Philippine National Bank v. San Miguel Corporation

PHILIPPINE NATIONAL BANK, petitioner vs.
SAN MIGUEL CORPORATION, respondent

Peralta, J. January 15, 2014 G.R. No. 186063
Doctrine [doctrine] What is a letter of credit; independence principle
Summary Goroza, a dealer of SMC beers, failed to pay his credit purchases with SMC. Since the credit agreement with SMC included a
L/C arrangement, PNB, as the issuer of the L/C, was also made a party to the case. When the trial court ruled in favor of SMC
against Goroza, it also ruled that it had not yet dealt with the liability of PNB so trial still ensued as to PNB. The latter argued
that it should be deemed as freed from liability since Goroza was held to be solely liable. SC ruled for SMC, noting that the
obligation of the bank under the L/C is separate and distinct from the underlying obligation of the dealer.
Facts  Exclusive dealership agreement: SMC entered into such Agreement with Rodolfo R. Goroza, who was given the
right to trade, deal, market or otherwise sell its various beer products.
 Credit arrangement; letter of credit: Goroza obtained a credit line with SMC, with one of the requirements a L/C,
which obtained (P2,000,000) with PNB. PNB was 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.
 Additional credit line: Goroza obtained a one year revolving credit line not exceeding P2,400,000. It increased his
total credit line to P4,400,000. While Goroza was initially able to pay his credit purchases with SMC, sometime in
January 1998, Goroza started to become delinquent with his accounts.
 Failure to pay; complaint: Demands to pay P3,722,440.88 were made by SMC against Goroza and PNB, but neither
of them paid. SMC filed a collection suit against PNB and Goroza with RTC Butuan.
 Goroza portion of the case: SMC presented evidence ex parte against Goroza, who was declared in default for
failing to file an answer to the complaint. RTC ruled in favor of SMC, ordering him to pay P3.7M. Goroza filed a Notice
of Appeal while SMC filed an MR. RTC issued an order to have the exhibits and transcript of stenographic notes
reproduced in light of Goroza’s appeal and the on-going trial with respect to PNB.
 PNB portion: PNB filed an Urgent Motion to Terminate Proceedings on the ground that a decision was already
rendered by the court finding Goroza solely liable. RTC denied the Motion.
 RTC judgment: RTC ruled that it inadvertently omitted a phrase in its earlier decision to the effect that the ruling
against Goroza was without prejudice to the decision to be made against PNB, which was not declared in default.
RTC denied PNB’s MR. CA denied the petition for certiorari filed against the RTC and the MR, hence this petition.
Issues/Ratio
I. W/N RTC erred in rendering the judgment against PNB despite the perfection of Goroza’s appeal (NO)
It was the intention of the RTC to conduct separate proceedings to determine the respective liabilities of Goroza and
PNB and to render several and separate judgments. The procedure it adopted is allowed under Sec. 4, Rule 36,
which provides that "in an action against several defendants, the court may…render judgment against one or more of
them, leaving the action to proceed against the others." Goroza’s appeal assailing the judgment of the RTC finding
him liable, will not prevent the continuation of the ongoing trial between SMC and PNB. RTC retains jurisdiction
insofar as PNB is concerned, because the appeal made by Goroza was only with respect to his own liability.
II. W/N PNB is liable under the letter of credit it issued (TO BE DETERMINED)
[doctrine] 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 L/C, 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.
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 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. Banks assume no liability or responsibility for any document, conditions
stipulated in the documents, liability or responsibility for quantity or quality of the goods, acts or omissions of the
consignor, the carriers, or the insurers of the goods, or any other person whomsoever.
[as applied] In a L/C transaction, 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. The independence principle liberates the issuing bank from the duty of
ascertaining compliance by the parties in the main contract. The obligation under the L/C is independent of the
related and originating contract. In brief, the L/C is separate and distinct from the underlying transaction.
In other words, PNB cannot evade responsibility on the sole ground that the RTC found Goroza liable to pay SMC. It
did not rule that Goroza was solely liable. PNB's liability, if any, under the L/C has yet to be determined.
Holding Petition DENIED. CA AFFIRMED.
Note: after the issuing bank pays the honoring bank, the honoring
bank gives to it the necessary docs, to give to the buyer/importer
when the latter pays the issuing bank

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PHILIPPINE NATIONAL BANK, petitioner vs.

SAN MIGUEL CORPORATION, respondent

Holding Petition DENIED. CA AFFIRMED.

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