Mico Metals v.

Court of Appeals
G.R. No. 117914. 1 February 2002.
FACTS: Mico Metals Corporation (MCC) applied for two domestic letters of credit (L/C) with the Philippine
Bank of Communications (PBC) which applications were eventually granted. Thereafter, the domestic L/Cs
were negotiated and accepted by MCC as evidenced by the corresponding bank draft issued for the purpose.
After MCCs supplier was paid, a trust receipt (T/R), upon MCCs own initiative, was executed in favor of
PBC.
A few months later, MCC applied for authority to open foreign L/Cs with PBC which applications were
eventually approved. Negotiation and proper acceptance of the L/C were then made by MCC. Again, a
corresponding T/R was executed by MCC in favor of PBC.
In all the transactions involving foreign L/C, PBC turned over to MCC the necessary documents such as the
bills of lading and commercial invoices to enable the latter to withdraw the goods from the port of Manila.
About five months later, MCC obtained from PBC a loan covered by a promissory note (P/N). Upon maturity of
all credit availments obtained by MCC from PBC, the latter made a demand for payment which demand was
left unheeded
ISSUE: Whether or not PBC failed to prove that it actually made payments under the L/C since the bank drafts
presented as evidence show that they were made in favor of two corresponding banks, and as such it (PBC) is
not entitled to reimbursement?
HELD: No. Modern L/Cs are usually not made between natural persons. They involve bank to bank
transactions. Historically, L/Cs was developed to facilitate the sale of goods between, distant and unfamiliar
buyers and sellers. It was an arrangement under which a bank, whose credit was acceptable to the seller, would
at the instance of the buyer agree to pay drafts drawn on it by the seller, provided that certain documents are
presented such as bills of lading accompanying the corresponding drafts. Consequently, there is nothing unusual
in the fact that the drafts presented in evidence by PBC were not made payable to it (PBC).
24 of the Negotiable Instruments Law (NIL) provides that every negotiable instrument is deemed prima facie
to have been issued for valuable consideration and every person whose signature appears thereon to have
become a party for value. Nevertheless, while that presumption found under the NIL may not necessarily be
applicable to T/R and L/C, the presumption that the drafts drawn in connection with the L/C have sufficient
consideration prevails. More importantly, under 3(r), Rule 131 of the Rules of Court there is also a
presumption that sufficient consideration was given in a contract.
Hence, MCC should have presented credible evidence to rebut that presumption as well as the evidence
presented by PBC. The L/C show that the pertinent materials/merchandise has been received by MCC. The
drafts signed by the beneficiary/suppliers in connection with the corresponding L/C proved that said suppliers
were paid by PBC for the account of MCC. On the other hand, aside from its bare denials MCC did not present
sufficient and competent evidence to rebut the evidence of PBC. MCC did not proffer a single piece of
evidence, apart from its bare denial, to support its allegation that the loan transactions, L/Cs and T/Rs were
issued allegedly without any consideration.

[G.R. NO. 117913. February 1, 2002]

CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and
ALFONSO CO, petitioners, vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS,
respondents.
[G.R. NO. 117914. February 1, 2002]
MICO METALS CORPORATION, petitioner, vs. COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
DECISION
DE LEON, JR., J:
Before us is the joint and consolidated petition for review of the Decision [1] dated June 15, 1994 of the Court of
Appeals in CA-G.R. CV No. 27480 entitled, Philippine Bank of Communications vs. Mico Metals Corporation,
Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co, which reversed the
decision of the Regional Trial Court (RTC) of Manila, Branch 55 dismissing the complaint for a sum of money
filed by private respondent Philippine Bank of Communications against herein petitioners, Mico Metals
Corporation (MICO, for brevity), Charles Lee, Chua Siok Suy, [2] Mariano Sio, Alfonso Yap, Richard Velasco
and Alfonso Co. [3] The dispositive portion of the said Decision of the Court of Appeals, reads:
i

ii

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WHEREFORE, the decision of the Regional Trial Court is hereby reversed and in lieu thereof, a new one is
entered:
a) Ordering the defendants-appellees jointly and severally to pay plaintiff PBCom the sum of Five million four
hundred fifty-one thousand six hundred sixty-three pesos and ninety centavos (P5,451,663.90) representing
defendants-appellees unpaid obligations arising from ordinary loans granted by the plaintiff plus legal interest
until fully paid.
b) Ordering defendants-appellees jointly and severally to pay PBCom the sum of Four hundred sixty-one
thousand six hundred pesos and sixty-six centavos (P46 1,600.66) representing defendants-appellees unpaid
obligations arising from their letters of credit and trust receipt transactions with plaintiff PBCom plus legal
interest until fully paid.
c) Ordering defendants-appellees jointly and severally to pay PBCom the sum of P50,000.00 as attorneys fees.
No pronouncement as to costs.
The facts of the case are as follows:
On March 2, 1979, Charles Lee, as President of MICO wrote private respondent Philippine Bank of
Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum of Three Million
Pesos (P3,000,000.00) for the purpose of carrying out MICOs line of business as well as to maintain its volume
of business.
On the same day, Charles Lee requested for another discounting loan/credit line of Three Million Pesos
(P3,000,000.00) from PBCom for the purpose of opening letters of credit and trust receipts.

In connection with the requests for discounting loan/credit lines, PBCom was furnished by MICO the following
resolution which was adopted unanimously by MICOs Board of Directors:
RESOLVED, that the President, Mr. Charles Lee, and the Vice-President and General Manager, Mr. Mariano A.
Sio, singly or jointly, be and they are duly authorized and empowered for and in behalf of this Corporation to
apply for, negotiate and secure the approval of commercial loans and other banking facilities and
accommodations, such as, but not limited to discount loans, letters of credit, trust receipts, lines for marginal
deposits on foreign and domestic letters of credit, negotiate out-of-town checks, etc. from the Philippine Bank of
Communications, 216 Juan Luna, Manila in such sums as they shall deem advantageous, the principal of all of
which shall not exceed the total amount of TEN MILLION PESOS (P10,000,000.00), Philippine Currency, plus
any interests that may be agreed upon with said Bank in such loans and other credit lines of the same kind and
such further terms and conditions as may, upon granting of said loans and other banking facilities, be imposed
by the Bank; and to make, execute, sign and deliver any contracts of mortgage, pledge or sale of one, some or
all of the properties of the Company, or any other agreements or documents of whatever nature or kind,
including the signing, indorsing, cashing, negotiation and execution of promissory notes, checks, money orders
or other negotiable instruments, which may be necessary and proper in connection with said loans and other
banking facilities, or with their amendments, renewals and extensions of payment of the whole or any part
thereof. [4]
iv

On March 26, 1979, MICO availed of the first loan of One Million Pesos (P1,000,000.00) from PBCom. Upon
maturity of the loan, MICO caused the same to be renewed, the last renewal of which was made on May 21,
1982 under Promissory Note BNA No. 26218. [5]
v

Another loan of One Million Pesos (P1,000,000.00) was availed of by MICO from PBCom which was likewise
later on renewed, the last renewal of which was made on May 21, 1982 under Promissory Note BNA No.
26219. [6] To complete MICOs availment of Three Million Pesos (P3,000,000.00) discounting loan/credit line
with PBCom, MICO availed of another loan from PBCom in the sum of One Million Pesos (P1,000,000.00) on
May 24, 1979. As in previous loans, this was rolled over or renewed, the last renewal of which was made on
May 25, 1982 under Promissory Note BNA No. 26253. [7]
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As security for the loans, MICO through its Vice-President and General Manager, Mariano Sio, executed on
May 16, 1979 a Deed of Real Estate Mortgage over its properties situated in Pasig, Metro Manila covered by
Transfer Certificates of Title (TCT) Nos. 11248 and 11250.
On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, in their
personal capacities executed a Surety Agreement [8] in favor of PBCom whereby the petitioners jointly and
severally, guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts,
drafts, letters of credit, bills of exchange, trust receipts, and other obligations of every kind and nature, for
which MICO may be held accountable by PBCom. It was provided, however, that the liability of the sureties
shall not at any one time exceed the principal amount of Three Million Pesos (P3,000,000.00) plus interest,
costs, losses, charges and expenses including attorneys fees incurred by PBCom in connection therewith.
viii

On July 14, 1980, petitioner Charles Lee, in his capacity as president of MICO, wrote PBCom and applied for
an additional loan in the sum of Four Million Pesos (P4,000,000.00). The loan was intended for the expansion
and modernization of the companys machineries. Upon approval of the said application for loan, MICO availed
of the additional loan of Four Million Pesos (P4,000,000.00) as evidenced by Promissory Note TA No. 094. [9]
ix

As per agreement, the proceeds of all the loan availments were credited to MICOs current checking account
with PBCom. To induce the PBCom to increase the credit line of MICO, Charles Lee, Chua Siok Suy, Mariano
Sio, Alfonso Yap, Richard Velasco and Alfonso Co (hereinafter referred to as petitioners-sureties), executed
another surety agreement [10] in favor of PBCom on July 28, 1980, whereby they jointly and severally
guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts,
x

letters of credit, bills of exchange, trust receipts and all other obligations of any kind and nature for which
MICO may be held accountable by PBCom. It was provided, however, that their liability shall not at any one
time exceed the sum of Seven Million Five Hundred Thousand Pesos (P7,500,000.00) including interest, costs,
charges, expenses and attorneys fees incurred by MICO in connection therewith.
On July 29, 1980, MICO furnished PBCom with a notarized certification issued by its corporate secretary, Atty.
P.B. Barrera, that Chua Siok Suy was duly authorized by the Board of Directors to negotiate on behalf of MICO
for loans and other credit availments from PBCom. Indicated in the certification was the following resolution
unanimously approved by the Board of Directors:
RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be, as he is hereby authorized and
empowered, on behalf of MICO METALS CORPORATION from time to time, to borrow money and obtain other
credit facilities, with or without security, from the PHILIPPINE BANK OF COMMUNICATIONS in such
amount(s) and under such terms and conditions as he may determine, with full power and authority to execute,
sign and deliver such contracts, instruments and papers in connection therewith, including real estate and
chattel mortgages, pledges and assignments over the properties of the Corporation; and to renew and/or extend
and/or roll-over and/or reavail of the credit facilities granted thereunder, either for lesser or for greater
amount(s), the intention being that such credit facilities and all securities of whatever kind given as collaterals
therefor shall be a continuing security.
RESOLVED FURTHER, That said bank is hereby authorized, empowered and directed to rely on the authority
given hereunder, the same to continue in full force and effect until written notice of its revocation shall be
received by said Bank. [11]
xi

On July 2, 1981, MICO filed with PBCom an application for a domestic letter of credit in the sum of Three
Hundred Forty-Eight Thousand Pesos (P348,000.00). [12] The corresponding irrevocable letter of credit was
approved and opened under LC No. L-16060. [13] Thereafter, the domestic letter of credit was negotiated and
accepted by MICO as evidenced by the corresponding bank draft issued for the purpose. [14] After the supplier
of the merchandise was paid, a trust receipt upon MICOs own initiative, was executed in favor of PBCom. [15]
xii

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xv

On September 14, 1981, MICO applied for another domestic letter of credit with PBCom in the sum of Two
Hundred Ninety Thousand Pesos (P290,000.00). [16] The corresponding irrevocable letter of credit was issued
on September 22, 1981 under LC No. L-16334. [17] After the beneficiary of the said letter of credit was paid by
PBCom for the price of the merchandise, the goods were delivered to MICO which executed a corresponding
trust receipt [18] in favor of PBCom.
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On November 10, 1981, MICO applied for authority to open a foreign letter of credit in favor of Ta Jih
Enterprises Co., Ltd., [19] and thus, the corresponding letter of credit [20] was then issued by PBCom with a
cable sent to the beneficiary, Ta Jih Enterprises Co., Ltd. advising that said beneficiary may draw funds from the
account of PBCom in its correspondent banks New York Office. [21] PBCom also informed its corresponding
bank in Taiwan, the Irving Trust Company, of the approved letter of credit. The correspondent bank
acknowledged PBComs advice through a confirmation letter [22] and by debiting from PBComs account with
the said correspondent bank the sum of Eleven Thousand Nine Hundred Sixty US Dollars ($11 ,960.00). [23] As
in past transactions, MICO executed in favor of PBCom a corresponding trust receipt. [24]
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On January 4, 1982, MICO applied, for authority to open a foreign letter of credit in the sum of One Thousand
Nine Hundred US Dollars ($1,900.00), with PBCom. [25] Upon approval, the corresponding letter of credit
denominated as LC No. 62293 [26] was issued whereupon PBCom advised its correspondent bank and
MICO [27] of the same. Negotiation and proper acceptance of the letter of credit were then made by MICO.
Again, a corresponding trust receipt [28] was executed by MICO in favor of PBCom.
xxv

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In all the transactions involving foreign letters of credit, PBCom turned over to MICO the necessary documents
such as the bills of lading and commercial invoices to enable the latter to withdraw the goods from the port of
Manila.
On May 21, 1982 MICO obtained from PBCom another loan in the sum of Three Hundred Seventy-Seven
Thousand Pesos (P377,000.00) covered by Promissory Note BA No. 7458. [29]
xxix

Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for
payment. [30] For failure of petitioner MICO to pay the obligations incurred despite repeated demands, private
respondent PBCom extrajudicially foreclosed MICOs real estate mortgage and sold the said mortgaged
properties in a public auction sale held on November 23, 1982. Private respondent PBCom which emerged as
the highest bidder in the auction sale, applied the proceeds of the purchase price at public auction of Three
Million Pesos (P3,000,000.00) to the expenses of the foreclosure, interest and charges and part of the principal
of the loans, leaving an unpaid balance of Five Million Four Hundred Forty-One Thousand Six Hundred SixtyThree Pesos and Ninety Centavos (P5,441,663.90) exclusive of penalty and interest charges. Aside from the
unpaid balance of Five Million Four Hundred Forty-One Thousand Six Hundred Sixty-Three Pesos and Ninety
Centavos (P5,441,663.90), MICO likewise had another standing obligation in the sum of Four Hundred SixtyOne Thousand Six Hundred Pesos and Six Centavos (P461,600.06) representing its trust receipts liabilities to
private respondent. PBCom then demanded the settlement of the aforesaid obligations from herein petitionerssureties who, however, refused to acknowledge their obligations to PBCom under the surety agreements. Hence,
PBCom filed a complaint with prayer for writ of preliminary attachment before the Regional Trial Court of
Manila, which was raffled to Branch 55, alleging that MICO was no longer in operation and had no properties
to answer for its obligations. PBCom further alleged that petitioner Charles Lee has disposed or concealed his
properties with intent to defraud his creditors. Except for MICO and Charles Lee, the sheriff of the RTC failed
to serve the summons on herein petitioners-sureties since they were all reportedly abroad at the time. An alias
summons was later issued but the sheriff was not able to serve the same to petitioners Alfonso Co and Chua
Siok Suy who was already sickly at the time and reportedly in Taiwan where he later died.
xxx

Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed by
respondent PBCom, and alleged that: a) MICO was not granted the alleged loans and neither did it receive the
proceeds of the aforesaid loans; b) Chua Siok Suy was never granted any valid Board Resolution to sign for and
in behalf of MICO; c) PBCom acted in bad faith in granting the alleged loans and in releasing the proceeds
thereof; d) petitioners were never advised of the alleged grant of loans and the subsequent releases therefor, if
any; e) since no loan was ever released to or received by MICO, the corresponding real estate mortgage and the
surety agreements signed concededly by the petitioners-sureties are null and void.
The trial court gave credence to the testimonies of herein petitioners and dismissed the complaint filed by
PBCom. The trial court likewise declared the real estate mortgage and its foreclosure null and void. In ruling for
herein petitioners, the trial court said that PBCom failed to adequately prove that the proceeds of the loans were
ever delivered to MICO. The trial court pointed out, among others, that while PBCom claimed that the proceeds
of the Four Million Pesos (P4,000,000.00) loan covered by promissory note TA 094 were deposited to the
current account of petitioner MICO, PBCom failed to produce the ledger account showing such deposit. The
trial court added that while PBCom may have loaned to MICO the other sums of Three Hundred Forty-Eight
Thousand Pesos (P348,000.00) and Two Hundred Ninety Thousand Pesos (P290,000.00), no proof has been
adduced as to the existence of the goods covered and paid by the said amounts. Hence, inasmuch as no
consideration ever passed from PBCom to MICO, all the documents involved therein, such as the promissory
notes, real estate mortgage including the surety agreements were all void or nonexistent for lack of cause or
consideration. The trial court said that the lack of proof as regards the existence of the merchandise covered by
the letters of credit bolstered the claim of herein petitioners that no purchases of the goods were really made and
that the letters of credit transactions were simply resorted to by the PBCom and Chua Siok Suy to accommodate
the latter in his financial requirements.

The Court of Appeals reversed the ruling of the trial court, saying that the latter committed an erroneous
application and appreciation of the rules governing the burden of proof. Citing Section 24 of the Negotiable
Instruments Law which provides that Every negotiable instrument is deemed prima facie to have been
issued for valuable consideration and every person whose signature appears thereon to have become a
party thereto for value, the Court of Appeals said that while the subject promissory notes and letters of credit
issued by the PBCom made no mention of delivery of cash, it is presumed that said negotiable instruments were
issued for valuable consideration. The Court of Appeals also cited the case of Gatmaitan vs. Court of
Appeals [31] which holds that "there is a presumption that an instrument sets out the true agreement of the
parties thereto and that it was executed for valuable consideration. The appellate court noted and found that
a notarized Certification was issued by MICOs corporate secretary, P.B. Barrera, that Chua Siok Suy, was duly
authorized by the Board of Directors of MICO to borrow money and obtain credit facilities from PBCom.
xxxi

Petitioners filed a motion for reconsideration of the challenged decision of the Court of Appeals but this was
denied in a Resolution dated November 7, 1994 issued by its Former Second Division. Petitioners-sureties then
filed a petition for review on certiorari with this Court, docketed as G.R. No. 117913, assailing the decision of
the Court of Appeals. MICO likewise filed a separate petition for review on certiorari, docketed as G.R. No.
117914, with this Court assailing the same decision rendered by the Court of Appeals. Upon motion filed by
petitioners, the two (2) petitions were consolidated on January 11, 1995. [32]
xxxii

Petitioners contend that there was no proof that the proceeds of the loans or the goods under the trust receipts
were ever delivered to and received by MICO. But the record shows otherwise. Petitioners-sureties further
contend that assuming that there was delivery by PBCom of the proceeds of the loans and the goods, the
contracts were executed by an unauthorized person, more specifically Chua Siok Suy who acted fraudulently
and in collusion with PBCom to defraud MICO.
The pertinent issues raised in the consolidated cases at bar are: a) whether or not the proceeds of the loans and
letters of credit transactions were ever delivered to MICO, and b) whether or not the individual petitioners, as
sureties, may be held liable under the two (2) Surety Agreements executed on March 26, 1979 and July 28,
1980.
In civil cases, the party having the burden of proof must establish his case by preponderance of evidence. [33]
Preponderance of evidence means evidence which is more convincing to the court as worthy of belief than that
which is offered in opposition thereto. Petitioners contend that the alleged promissory notes, trust receipts and
surety agreements attached to the complaint filed by PBCom did not ripen into valid and binding contracts
inasmuch as there is no evidence of the delivery of money or loan proceeds to MICO or to any of the
petitioners-sureties. Petitioners claim that under normal banking practice, borrowers are required to accomplish
promissory notes in blank even before the grant of the loans applied for and such documents become valid
written contracts only when the loans are actually released to the borrower.
xxxiii

We are not convinced.

During the trial of an action, the party who has the burden of proof upon an issue may be aided in establishing
his claim or defense by the operation of a presumption, or, expressed differently, by the probative value which
the law attaches to a specific state of facts. A presumption may operate against his adversary who has not
introduced proof to rebut the presumption. The effect of a legal presumption upon a burden of proof is to create
the necessity of presenting evidence to meet the legal presumption or the prima facie case created thereby, and
which if no proof to the contrary is presented and offered, will prevail. The burden of proof remains where it is,
but by the presumption the one who has that burden is relieved for the time being from introducing evidence in
support of his averment, because the presumption stands in the place of evidence unless rebutted.
Under Section 3, Rule 131 of the Rules of Court the following presumptions, among others, are satisfactory if
uncontradicted: a) That there was a sufficient consideration for a contract and b) That a negotiable instrument

was given or indorsed for sufficient consideration. As observed by the Court of Appeals, a similar presumption
is found in Section 24 of the Negotiable Instruments Law which provides that every negotiable instrument is
deemed prima facie to have been issued for valuable consideration and every person whose signature appears
thereon to have become a party for value. Negotiable instruments which are meant to be substitutes for money,
must conform to the following requisites to be considered as such a) it must be in writing; b) it must be signed
by the maker or drawer; c) it must contain an unconditional promise or order to pay a sum certain in money; d)
it must be payable on demand or at a fixed or determinable future time; e) it must be payable to order or bearer;
and f) where it is a bill of exchange, the drawee must be named or otherwise indicated with reasonable certainty.
Negotiable instruments include promissory notes, bills of exchange and checks. Letters of credit and trust
receipts are, however, not negotiable instruments. But drafts issued in connection with letters of credit are
negotiable instruments.
Private respondent PBCom presented the following documentary evidence to prove petitioners credit availments
and liabilities:
1)
Promissory Note No. BNA 26218 dated May 21, 1982 in the sum of P1,000,000.00 executed by MICO in
favor of PBCom.
2)
Promissory Note No. BNA 26219 dated May 21, 1982 in the sum of P1,000,000.00 executed by MICO in
favor of PBCom.
3)
Promissory Note No. BNA 26253 dated May 25, 1982 in the sum of P1,000,000.00 executed by MICO in
favor of PBCom.
4)
Promissory Note No. BNA 7458 dated May 21, 1982 in the sum of P377,000.00 executed by MICO in
favor of PBCom.
5)
Promissory Note No. TA 094 dated July 29, 1980 in the sum of P4,000.000.00 executed by MICO in
favor of PBCom.
6)
Irrevocable letter of credit No. L-16060 dated July 2,1981 issued in favor of Perez Battery Center for
account of Mico Metals Corp.
7)
Draft dated July 2, 1981 in the sum of P348,000.00 issued by Perez Battery Center, beneficiary of
irrevocable Letter of Credit No. No. L-16060 and accepted by MICO Metals corporation.
8)
Letter dated July 2, 1981 from Perez Battery Center addressed to private respondent PBCom showing
that proceeds of the irrevocable letter of credit No. L- 16060 was received by Mr. Moises Rosete, representative
of Perez Battery Center.
9)
Trust receipt dated July 2, 1981 executed by MICO in favor of PBCom covering the merchandise
purchased under Letter of Credit No. 16060.
10)
Irrevocable letter of credit No. L-16334 dated September 22, 1981 issued in favor of Perez Battery
Center for account of MICO Metals Corp.
11)
Draft dated September 22, 1981 in the sum of P290,000.00 issued by Perez Battery Center and accepted
by MICO.
12)
Letter dated September 17, 1981 from Perez Battery addressed to PBCom showing that the proceeds of
credit no. L-16344 was received by Mr. Moises Rosete, a representative of Perez Battery Center.

13)
Trust Receipt dated September 22, 1981 executed by MICO in favor of PBCom covering the
merchandise under Letter of Credit No. L-16334.
14)
Irrevocable Letter of Credit no. 61873 dated November 10, 1981 for US$11,960.00 issued by PBCom in
favor of TA JIH Enterprises Co. Ltd., through its correspondent bank, Irving Trust Company of Taipei, Taiwan.
15)
Trust Receipt dated December 15, 9181 executed by MICO in favor of PBCom showing that possession
of the merchandise covered by Irrevocable Letter of Credit no. 61873 was released by PBCom to MICO.
16)
Letters dated March 2, 1979 from MICO signed by its president, Charles Lee, showing that MICO
sought credit line from PBCom in the form of loans, letters of credit and trust receipt in the sum of
P7,500,000.00.
17)
Letter dated July 14, 1980 from MICO signed by its president, Charles Lee, showing that MICO
requested for additional financial assistance in the sum of P4,000,000.00.
18)
Board resolution dated March 6, 1979 of MICO authorizing Charles Lee and Mariano Sio singly or
jointly to act and sign for and in behalf of MICO relative to the obtention of credit facilities from PBCom.
19)
Duly notarized Deed of Mortgage dated May 16, 1979 executed by MICO in favor of PBCom over
MICO s real properties covered by TCT Nos. 11248 and 11250 located in Pasig.
20)
Duly notarized Surety Agreement dated March 26, 1979 executed by herein petitioners Charles Lee,
Mariano Sio, Alfonso Yap, Richard Velasco and Chua Siok Suy in favor of PBCom.
21)
Duly notarized Surety Agreement dated July 28, 1980 executed by herein petitioners Charles Lee,
Mariano Sio, Alfonso Yap, Richard Velasco and Chua Siok Suy in favor of PBCom.
22)
Duly notarized certification dated July 28, 1980 issued by MICO s corporate secretary, Mr. P.B.
Barrera, attesting to the adoption of a board resolution authorizing Chua Siok Suy to sign, for and in behalf of
MICO, all the necessary documents including contracts, loan instruments and mortgages relative to the
obtention of various credit facilities from PBCom.
The above-cited documents presented have not merely created a prima facie case but have actually proved the
solidary obligation of MICO and the petitioners, as sureties of MICO, in favor of respondent PBCom. While the
presumption found under the Negotiable Instruments Law may not necessarily be applicable to trust receipts
and letters of credit, the presumption that the drafts drawn in connection with the letters of credit have sufficient
consideration. Under Section 3(r), Rule 131 of the Rules of Court there is also a presumption that sufficient
consideration was given in a contract. Hence, petitioners should have presented credible evidence to rebut that
presumption as well as the evidence presented by private respondent PBCom. The letters of credit show that the
pertinent materials/merchandise have been received by MICO. The drafts signed by the beneficiary/suppliers in
connection with the corresponding letters of credit proved that said suppliers were paid by PBCom for the
account of MICO. On the other hand, aside from their bare denials petitioners did not present sufficient and
competent evidence to rebut the evidence of private respondent PBCom. Petitioner MICO did not proffer a
single piece of evidence, apart from its bare denials, to support its allegation that the loan transactions, real
estate mortgage, letters of credit and trust receipts were issued allegedly without any consideration.
Petitioners-sureties, for their part, presented the By-Laws [34] of Mico Metals Corporation (MICO) to prove
that only the president of MICO is authorized to borrow money, arrange letters of credit, execute trust receipts,
and promissory notes and consequently, that the loan transactions, letters of credit, promissory notes and trust
receipts, most of which were executed by Chua Siok Suy in representation of MICO were not allegedly
authorized and hence, are not binding upon MICO. A perusal of the By-Laws of MICO, however, shows that the
xxxiv

power to borrow money for the company and issue mortgages, bonds, deeds of trust and negotiable instruments
or securities, secured by mortgages or pledges of property belonging to the company is not confined solely to
the president of the corporation. The Board of Directors of MICO can also borrow money, arrange letters of
credit, execute trust receipts and promissory notes on behalf of the corporation. [35] Significantly, this power of
the Board of Directors according to the by-laws of MICO, may be delegated to any of its standing committee,
officer or agent. [36] Hence, PBCom had every right to rely on the Certification issued by MICO's corporate
secretary, P.B. Barrera, that Chua Siok Suy was duly authorized by its Board of Directors to borrow money and
obtain credit facilities in behalf of MICO from PBCom.
xxxv

xxxvi

Petitioners-sureties also presented a letter of their counsel dated October 9, 1982, addressed to private
respondent PBCom purportedly to show that PBCom knew that Chua Siok Suy allegedly used the credit and
good names of the petitioner-sureties for his benefit, and that petitioner-sureties were made to sign blank
documents and were furnished copies of the same. The letter, however, is in fact merely a reply of petitionerssureties counsel to PBComs demand for payment of MICOs obligations, and appears to be an inconsequential
piece of self-serving evidence.
In addition to the foregoing, MICO and petitioners-sureties cited the decision of the trial court which stated that
there was no proof that the proceeds of the loans were ever delivered to MICO. Although the private
respondents witness, Mr. Gardiola, testified that the proceeds of the loans were deposited in MICOs current
account with PBCom, his testimony was allegedly not supported by any bank record, note or memorandum. A
careful scrutiny of the record including the transcript of stenographic notes reveals, however, that although
private respondent PBCom was willing to produce the corresponding account ledger showing that the proceeds
of the loans were credited to MICOs current account with PBCom, MICO in fact vigorously objected to the
presentation of said document. That point is shown in the testimony of PBComs witness, Gardiola, thus:
Q:
Now, all of these promissory note Exhibits I and J which as you have said previously (sic) availed
originally by defendant Mico Metals Corp. sometime in 1979, my question now is, do you know what happened
to the proceeds of the original availment?
A:

Well, it was credited to the current account of Mico Metals Corp.

Q:

Why did it was credited to the proceeds to the account of Mico Metals Corp? (sic)

A:

Well, that is our understanding.

ATTY. DURAN:
Your honor, may we be given a chance to object, the best evidence is the so-called current account...
COURT:
Can you produce the ledger account?
A:

Yes, Your Honor, I will bring.

COURT:
The ledger or record of the current account of Mico Metals Corp.
A:

Yes, Your Honor.

ATTY. ACEJAS:
Your Honor, these are a confidential record, and they might not be disclosed without the consent of the person
concerned. (sic)
ATTY. SANTOS:
Well, you are the one who is asking that.
ATTY. DURAN:
Your Honor, Im precisely want to show for the ... (sic)
COURT:
But the amount covered by the current account of defendant Mico Metals Corp. is the subject matter of this
case.
xxx

xxx

xxx

Q:

Are those availments were release? (sic)

A:

Yes, Your Honor, to the defendant corporation.

Q:

By what means?

A:

By the credit to their current account.

ATTY. ACEJAS:
We object to that, your Honor, because the disclose is the secrecy of the bank deposit. (sic)
xxx

xxx

xxx

Q:
Before the recess Mr. Gardiola, you stated that the proceeds of the three (3) promissory notes were
credited to the accounts of Mico Metals Corporation, now do you know what kind of current account was that
which you are referring to?
ATTY. ACEJAS:
Objection your Honor, that is the disclose of the deposit of defendant Mico Metals Corporation and it cannot
disclosed without the authority of the depositor. (sic) [37]
xxxvii

That proceeds of the loans which were originally availed of in 1979 were delivered to MICO is bolstered by the
fact that more than a year later, specifically on July 14, 1980, MICO through its president, petitioner-surety
Charles Lee, requested for an additional loan of Four Million Pesos (P4,000,000.00) from PBCom. The fact that
MICO was requesting for an additional loan implied that it has already availed of earlier loans from PBCom.
Petitioners allege that PBCom presented no evidence that it remitted payments to cover the domestic and
foreign letters of credit. Petitioners placed much reliance on the erroneous decision of the trial court which
stated that private respondent PBCom allegedly failed to prove that it actually made payments under the letters

of credit since the bank drafts presented as evidence show that they were made in favor of the Bank of Taiwan
and First Commercial Bank.
Petitioners allegations are untenable.
Modern letters of credit are usually not made between natural persons. They involve bank to bank transactions.
Historically, the letter of credit was developed to facilitate the sale of goods between, distant and unfamiliar
buyers and sellers. It was an arrangement under which a bank, whose credit was acceptable to the seller, would
at the instance of the buyer agree to pay drafts drawn on it by the seller, provided that certain documents are
presented such as bills of lading accompanied the corresponding drafts. Expansion in the use of letters of credit
was a natural development in commercial banking. [38] Parties to a commercial letter of credit include (a) the
buyer or the importer, (b) the seller, also referred to as beneficiary, (c) the opening bank which is usually the
buyers bank which actually issues the letter of credit, (d) the notifying bank which is the correspondent bank of
the opening bank through which it advises the beneficiary of the letter of credit, (e) negotiating bank which is
usually any bank in the city of the beneficiary. The services of the notifying bank must always be utilized if the
letter of credit is to be advised to the beneficiary through cable, (f) the paying bank which buys or discounts the
drafts contemplated by the letter of credit, if such draft is to be drawn on the opening bank or on another
designated bank not in the city of the beneficiary. As a rule, whenever the facilities of the opening bank are
used, the beneficiary is supposed to present his drafts to the notifying bank for negotiation and (g) the
confirming bank which, upon the request of the beneficiary, confirms the letter of credit issued by the opening
bank.
xxxviii

From the foregoing, it is clear that letters of credit, being usually bank to bank transactions, involve more than
just one bank. Consequently, there is nothing unusual in the fact that the drafts presented in evidence by
respondent bank were not made payable to PBCom. As explained by respondent bank, a draft was drawn on the
Bank of Taiwan by Ta Jih Enterprises Co., Ltd. of Taiwan, supplier of the goods covered by the foreign letter of
credit. Having paid the supplier, the Bank of Taiwan then presented the bank draft for reimbursement by
PBComs correspondent bank in Taiwan, the Irving Trust Company which explains the reason why on its face,
the draft was made payable to the Bank of Taiwan. Irving Trust Company accepted and endorsed the draft to
PBCom. The draft was later transmitted to PBCom to support the latters claim for payment from MICO. MICO
accepted the draft upon presentment and negotiated it to PBCom.
Petitioners further aver that MICO never requested that legal possession of the merchandise be transferred to
PBCom by way of trust receipts. Petitioners insist that assuming that MICO transferred possession of the
merchandise to PBCom by way of trust receipts, the same would be illegal since PBCom, being a banking
institution, is not authorized by law to engage in the business of importing and selling goods.
A trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers
who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who
may not be able to acquire credit except through utilization, as collateral of the merchandise imported or
purchased. [39] A trust receipt, therefor, is a document of security pursuant to which a bank acquires a security
interest in the goods under trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan
covered by a letter of credit, with the trust receipt as a security for the loan. The transaction involves a loan
feature represented by a letter of credit, and a security feature which is in the covering trust receipt which
secures an indebtedness.
xxxix

Petitioners averments with regard to the second issue are no less incredulous. Petitioners contend that the letters
of credit, surety agreements and loan transactions did not ripen into valid and binding contracts since no part of
the proceeds of the loan transactions were delivered to MICO or to any of the petitioners-sureties. Petitionerssureties allege that Chua Siok Suy was the beneficiary of the proceeds of the loans and that the latter made them
sign the surety agreements in blank. Thus, they maintain that they should not be held accountable for any
liability that might arise therefrom.

It has not escaped our notice that it was petitioner-surety Charles Lee, as president of MICO Metals
Corporation, who first requested for a discounting loan of Three Million Pesos (P3,000,000.00) from PBCom as
evidenced by his letter dated March 2, 1979. [40] On the same day, Charles Lee, as President of MICO, requested
for a Letter of Credit and Trust Receipt line in the sum of Three Million Pesos (P3,000,000.00). [41] Still, on the
same day, Charles Lee again as President of MICO, wrote another letter to PBCOM requesting for a financing
line in the sum of One Million Five Hundred Thousand Pesos (P1,500,000.00) to be used exclusively as
marginal deposit for the opening of MICOs foreign and local letters of credit with PBCom. [42] More than a
year later, it was also Charles Lee, again in his capacity as president of MICO, who asked for an additional loan
in the sum of Four Million Pesos (P4,000,000.00). The claim therefore of petitioners that it was Chua Siok Suy,
in connivance with the respondent PBCom, who applied for and obtained the loan transactions and letters of
credit strains credulity considering that even the Deed of the Real Estate Mortgage in favor of PBCom was
executed by petitioner-surety Mariano Sio in his capacity as general manager of MICO [43] to secure the loan
accommodations obtained by MICO from PBCom.
xl

xli

xlii

xliii

Petitioners-sureties allege that they were made to sign the surety agreements in blank by Chua Siok Suy.
Petitioner Alfonso Yap, the corporate treasurer, for his part testified that he signed booklets of checks, surety
agreements and promissory notes in blank; that he signed the documents in blank despite his misgivings since
Chua Siok Suy assured him that the transaction can easily be taken cared of since Chua Siok Suy personally
knew the Chairman of the Board of PBCom; that he was not receiving salary as treasurer of Mico Metals and
since Chua Siok Suy had a direct hand in the management of Malayan Sales Corporation, of which Yap is an
employee, he (Yap) signed the documents in blank as consideration for his continued employment in Malayan
Sales Corporation. Petitioner Antonio Co testified that he worked as office manager for MICO from 1978-1982.
As office manager, he was the one in charge of transacting business like purchasing, selling and paying the
salary of the employees. He was also in charge of the handling of documents pertaining to surety agreements,
trust receipts and promissory notes; [44] that when he first joined MICO Metals Corporation, he was able to read
the by-laws of the corporation and he came to know that only the chairman and the president can borrow money
in behalf of the corporation; that Chua Siok Suy once called him up and told him to secure an invoice so that a
credit line can be opened in the bank with a local letter of credit; that when the invoice was secured, he (Co)
brought it together with the application for a credit line to Chua Siok Suy, and that he questioned the authority
of Chua Siok Suy pointing out that he (Co) is not empowered to sign the document inasmuch as only the latter,
as president, was authorized to do so. However, Chua Siok Suy allegedly just said that he had already talked
with the Chairman of the Board of PBCom; and that Chua Siok Suy reportedly said that he needed the money to
finance a project that he had with the Taipei government. Co also testified that he knew of the application for
domestic letter of credit in the sum of Three Hundred Forty-Eight Thousand Pesos (P348,000.00); and that a
certain Moises Rosete was authorized to claim the check covering the Three Hundred Forty-Eight Thousand
Pesos (P348,000.00) from PBCom; and that after claiming the check Rosete brought it to Perez Battery Center
for indorsement after which the same was deposited to the personal account of Chua Siok Suy. [45]
xliv

xlv

We consider as incredible and unacceptable the claim of petitioners-sureties that the Board of Directors of
MICO was so careless about the business affairs of MICO as well as about their own personal reputation and
money that they simply relied on the say so of Chua Siok Suy on matters involving millions of pesos. Under
Section 3 (d), Rule 131 of the Rules of Court, it is presumed that a person takes ordinary care of his concerns.
Hence, the natural presumption is that one does not sign a document without first informing himself of its
contents and consequences. Said presumption acquires greater force in the case at bar where not only one but
several documents were executed at different times and at different places by the petitioner sureties and Chua
Siok Suy as president of MICO.
MICO and herein petitioners-sureties insist that Chua Siok Suy was not duly authorized to negotiate for loans in
behalf of MICO from PBCom. Petitioners allegation, however, is belied by the July 28, 1980 Certification
issued by the corporate secretary of PBCom, Atty. P.B. Barrera, that MICO's Board of Directors gave Chua Siok
Suy full authority to negotiate for loans in behalf of MICO with PBCom. In fact, the Certification even provided
that Chua Siok Suys authority continues until and unless PBCom is notified in writing of the withdrawal thereof

by the said Board. Notably, petitioners failed to contest the genuineness of the said Certification which is
notarized and to show any written proof of any alleged withdrawal of the said authority given by the Board of
Directors to Chua Siok Suy to negotiate for loans in behalf of MICO.
There was no need for PBCom to personally inform the petitioners-sureties individually about the terms of the
loans, letters of credit and other loan documents. The petitioners-sureties themselves happen to comprise the
Board of Directors of MICO, which gave full authority to Chua Siok Suy to negotiate for loans in behalf of
MICO. Notice to MICOs authorized representative, Chua Siok Suy, was notice to MICO. The Certification
issued by PBComs corporate secretary, Atty. P.B. Barrera, indicated that Chua Siok Suy had full authority to
negotiate and sign the necessary documents, in behalf of MICO for loans from PBCom. Respondent PBCom
therefore had the right to rely on the said notarized Certification of MICOs Corporate Secretary.
Anent petitioners-sureties contention that they obtained no consideration whatsoever on the surety agreements,
we need only point out that the consideration for the sureties is the very consideration for the principal obligor,
MICO, in the contracts of loan. In the case of Willex Plastic Industries Corporation vs. Court of Appeals, [46]
we ruled that the consideration necessary to support a surety obligation need not pass directly to the surety, a
consideration moving to the principal alone being sufficient. For a guarantor or surety is bound by the same
consideration that makes the contract effective between the parties thereto. It is not necessary that a guarantor or
surety should receive any part or benefit, if such there be, accruing to his principal.
xlvi

Petitioners placed too much reliance on the rule in evidence that the burden of proof does not shift whereas the
burden of going forward with the evidence does pass from party to party. It is true that said rule is not changed
by the fact that the party having the burden of proof has introduced evidence which established prima facie his
assertion because such evidence does not shift the burden of proof; it merely puts the adversary to the necessity
of producing evidence to meet the prima facie case. Where the defendant merely denies, either generally or
otherwise, the allegations of the plaintiffs pleadings, the burden of proof continues to rest on the plaintiff
throughout the trial and does not shift to the defendant until the plaintiffs evidence has been presented and duly
offered. The defendant has then no burden except to produce evidence sufficient to create a state of equipoise
between his proof and that of the plaintiff to defeat the latter, whereas the plaintiff has the burden, as in the
beginning, of establishing his case by a preponderance of evidence. [47] But where the defendant has failed to
present and marshall evidence sufficient to create a state of equipoise between his proof and that of plaintiff, the
prima facie case presented by the plaintiff will prevail.
xlvii

In the case at bar, respondent PBCom, as plaintiff in the trial court, has in fact presented sufficient documentary
and testimonial evidence that proved by preponderance of evidence its subject collection case against the
defendants who are the petitioners herein. In view of all the foregoing, the Court of Appeals committed no
reversible error in its appealed Decision.
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 27480 entitled, Philippine
Bank of Communications vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap,
Richard Velasco and Alfonso Co, is AFFIRMED in toto.
Costs against the petitioners.
SO ORDERED.

i
ii
iiiTRANSFIELD PHILIPPINES, INC., petitioner, vs. LUZON HYDRO CORPORATION,

AUSTRALIA
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 Decision[1] 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 Contract[3] 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 petitioners 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] petitionerin two separate letters[13] both dated 10 August 2000advised
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
8.2[14] 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 Order[19] dated 24 November 2000, denied petitioners 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 petitioners 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 courts 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 LHCs 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 petitioners 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 declarants 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 courts 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 courts denial of
petitioners 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 BENEFICIARYS CALL THEREON IS
WRONGFUL OR FRAUDULENT.
WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE SECURITIES BEFORE THE
RESOLUTION OF PETITIONERS AND LHCS 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 LHCS 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 Petition[22] 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 Contractto 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 petitioners 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 petitioners 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 petitioners 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 ICCs partial award mentioned in petitioners Manifestation of 12 April 2004.
In its Comment to petitioners Motion for Leave to File Addendum to Petitioners 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 ICCs partial
award is now fully within the Makati RTCs 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 2003[27] 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 latters 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 2003[28] 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 LHCs 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, petitioners 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 banks 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?

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 principles 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, petitioners argumentthat it is only the issuing bank that may invoke
the independence principle on letters of creditdoes 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.
Petitioners 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
obligors nonperformance. They function, however, in distinctly different ways.
Traditionally, upon the obligors default, the surety undertakes to complete the obligors 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 suretys
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 applicants 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 obligors 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 beneficiarys 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 petitioners
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 LHCs 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 Dolans 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 principles 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 LHCs 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 defaultsuch 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?
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 ones 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 LHCs
call on the Securities which would justify the issuance of preliminary injunction. By petitioners 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 LHCs 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 LHCs 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 LHCs 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 LHCs certification that default has occurred. Neither
were they bound by petitioners declaration that LHCs 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 LHCs 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 employerthe 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
mootfor 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 2004[66] 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 petitioners acts
constitutes forum-shopping which should be punished by the dismissal of the claim in both forums.
Second, in its Comment to Petitioners Motion for Leave to File Addendum to Petitioners Memorandum
dated 8 October 2004, LHC alleges that by maintaining the present appeal and at the same time
pursuing Civil Case No. 04-332wherein petitioner pressed for judgment on the issue of whether the
funds LHC drew on the Securities should be returnedpetitioner 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.

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