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

] venue should be laid does not preclude the filing of

suits at the election of the plaintiff. 7 Sec. 3, Rule 4
SURIGAO CENTURY SAWMILL, CO., of the Rules of Court provides an alternative to Sec.
INC., Petitioner, v. COURT OF APPEALS and 2(b) of the same rule such that parties may, by
PHOENIX ASSURANCE CO., INC., Respondents. written agreement, change or transfer venue of an
action from one province to another. But such
FACTS: written agreement should clearly and explicitly state
the intention of the parties restricting the filing of
Standard Plywood Corporation (STANDARD) action to a particular court or to the exclusion of
leased a barge, LCT "TANTOY," from Surigao other courts.
Century Sawmill Co., Inc. (SURIGAO), manned by
the latter’s crew for delivery of plywood from Bill of Lading
Butuan City to its consignee, A-1 Construction, Inc.
in Surigao City. This was covered by a Contract of In determining which document should prevail, we
Lease, and a bill of lading. should look into the real intent of the parties and/or
the characteristic of the documents. A bill of lading
The shipment loaded on "TANTOY" on January 7 serves three distinct functions: first, as a receipt for
and 8, 1982 failed to reach the consignee resulting the goods; second, as contract of carriage; and
in damages to STANDARD in the amount of third, as documentary evidence of title to the goods.
P490,000.00. However, since the cargo was
insured by the shipper (STANDARD) in the amount The reliance, therefore, of private respondent
of P490,000.00 with Phoenix Assurance Co., Inc. Phoenix on the bill of lading which serves in the
(PHOENIX) under Certificate of Insurance No. OP- contract of carriage to support its cause of action
204-516; PHOENIX settled its obligation to against petitioner is well-taken.
STANDARD in the aforesaid amount; hence as a
legal consequence, PHOENIX was subrogated to WHEREFORE, the judgment of the Court of
the rights and interests of the shipper, STANDARD. Appeals is hereby AFFIRMED. Let this case be
remanded to the court of origin for further
Failing to satisfy its demand from SURIGAO, proceedings and reception of evidence.
PHOENIX filed a complaint with the Regional Trial
Court of Manila.

Surigao’s contention: SURIGAO filed a motion to

dismiss on the ground of improper venue, citing
paragraph 12 of the lease contract of the barge,
which provides:

"12. Any disagreement or dispute arising out of the

lease shall be settled by the parties in the proper
court in the Province of Surigao del Norte."

RTC and CA ruled in favor of Phoenix.

ISSUE:

WON the bill of lading should prevail over the lease

contract for purposes of venue.

HELD: YES.

What was claimed in litigation was the shipment of

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

The present action does not concern or refer to any

disagreement or dispute arising our of the lease of
the barge which under the lease contract needs to
be settled by the parties in the proper court of the
Province of Surigao del Norte; with all, this is an
action of respondent Phoenix, as subrogor to
recover sum of money and damages from petitioner
as debtor arising out of marine subrogation
recovery and on the basis of the bill of lading.

Even assuming arguendo that the contract of lease

should prevail over the bill of lading, We have
previously held that a statement in a contract where
TRANSFIELD PHILIPPINES, contract for Transfield’s failure to complete the
INC., Petitioner, v. LUZON HYDRO project on target date.
CORPORATION, AUSTRALIA and NEW
ZEALAND BANKING GROUP LIMITED and Meanwhile, Transfield wrote letters to ANZ and
SECURITY BANK CORPORATION, Respondents. SBC advising them of the arbitration proceedings.
Transfield asserted that Luzon had no right to call
had no right to call on the securities until the
resolution of the issued before CIAC and ICC.
FACTS:
Transfield also warned the banks that any transfer,
CASE SUMMARY: release, or disposition of the securities in favor of
Transfield, as a contractor, undertook to construct a Luzon would constrain it to hold respondent banks
hydro-electric power station and complete the same liable for liquidated damages.
on or before June 1, 2000. To secure the Despite Transfield's letters, the banks informed
performance of its obligation. Transfield opened 2 Transfield that they would pay on the Securities if
letters of credits from ANZ Banking Group and and when Luzon called on them.
Security Bank in favor of Luzon. Nonetheless,
Transfield was unable to complete the project on Transfield filed a complaint for injunction with
the target date allegedly due to force majeure. Both prayer for TRO and writ of preliminary injunction
Transfield and Luzon filed before separate before the RTC. Transfield sought to restrain banks
arbitration tribunals, ICC and CIAC respectively, to from calling on the securities and the respondent
determine whether force majeure would justify the banks from paying on the securities.
delay. Pending the arbitration proceeding,
Transfield filed a complaint for preliminary RTC –denied the application for writ of preliminary
injunction against the respondent banks to restrain injunction. Applying the “Independent Contract”
them from paying on the securities and also against principle, Luzon should be allowed to draw on the
Luzon to prevent it from calling on the securities. securities for liquidated damages. Banks were
RTC issued a TRO but denied the application for mere custodians of the funds and were obligated to
writ of preliminary injunction. CA affirmed RTC. transfer the same to the beneficiary for as long as
N.B. When the TRO expired, Luzon was able to the latter could submit the required certification of
withdraw from ANZ. its claims. Luzon, as the ultimate beneficiary, may
also invoke the “independent contract” principle.
xxx
CA - issued a TRO but failed to act on the
Transfield and Luzon entered into a Turnkey application for preliminary injunction until the TRO
Contract whereby Transfield undertook, as a expired.
contractor, to construct a 70- Megawatt hydro-
electric power station at the Bakun River in N.B. As soon as the TRO expired, Luzon went to
Benguet and Ilocos Sur. ANZ bank and withdrew US$ 4.9M.

The contract provides that: CA affirmed RTC decisions; Luzon could call on the
securities pursuant to the first principle in credit law
(1) the target completion date of the project is on that the credit itself is independent of the underlying
June 1, 2000, or such date as may be agreed transaction and that as long as the beneficiary
upon; and complied with the credit.
(2) petitioner is entitled to claim extensions of time Injunction was the appropriate remedy obtainable
(EOT) for reasons enumerated in the contract e.g. from the local courts.
variations, force majeure, and delays caused by
Luzon itself. ISSUES:

It was also agreed upon that in case of dispute, the 1. WON the “Independence Principle” on Letter of
parties are bound to settle their differences through Credit may be invoked by a beneficiary.
mediation, conciliation and such other means 2. WON injunction is the proper remedy to restrain
enumerated in the contract. the allegedly wrongful draws on the securities.
To secure the performance of the obligation,
Transfield opened in favor of Luzon, 2 standby
letters of credits with ANZ and SBC, each in the HELD:
amount of US$8.99M.
1. YES. The beneficiary can invoke the
Nonetheless, in the course of construction, independence principle.
Transfield sought various EOT to complete the
In a letter of credit transaction where the credit is
project. The request for extensions were allegedly
stipulated as irrevocable, there is a definite
due to force majeure occasioned by typhoon Zeb,
undertaking by the issuing bank to pay the
barricades, and demonstrations, which prevented
beneficiary provided that the stipulated documents
the on-time completion of the project.
are presented and the conditions of the credit are
Luzon denied Transfield’s requests for EOT. complied with, and particularly, the independence
principle liberates the issuing bank from the duty of
Luzon filed a Request for Arbitration before the ascertaining compliance by the parties of the main
Construction Industry Arbitration Commission contract. As it is, the independence doctrine works
(CIAC), while Transfield filed a Request for for the benefit of both the issuing bank and the
Arbitration before the International Chamber of beneficiary.
Commerce (ICC). These arbitration proceedings
would resolve the issues: (1)WON the alleged force To say that the independence principle may only be
majeure would justify the EOT sought by Transfield, invoked by the issuing banks would render
(2)WON Luzon had the right to terminate the nugatory the
purpose for which the letters of credit are used in A written instrument whereby the writer requests or
commercial transactions. Letters of credit are authorizes the addressee to pay money or deliver
employed by the parties desiring to enter into goods to a third person and assumes responsibility
commercial transactions, not for the benefit of the for payment of debt therefore to the addressee.
issuing bank but mainly for the benefit of the parties
of the original transaction. With the letter of credit, Commercial credits
the party who obtained the letter of credit may Involve payment of money under a contract of sale.
present it to the beneficiary as a security to Becomes payable upon presentation by the seller
convince the latter to enter into the business beneficiary of the documents that show he has
transaction. taken affirmative steps to comply with the sales
On the other hand, the beneficiary can be rest agreement. Beneficiary of commercial credit must
assured of being empowered to call on the letter of demonstrate by documents that he has performed
credit as a security in case the commercial his contract.
transaction does not push through, or the party who Standby Credits
presented the letter of credit fails to perform his
part. Payable upon certification of a party’s
nonperformance of the agreement; Documents that
Prior resolution of any dispute before the accompany the beneficiary’s draft tend to show that
beneficiary is entitled to call on the letter of credit the applicant has not performed. Beneficiary of the
would convert it into a mere guarantee. standby credit must certify that his obligor has not
In this case, the Court ruled that ANZ and SBC performed the contract.
banks were left with little or no alternative but to In a standby type of letter of credit, the credit is
honor the credit and that it was “ministerial for them payable upon certification of a party's
to honor the call for payment. Also, Luzon’s right to nonperformance of the agreement .
call on the securities was rooted on the following
provisions of the contract: The independence principle assures the beneficiary
of prompt payment independent of any breach of
… provide security to the Employer in the form of 2 the main contract and precludes the issuing bank
irrevocable and confirmed standby letters of credit from determining whether the main contract is
… if the contractor fails to comply, the contractor actually accomplished or not.
shall pay the Employer by way of liquidated ● Bank assumes no liability or responsibility
damages … for the form, sufficiency, accuracy,
… Employer may deduct the amount of such genuineness, falsification or legal effect of
damages by drawing on the security … any documents, or for the generals and/or
particular conditions stipulated in the
2. NO. Fraud is an exception to the independence documents.
principle and the remedy for fraudulent abuse is
injunction. However, injunction should not be Independent nature maybe:
granted unless: (a) there is a clear proof of fraud; ● Independence in toto – credit is
(b) the fraud constitutes fraudulent abuse of the independent from the underlying agreement
independent purpose of the letter of credit and not (e.g. standby letter of credit). o
only fraud under the main agreement; and (c) Independence as to the justification aspect
irreparable injury might follow if injunction is not only – e.g in a commercial letter of credit or
granted or the recovery of damages would be repayment standby, which is identical with
seriously damaged. the same obligations under the underlying
In this case, Transfield failed to show that it has a agreement.
clear and unmistakable right to restrain Luzon’s call
on the securities. The contract was plain and
unequivocal in that it conferred upon Luzon the WHEREFORE, the instant petition is DENIED, with
right to draw upon the securities in case of default. costs against petitioner.
Also, nothing in the contract would indicate that all
Petitioner is hereby required to answer the charge
disputes regarding delay should first be settled
of forum-shopping within fifteen (15) days from
through arbitration before Luzon would be allowed
notice.
to call upon the securities.
Letter of Credit
A written instrument from a bank or merchant in
one location that requests that anyone or a
specifically named party advance money or items
on credit to the party holding or named in the
document.
Not strictly contractual because privity and meeting
of the minds are lacking.
Not a contract of suretyship or guaranty because it
entails a primary liability following a default.
Not a negotiable instrument because it is not
payable to order or bearer, and is generally
conditional.