
discharged by payment.29cräläwvirtualibräry

In this case, the certificates of deposit were clearly marked payable to bearer, which means, to
[t]he person in possession of an instrument, document of title or security payable to bearer or
indorsed in blank.30 Petitioner should not have paid respondents husband or any third party
without requiring the surrender of the certificates of deposit.

Petitioner claims that it did not demand the surrender of the subject certificates of deposit since
respondents husband, Dominador Querimit, was one of the banks senior managers. But even
long after respondents husband had allegedly been paid respondents deposit and before his
retirement from service, the FEBTC never required him to deliver the certificates of deposit in
question.31 Moreover, the accommodation given to respondents husband was made in violation
of the banks policies and procedures.32cräläwvirtualibräry

Petitioner FEBTC thus failed to exercise that degree of diligence required by the nature of its
business.33 Because the business of banks is impressed with public interest, the degree of
diligence required of banks is more than that of a good father of the family or of an ordinary
business firm. The fiduciary nature of their relationship with their depositors requires them to
treat the accounts of their clients with the highest degree of care.34 A bank is under obligation to
treat the accounts of its depositors with meticulous care whether such accounts consist only of a
few hundred pesos or of millions of pesos. Responsibility arising from negligence in the
performance of every kind of obligation is demandable.35 Petitioner failed to prove payment of
the subject certificates of deposit issued to the respondent and, therefore, remains liable for the
value of the dollar deposits indicated thereon with accrued interest.

Second. The equitable principle of laches is not sufficient to defeat the rights of respondent over
the subject certificates of deposit.

Laches is the failure or neglect, for an unreasonable length of time, to do that which, by
exercising due diligence, could or should have been done earlier. It is negligence or omission to
assert a right within a reasonable time, warranting a presumption that the party entitled to assert
it either has abandoned it or declined to assert it.36cräläwvirtualibräry

There is no absolute rule as to what constitutes laches or staleness of demand; each case is to
be determined according to its particular circumstances. The question of laches is addressed to
the sound discretion of the court and, being an equitable doctrine, its application is controlled by
equitable considerations. It cannot be used to defeat justice or perpetrate fraud and injustice.
Courts will not be guided or bound strictly by the statute of limitations or the doctrine of laches
when to do so, manifest wrong or injustice would result.37cräläwvirtualibräry

In this case, it would be unjust to allow the doctrine of laches to defeat the right of respondent to
recover her savings which she deposited with the petitioner. She did not withdraw her deposit
even after the maturity date of the certificates of deposit precisely because she wanted to set it
aside for her retirement. She relied on the banks assurance, as reflected on the face of the
instruments themselves, that interest would accrue or accumulate annually even after their
maturity.38cräläwvirtualibräry

Third. Respondent is entitled to moral damages because of the mental anguish and humiliation
she suffered as a result of the wrongful refusal of the FEBTC to pay her even after she had
delivered the certificates of deposit.39 In addition, petitioner FEBTC should pay respondent
exemplary damages, which the trial court imposed by way of example or correction for the
public good.40 Finally, respondent is entitled to attorneys fees since petitioners act or omission
compelled her to incur expenses to protect her interest, making such award just and
equitable.41 However, we find the award of attorneys fees to be excessive and accordingly
reduce it to P20,000.00.42cräläwvirtualibräry

WHEREFORE, premises considered, the present petition is hereby DENIED and the Decision in
CA-G.R. CV No. 67147 AFFIRMED, with the modification that the award of attorneys fees is
reduced to P20,000.00.

SO ORDERED.