G.R. No. 160732. June 21, 2004 FACTS MWSS granted Maynilad under a Concession Agreement to manage, operate, repair, decommission and refurbish the existing MWSS water delivery and sewerage services in the West Zone Service Area, for which Maynilad undertook to pay the corresponding concession fees which, among other things, consisted of payments of petitioners mostly foreign loans !o secure the concessionaires performance of its obligations, Maynilad was re"uired under Section #$ of said contract to put up a bond, bank guarantee or other security acceptable to MWSS %n compliance with this re"uirement, Maynilad arranged for a three&year facility with a number of foreign banks, led by Citicorp %nt'l (td, for the issuance of an %rrevocable Standby (etter of Credit in favor of MWSS for the full and prompt performance of Maynilads obligations to MWSS as aforestated (ater, the parties agreed to resolve the issues between them )Maynilad is asking for a mechanism by which it hoped to recover the losses it had allegedly incurred and would be incurring as a result of the depreciation of the *hilippine *eso against the +S ,ollar and in -ling to get what it desired, Maynilad unilaterally suspended the payment of the concession fees. through an amendment of the Concession Agreement which was based on the terms set down in MWSS /oard of !rustees 0esolution which provided inter alia for a formula that would allow Maynilad to recover foreign exchange losses it had incurred or would incur under the terms of the Concession Agreement 1owever Maynilad served upon MWSS a 2otice of 3vent of !ermination, claiming that MWSS failed to comply with its obligations under the Concession Agreement and its Amendment regarding the ad4ustment mechanism that would cover Maynilads foreign exchange losses Maynilad -led a 2otice of 3arly !ermination of the concession, which was challenged by MWSS !his matter was eventually brought before the Appeals *anel by MWSS the Appeals *anel ruled that there was no 3vent of !ermination as de-ned under Art 567 8ii9 or 56: 8iii9 of the Concession Agreement and that, therefore, Maynilad should pay the concession fees that had fallen due !he award of the Appeals *anel became -nal MWSS, thereafter, submitted a written notice to Citicorp %nt'l (td, as agent for the participating banks, that by virtue of Maynilads failure to perform its obligations under the Concession Agreement, it was drawing on the %rrevocable Standby (etter of Credit and thereby demanded payment *rior to this, however, Maynilad had -led on a petition for rehabilitation before the 0!C of ;ue<on City which resulted in the issuance of the Stay =rder and the disputed =rder of 2ovember 7>, 766: ISS!" W=2 the rehabilitation court sitting as such, act in excess of its authority or 4urisdiction when it en4oined herein petitioner from seeking the payment of the concession fees from the banks that issued the %rrevocable Standby (etter of Credit in its favor #"LD the petition for certiorari isgranted!he =rder of 2ovember 7>, 766: of the 0!C of ;ue<on City $6, is hereby declared null and voidand set aside ?3S @irst, the claim is not one against the debtor but against an entity that respondent Maynilad has procured to answer for its non&performance of certain terms and conditions of the Concession Agreement, particularly the payment of concession fees Secondly, Sec # 8b9 of 0ule A of the %nterim 0ules does not en4oin the enforcement of all claims against guarantors and sureties, $u% on&' %(ose )&*+,s *-*+ns% -u*.*n%o.s *n/ su.e%+es 0(o *.e no% so&+/*.+&' &+*$&e 0+%( %(e /e$%o.. 0espondent Maynilads claim that the banks are not solidarily liable with the debtor does not -nd support in 4urisprudence (etters of credit were developed for the purpose of insuring to a seller payment of a de-nite amount upon the presentation of documentsand is thus a commitment by the issuer that the party in whose favor it is issued and who can collect upon it will have his credit against the applicant of the letter, duly paid in the amount speci-ed in the letter !hey are in eBect absolute undertakings to pay the money advanced or the amount for which credit is 5 given on the faith of the instrument !hey are primary obligations and not accessory contracts and while they are security arrangements, they are not converted thereby into contracts of guaranty What distinguishes letters of credit from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and other re"uired shipping documents are presented to it !hey are de-nite undertakings to pay at sight once the documents stipulated therein are presented !he prohibition under Sec # 8b9 of 0ule A of the %nterim 0ules does not apply to herein petitioner as the prohibition is on the enforcement of claims against guarantors or sureties of the debtors whose obligations are no% so&+/*.' with the debtor !he participating banks obligation are solidary with respondent Maynilad in that it is a primary, direct, de-nite and an absolute undertaking to pay and is not conditioned on the prior exhaustion of the debtors assets !hese are the same characteristics of a surety or solidary obligor And being solidary, the claims against them can be pursued separately from and independently of the rehabilitation case !he terms of the %rrevocable Standby (etter of Credit do not show that the obligations of the banks are not solidary with those of respondent Maynilad =n the contrary, it is issued at the re"uest of and for the account of Maynilad in favor of the MWSS as a bond for the full and prompt performance of the obligations by the concessionaire under the Concession Agreement and herein MWSS is authori<ed by the banks to draw on it by the simple act of delivering to the agent a written certi-cation substantially in the form of the (etter of Credit !aking into consideration our own rulings on the nature of letters of credit and the customs and usage developed over the years in the banking and commercial practice of letters of credit, we hold that except when a letter of credit speci-cally stipulates otherwise, the obligation of the banks issuing letters of credit are so&+/*.' with that of the person or entity re"uesting for its issuance, the same being a direct, primary, absolute and de-nite undertaking to pay the bene-ciary upon the presentation of the set of documents re"uired therein !he public respondent, therefore, exceeded his 4urisdiction, in holding that he was competent to act on the obligation of the banks under the (etter of Credit under the argument that this was not a solidary obligation with that of the debtor /eing a solidary obligation, the letter of credit is excluded from the 4urisdiction of the rehabilitation court and therefore in en4oining petitioner from proceeding against the Standby (etters of Credit to which it had a clear right under the law and the terms of said Standby (etter of Credit, public respondent acted in excess of his 4urisdiction N1T"S We held in Feati Bank & Trust Company v. Court of Appeals that the concept of guarantee visvis the concept of an irrevocable letter of credit are inconsistent with each other!heguarantee theory destroys the independence of the banks responsibility from the contract upon which it was opened and the nature of both contracts is mutually in conCict with each other %n contracts of guarantee, the guarantors obligation is merely collateral and it arises only upon the default of the person primarily liable =n the other hand, in an irrevocable letter of credit, the bank undertakes a primary obligation We have also de-ned a letter of credit as an engagement by a bank or other person made at the re"uest of a customer that the issuer shall honor drafts or other demands of payment upon compliance with the conditions speci-ed in the credit DDDDDDDDDDDDDDDDDDDDDDD !rans-eld *hilippines vs (u<on 1ydro 3lectric Corp E0 2o 5A#>5>, 2ov 77, 766A The independent nature of the letter of credit may be: (a) independence in toto 7 where the credit is independent from the justifcation 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 justifcation aspect like in a commercial letter of credit or repayment standby, which is identical with the same obligations under the underlying agreement. n 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. @actsF !rans-eld *hilippines 8!rans-eld9 entered into a turn&key contract with (u<on 1ydro Corp 8(1C9+nder the contract, !rans-eld were to construct a hydro&electric plants in /enguet and %locos !rans-eld was given the sole responsibility for the design, construction, commissioning, testing and completion of the *ro4ect !he contract provides for a period for which the pro4ect is to be completed and also allows for the extension of the period provided that the extension is based on 4usti-able grounds such as fortuitous event %n order to guarantee performance by !rans-eld, two stand&by letters of credit were re"uired to be opened ,uring the construction of the plant, !rans-eld re"uested for extension of time citing typhoon and various disputes delaying the construction (1C did not give due course to the extension of the period prayed for but referred the matter to arbitration committee /ecause of the delay in the construction of the plant, (1C called on the stand&by letters of credit because of default 1owever, the demand was ob4ected by !rans-eld on the ground that there is still pending arbitration on their re"uest for extension of time %ssueF Whether or not (1C can collect from the letters of credit despite the pending arbitration case 1eldF !rans-eld's argument that any dispute must -rst be resolved by the parties, whether through negotiations or arbitration, before the bene-ciary is entitled to call on the letter of credit in essence would convert the letter of credit into a mere guarantee !he independent nature of the letter of credit may beF 8a9 independence in toto where the credit is independent from the 4usti-cation aspect and is a separate obligation from the underlying agreement like for instance a typical standbyG or 8b9 independence may be only as to the 4usti-cation aspect like in a commercial letter of credit or repayment standby, which is identical with the same obligations under the underlying agreement %n both cases the payment may be en4oined if in the light of the purpose of the credit the payment of the credit would constitute fraudulent abuse of the credit Hurisprudence 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&re"uisite for the release of funds under a letter of credit %n other words, the argument is incompatible with the very nature of the letter of credit %f a letter of credit is drawable only after settlement of the dispute on the contract entered into by the applicant and the bene-ciary, there would be no practical and bene-cial use for letters of credit in commercial transactions !he engagement of the issuing bank is to pay the seller or bene-ciary of the credit once the draft and the re"uired documents are presented to it !he so&called Iindependence principleJ assures the seller or the bene-ciary 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 +nder this principle, banks assume no liability or responsibility for the form, suKciency, accuracy, genuineness, falsi-cation or legal eBect of any documents, or for the general andLor particular conditions stipulated in the documents or superimposed thereon, nor do : they assume any liability or responsibility for the description, "uantity, weight, "uality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith or acts andLor omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever A
A Simple Guide for Drafting of Conveyances in India : Forms of Conveyances and Instruments executed in the Indian sub-continent along with Notes and Tips