Philippine National Bank vs. San Miguel Corporation, G.R. No. 186063, January 15, 2014 (Sec. 4, Rule 36; independence principle in letters of credit)

Philippine National Bank (PNB) vs. San Miguel Corporation (SMC)
G.R. No. 186063
January 15, 2014
Third Division
Ponente: Peralta, J.

Gist:

In an action against several defendants, the court may, when a several judgment is proper, render judgment against one or more of them, leaving the action to proceed against the others. (Sec. 4, Rule 36)

In a letter of credit, the independence principle provides that the obligation under the letter of credit is independent of the related and originating contract. The letter of credit is separate and distinct from the underlying transaction.

Facts:

On July 1996, respondent SMC entered into an Exclusive Dealership Agreement with a certain Rodolfo R. Goroza (Goroza), wherein the latter was given by SMC the right to trade, deal, market or otherwise sell its various beer products.

Goroza applied for a credit line with SMC, but one of the requirements for the credit line was a letter of credit. Thus, Goroza applied for and was granted a letter of credit by the PNB in the amount of PHP 2,000,000.00. Under the credit agreement, the PNB has the obligation to release the proceeds of Goroza’s credit line to SMC upon presentation of the invoices and official receipts of Goroza’s purchases of SMC beer products to PNB-Butuan branch.

On August 1996, Goroza availed of his credit line with PNB and started selling SMC’s beer products.

On February 1997, Goroza applied for an additional credit line with the PNB. The latter granted Goroza a one (1) year revolving credit line in the amount not exceeding PHP 2,400,000.00. Initially, Goroza was able to pay his credit purchases with SMC. Sometime in January 1998, however, Goroza started to become delinquent with his accounts.

SMC made demands for the sum of PHP 3,722,440.88 against Goroza and PNB, but neither of them paid. This prompted SMC to file a Complaint for collection of a sum of money against PNB and Goroza with the RTC-Butuan City.

The RTC rendered a Decision in favor of SMC. Subsequently, Goroza filed a Notice of Appeal while SMC filed a Motion for Reconsideration.

On July 2005, the RTC granted SMC’s motion for reconsideration and amended its Decision by increasing the award of litigation expenses.

Thereafter, the RTC issued an Order which gave due course to the Notice of Appeal which was filed within the reglementary period.

In the meantime, trial continued with respect to PNB.

On September 2005, PNB filed an Urgent Motion to Terminate proceedings on the ground that a decision was already rendered on May 2005, finding Goroza solely liable.

The RTC denied PNB’s motion. It also issued a Supplemental Judgment which stated that the phrase “without prejudice to the decision made against the other defendant PNB which was not declared in default” shall be inserted in the dispositive portion of said decision.

On even date, the RTC also issued an Amended order which effectively amended the same court’s Order dated July 25, 20015 to include the phrase “this appeal applied only to defendant Rolando Goroza and without prejudice to the continuance of the hearing on the other defendant Philippine National Bank.”

PNB filed a Motion for Reconsideration of the Supplemental Judgment and Amended Order but the RTC denied the said motion in its Resolution dated July 6, 2006.

PNB then filed a special civil action for certiorari with the CA imputing grave abuse of discretion on the part of the RTC for having issued its July 6, 2006 Resolution.

On June 17, 2008, the CA rendered its questioned Decision denying the petition and affirming the assailed Resolution of the RTC. The appellate court also denied the Motion for Reconsideration filed by PNB.

Issues:

1. Whether the CA erred in holding that the trial court was correct in rendering a Supplemental Judgment and Amended Order against the bank despite the perfection of appeal of one of the defendants; and

2. Whether the CA erred in holding that proceedings may continue against PNB despite the complete adjudication of relief in favor of SMC.

Ruling:

The petition is denied. The propriety of a several judgment is borne by the fact that SMC’s cause of action against PNB stems from the latter’s alleged liability under the letters of credit which is issued on behalf of Goroza. On the other hand, SMC’s cause of action against Goroza is the latter’s failure to pay his obligation to the former. As to the separate judgment, PNB has a counterclaim against SMC which is yet to be resolved by the RTC.

It is clear from the proceedings held before and the orders issued by the RTC that the intention of the trial court is to conduct separate proceedings to determine the respective liabilities of Goroza and PNB, and thereafter, to render several and separate judgments for or against them.

Ideally, it would have been more prudent for the trial court to render a single decision with respect to Goroza and PNB, the procedure adopted by the RTC is, nonetheless, allowed under Section 4, Rule 36 of the Rules of Court, which provides that “in an action against several defendants, the court may, when a several judgment is proper, render judgment against one or more of them, leaving the action to proceed against the others.”

In addition, Section 5 of the same Rule states that ”when more than one claim for relief id presented in an action, the court at any stage, upon a determination of the issues material to a particular claim and all counterclaims arising out of the transaction or occurrence which is the subject matter of the claim may render a separate judgment disposing of such claim.”

Further, the same provision provides that “the judgment shall terminate the action with respect to the claim so disposed of and the action shall proceed as to the remaining claims.”

Thus, the appeal of Goroza, assailing the judgment of the RTC finding him liable, will not prevent the continuation of the ongoing trial between SMC and PNB. The RTC retains jurisdiction insofar as PNB is concerned, because the appeal made by Goroza was only with respect to his own liability. In fact, PNB itself, in its Reply to respondent’s Comment, admitted that the May 10, 2005 judgment of the RTC was “decided solely against defendant Rodolfo Goroza”.

In particular, the RTC judgment against Goroza did not make any determination as to whether or not PNB is liable under the letter of credit it issued and the extent of its liability.

The Supreme Court’s disquisition on the import of a letter of credit in the case of Transfield Philippines, Inc. v. Luzon Hydro Corporation is instructive, to wit:

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. 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.

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.

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. Precisely, the independence principle liberates the issuing bank from the duty of ascertaining compliance by the parties in the main contract. As the principle’s nomenclature clearly suggests, the obligation under the letter of credit is independent of the related and originating contract. In brief, the letter of credit is separate and distinct from the underlying transaction.

Conclusively, PNB cannot evade responsibility on the sole ground that the RTC judgment found Goroza liable and ordered him to pay the amount sought to be recovered by SMC. PNB’s liability, if any, under the letter of credit is yet to be determined.