VOL.

432,JUNE21,2004
559
MetropolitanWaterworksandSewerageSystemvs.Daway
G.R.No.160732.June21,2004.*
METROPOLITAN WATERWORKS and SEWERAGE SYSTEM,
petitioner, vs. HON. REYNALDO B. DAWAY, in his capacity as
PresidingJudgeoftheRegionalTrialCourtofQuezonCity,Branch90
andMAYNILADWATERSERVICES,INC.,respondents.
CommercialLaw;BanksandBanking;Guaranty;LetterofCredit;Incontracts
ofguarantee,theguarantorsobligationismerelycollateralanditarisesonlyupon
thedefaultofthepersonprimarilyliable;Aletterofcreditisanengagementbya
bankorotherpersonmadeattherequestofacus
_______________

*FIRSTDIVISION.

560

560
SUPREMECOURTREPORTSANNOTATED
MetropolitanWaterworksandSewerageSystemvs.Daway
tomer that theissuershall honordraftsor otherdemands ofpaymentupon
compliancewiththeconditionsspecifiedinthecredit.Weheldin FeatiBank&
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. The
guarantee theory destroys the independence of the banks responsibility from the
contractuponwhichitwasopenedandthenatureofbothcontractsismutuallyin
conflict with each other. In contracts of guarantee, the guarantors obligation is
merelycollateralanditarisesonlyuponthedefaultofthepersonprimarilyliable.On
the other hand, in an irrevocable letter of credit, the bank undertakes a primary
obligation.Wehavealsodefinedaletterofcreditasanengagementbyabankor
otherpersonmadeattherequestofacustomerthattheissuershallhonordraftsor
other demands of payment upon compliance with the conditions specified in the
credit.
Same;Same;Same;Same;Lettersofcreditareineffectabsoluteundertakings
topaythemoneyadvancedortheamountforwhichcreditisgivenonthefaithofthe
instrument;Theyareprimaryobligationsandnotaccessorycontractsandwhilethey
aresecurityarrangements,theyarenotconvertedtherebyintocontractsofguaranty.
Lettersofcreditweredevelopedforthepurposeofinsuringtoasellerpaymentof
adefiniteamountuponthepresentationofdocumentsandisthusacommitmentby
theissuerthatthepartyinwhosefavoritisissuedandwhocancollectuponitwill
havehiscreditagainsttheapplicantoftheletter,dulypaidintheamountspecifiedin
theletter.Theyareineffectabsoluteundertakingstopaythemoneyadvancedorthe
amountforwhichcreditisgivenonthefaithoftheinstrument.Theyareprimary
obligationsandnotaccessorycontractsandwhiletheyaresecurityarrangements,
theyarenotconvertedtherebyintocontractsofguaranty.Whatdistinguishesletters
ofcreditfromotheraccessorycontracts,istheengagementoftheissuingbanktopay
theselleroncethedraftandotherrequiredshippingdocumentsarepresentedtoit.
Theyaredefiniteundertakingstopayatsightoncethedocumentsstipulatedtherein
arepresented.
Same;Same;Same;Same;Theobligationofthebanksissuinglettersofcredit
aresolidarywiththatofthepersonorentityrequestingforitsissuance,thesame
beingadirect,primary,absoluteanddefiniteundertakingtopaythebeneficiary
upon the presentation of the set of documents required therein.Taking into
considerationourownrulingsonthenatureoflettersofcreditandthecustomsand
usagedevelopedovertheyearsinthebankingandcommercialpracticeoflettersof
credit,weholdthatexceptwhenaletterofcreditspecificallystipulatesotherwise,the
obligationofthebanksissuinglettersofcreditaresolidarywiththatofthepersonor
entity requesting for its issuance, the same being a direct, primary, absolute and
definite undertaking to pay the beneficiary upon the presentation of the set of
documentsrequiredtherein.
561
VOL.432,JUNE21,2004
561
MetropolitanWaterworksandSewerageSystemvs.Daway
Same; Same; Same; Same; Public respondent exceeded his jurisdiction, in
holding that the obligation of the banks under the Letter of Credit under the
agreementthatthiswasnotasolidaryobligationwiththatofthedebtor.Thepublic
respondent,therefore,exceededhisjurisdiction,inholdingthathewascompetentto
actontheobligationofthebanksundertheLetterofCreditundertheargumentthat
thiswasnotasolidaryobligationwiththatofthedebtor.Beingasolidaryobligation,
theletterofcreditisexcludedfromthejurisdictionoftherehabilitationcourtand
therefore in enjoining petitioner from proceeding against the Standby Letters of
CredittowhichithadaclearrightunderthelawandthetermsofsaidStandbyLetter
ofCredit,publicrespondentactedinexcessofhisjurisdiction.
 RemedialLaw;Certiorari;Itistheinadequacynotthemereabsenceofall
otherlegalremediesandthedangeroffailureofjusticewithoutthewrit,thatmust
usuallydeterminetheproprietyofcertiorari.In Silvestrev.TorresandOben,we
saidthatitisnotenoughthataremedyisavailabletopreventapartyfrommaking
useoftheextraordinaryremedyof certioraributthatsuchremedybeanadequate
remedywhichisequallybeneficial,speedyandsufficient,notonlyaremedywhichat
sometimeinthefuturemayofferreliefbutaremedywhichwillpromptlyrelievethe
petitionerfromtheinjuriousactsofthelowertribunal.Itistheinadequacynotthe
mereabsenceofallotherlegalremediesandthedangeroffailureofjusticewithout
thewrit,thatmustusuallydeterminetheproprietyofcertiorari.
PETITIONforreviewoncertiorariofadecisionoftheCourtofAppeals.

ThefactsarestatedintheopinionoftheCourt.
TheSolicitorGeneralforpetitioner.
QuisumbingTorresforSuez,SuezEnvironment&OSPI.
PunoandPunoforMayniladWaterServices,Inc.
AZCUNA,J.:

OnNovember17,2003,theRegionalTrialCourt(RTC)ofQuezonCity,
Branch90,madeadeterminationthatthePetitionforRehabilitationwith
Prayer for Suspension of Actions and Proceedings filed by Maynilad
WaterServices,Inc.(Maynilad)conformedsubstantiallytotheprovisions
of Sec. 2, Rule 4 of the Interim Rules of Procedure on Corporate
Rehabilitation(InterimRules).It
562
562
SUPREMECOURTREPORTSANNOTATED
MetropolitanWaterworksandSewerageSystemvs.Daway
forthwithissuedaStayOrder1 whichstates,inpart,thatthecourtwas
thereby:
xxxxxxxxx
1. 2.
Stayingenforcementofallclaims,whetherformoneyorotherwiseandwhether
suchenforcementisbycourtactionorotherwise,againstthepetitioner,its
guarantorsandsuretiesnotsolidarilyliablewiththepetitioner;
2. 3.
 Prohibitingthepetitionerfromselling,encumbering,transferring,ordisposingin
anymanneranyofitspropertiesexceptintheordinarycourseofbusiness;
3. 4.
Prohibitingthepetitionerfrommakinganypaymentofitsliabilities,outstandingas
atthedateofthefilingofthepetition;
xxxxxxxxx
Subsequently,onNovember27,2003,publicrespondent,actingontwo
UrgentExPartemotions2filedbyrespondentMaynilad,issuedtheherein
questionedOrder3whichstatedthatitthereby:
1. 1.
DECLARESthattheactofMWSSincommencingonNovember24,
2003theprocessforthepaymentbythebanksofUS$98millionout
oftheUS$120millionstandbyletterofcreditsothebankshaveto
makegoodsuchcall/drawingofpaymentofUS$98millionby
MWSSnotlaterthanNovember27,2003at10:00P.M.orany
similaractforthatmatter,isviolativeoftheabovequotedsub
paragraph2.)ofthedispositiveportionofthisCourtsStayOrder
datedNovember17,2003.
2. 2.
ORDERSMWSSthroughitsofficers/officialstowithdrawunderpainof
contemptthewrittencertification/noticeofdrawtoCiticorp
InternationalLimiteddatedNovember24,2003andDECLARES
voidanypaymentbythebankstoMWSSintheeventsuchwritten
certification/noticeofdrawisnotwithdrawnbyMWSSand/or
MWSSreceivespaymentbyvirtueoftheaforesaidstandbyletterof
credit.
Aggrieved by this Order, petitioner Manila Waterworks & Sewerage
System(MWSS)filedthispetitionforreviewbywayof certiorariunder
Rule65oftheRulesofCourtquestioningthelegalityofsaidorderas
havingbeenissuedwithoutorinexcessofthe
_______________

1Rollo,pp.4142.

2Rollo,pp.129138.

3Rollo,pp.3638.

563
VOL.432,JUNE21,2004
 563
MetropolitanWaterworksandSewerageSystemvs.Daway
lowercourtsjurisdictionorthatthecourtaquoactedwithgraveabuseof
discretionamountingtolackorexcessofjurisdiction.4
AntecedentsoftheCase
On February 21, 1997, MWSS granted Maynilad under a Concession
Agreementatwentyyearperiodtomanage,operate,repair,decommission
andrefurbishtheexistingMWSSwaterdeliveryandsewerageservicesin
theWestZoneServiceArea,forwhichMayniladundertooktopaythe
correspondingconcessionfeesonthedatesagreeduponinsaidagreement5
which,amongotherthings,consistedofpaymentsofpetitionersmostly
foreignloans.
Tosecuretheconcessionairesperformanceofitsobligationsunderthe
ConcessionAgreement,MayniladwasrequiredunderSection6.9ofsaid
contracttoputupabond,bankguaranteeorothersecurityacceptableto
MWSS.
Incompliancewiththisrequirement,MayniladarrangedonJuly14,
2000 for a threeyear facility with a number of foreign banks, led by
CiticorpInternationalLimited,fortheissuanceofanIrrevocableStandby
LetterofCredit6intheamountofUS$120,000,000infavorofMWSSfor
thefullandpromptperformanceofMayniladsobligationstoMWSSas
aforestated.
SometimeinSeptember2000,respondentMayniladrequestedMWSS
foramechanismbywhichithopedtorecoverthelossesithadallegedly
incurred and would be incurring as a result of the depreciation of the
Philippine Peso against the US Dollar. Failing to get what it desired,
Maynilad issued a Force Majeure Notice on March 8, 2001 and
unilaterallysuspendedthepaymentoftheconcessionfees.Inaneffortto
salvage the Concession Agreement, the parties entered into a
MemorandumofAgreement(MOA)7 onJune8,2001whereinMaynilad
wasallowedtorecoverforeignexchangelossesunderaformulaagreed
upon between them. Sometime in August 2001 Maynilad again filed
anotherForceMajeureNoticeand,sinceMWSScouldnotagreewiththe
termsofsaidNotice,thematterwasreferredonAugust30,2001tothe
AppealsPanelforarbitration.Thisresultedinthepartiesagreeing
_______________
 4Rollo,p.5.

5Rollo,pp.700702

6Rollo,pp.449454.

7SeeMWSSBoardResolutionNo.4872001;Rollo,p.373.

564
564
SUPREMECOURTREPORTSANNOTATED
MetropolitanWaterworksandSewerageSystemvs.Daway
toresolvetheissuesthroughanamendmentoftheConcessionAgreement
onOctober5,2001,knownasAmendmentNo.1, 8whichwasbasedonthe
termssetdowninMWSSBoardofTrusteesResolutionNo.4572001,as
amendedbyMWSSBoardofTrusteesResolutionNo.4872001,9 which
provided interalia foraformulathatwouldallowMayniladtorecover
foreignexchangelossesithadincurredorwouldincurunderthetermsof
theConcessionAgreement.
Aspartofthisagreement,Mayniladcommitted,amongotherthings,to:
1. a)
infusetheamountofUD$80.0millionasadditionalfundingsupport
fromitsstockholders;
2. b)
resumepaymentoftheconcessionfees;and
3. c)
mutuallyseekthedismissalofthecasespendingbeforetheCourtof
AppealsandwithMinorDisputeAppealsPanel.
However,onNovember5,2002,MayniladserveduponMWSSaNotice
ofEventofTermination,claimingthatMWSSfailedtocomplywithits
obligations under the Concession Agreement and Amendment No. 1
regardingtheadjustmentmechanismthatwouldcoverMayniladsforeign
exchangelosses.OnDecember9,2002,MayniladfiledaNoticeofEarly
Termination of the concession, which was challenged by MWSS. This
matter was eventually brought before the Appeals Panel on January 7,
2003byMWSS.10 OnNovember7,2003,theAppealsPanelruledthat
therewasnoEventofTerminationasdefinedunderArt.10.2(ii)or10.3
(iii)oftheConcessionAgreementandthat,therefore,Mayniladshouldpay
theconcessionfeesthathadfallendue.
TheawardoftheAppealsPanelbecamefinalonNovember22,2003.
MWSS,thereafter,submittedawrittennotice11onNovember24,2003,to
CiticorpInternationalLimited,asagentfortheparticipatingbanks,thatby
virtue of Maynilads failure to perform its obligations under the
ConcessionAgreement,itwasdrawingontheIrrevocableStandbyLetter
of Credit and thereby demanded payment in the amount of
US$98,923,640.15.
_______________

8Rollo,pp.708710.

9Rollo,pp.711715.

10Rollo,p.275.

11Rollo,p.542.

565
VOL.432,JUNE21,2004
565
MetropolitanWaterworksandSewerageSystemvs.Daway
Prior to this, however, Maynilad had filed on November 13, 2003, a
petition for rehabilitation before the court a quo which resulted in the
issuanceoftheStayOrderofNovember17,2003andthedisputedOrder
ofNovember27,2003.12
PetitionersCase
Petitionerherebyraisesthefollowingissues:
1. 1.
DIDTHEHONORABLEPRESIDINGJUDGEGRAVELYERR
AND/ORACTPATENTLYWITHOUTJURISDICTIONORIN
EXCESSOFJURISDICTIONORWITHGRAVEABUSEOF
DISCRETIONAMOUNTINGTOLACKOREXCESSOF
JURISDICTIONINCONSIDERINGTHEPERFORMANCE
BONDORASSETSOFTHEISSUINGBANKSASPARTOR
PROPERTYOFTHEESTATEOFTHEPRIVATERESPONDENT
MAYNILADSUBJECTTOREHABILITATION.
2. 2.
DIDTHEHONORABLEPRESIDINGJUDGEACTWITHLACKOR
EXCESSOFJURISDICTIONORCOMMITAGRAVEERROR
OFLAWINHOLDINGTHATTHEPERFORMANCEBOND
OBLIGATIONSOFTHEBANKSWERENOTSOLIDARYIN
NATURE.
3. 3.
 DIDTHEHONORABLEPRESIDINGJUDGEGRAVELYERRIN
ALLOWINGMAYNILADTOINEFFECTSEEKAREVIEWOR
APPEALOFTHEFINALANDBINDINGDECISIONOFTHE
APPEALSPANEL.
Insupportofthefirstissue,petitionermaintainsthatasamatteroflaw,the
US$120MillionStandbyLetterofCreditandPerformanceBondarenot
propertyoftheestateofthedebtorMayniladand,therefore,notsubjectto
theinremrehabilitationjurisdictionofthetrialcourt.
PetitionerarguesthatacallmadeontheStandbyLetterofCreditdoes
not involve any asset of Maynilad but only assets of the banks.
Furthermore, a call on the Standby Letter of Credit cannot also be
consideredaclaimfallingunderthepurviewofthestayorderasalleged
by respondent as it is not directed against the assets of respondent
Maynilad.
Petitionerconcludesthatthepublicrespondenterredindeclaringand
holdingthatthecommencementoftheprocessforthe
_______________

12Rollo,pp.4142.

566
566
SUPREMECOURTREPORTSANNOTATED
MetropolitanWaterworksandSewerageSystemvs.Daway
paymentofUS$98millionisaviolationoftheorderissuedonNovember
17,2003.
RespondentMayniladsCase
RespondentMayniladseekstorefutethisargumentbyallegingthat:
1. a)
theorderobjectedtowasstrictlyandpreciselywordedandissuedafter
carefullyconsidering/evaluatingtheimportoftheargumentsand
documentsreferredtobyMaynilad,MWSSand/orcreditors
ChinatrustCommercialBankandSuezinrelationtoadmissions,
pleadingsand/orpertinentrecords13andthatpublicrespondenthad
theauthoritytoissuethesame;
2. b)
publicrespondentneverconsiderednorheldthatthePerformancebond
orassetsoftheissuingbanksarepartorpropertyoftheestateof
 respondentMayniladsubjecttorehabilitationandwhichrespondent
Mayniladhasnotandhasneverclaimedtobe;14
3. c)
whatisrelevantisnotwhethertheperformancebondorassetsofthe
issuingbanksarepartoftheestateofrespondentMayniladbut
whethertheactofpetitionerincommencingtheprocessforthe
paymentbythebanksofUS$98millionoutoftheUS$120million
performancebondiscoveredand/orprohibitedundersubparagraphs
2.)and4.)ofthestayorderdatedNovember17,2003;
4. d)
thejurisdictionofpublicrespondentextendsnotonlytotheassetsof
respondentMayniladbutalsooverpersonsandassetsofallthose
affectedbytheproceedingsxxxuponpublicationofthenoticeof
commencement;15and
5. e)
theobligationsundertheStandbyLetterofCreditarenotsolidaryand
arenotexemptfromthecoverageofthestayorder.
OurRuling
We will discuss the first two issues raised by petitioner as these are
interrelatedandmakeupthemainissueofthepetitionbeforeuswhichis,
didtherehabilitationcourtsittingassuch,actinex
_______________

13Rollo,pp.412415.

14Rollo,p.425.

15Rollo,pp.425426.

567
VOL.432,JUNE21,2004
567
MetropolitanWaterworksandSewerageSystemvs.Daway
cessofitsauthorityorjurisdictionwhenitenjoinedhereinpetitionerfrom
seekingthepaymentoftheconcessionfeesfromthebanksthatissuedthe
IrrevocableStandbyLetterofCreditinitsfavorandfortheaccountof
respondentMaynilad?
ThepublicrespondentreliedonSec.1,Rule3oftheInterimRuleson
Corporate Rehabilitation to support its jurisdiction overthe Irrevocable
StandbyLetterofCreditandthebanksthatissuedit.Thesectionreadsin
partthatjurisdictionoverthoseaffectedbytheproceedingsisconsidered
acquired upon the publication of the notice of commencement of
proceedingsin anewspaper ofgeneral circulationandgoesfurther to
definerehabilitationasan inremproceeding.Thisprovisionisalogical
consequenceoftheinremnatureoftheproceedings,wherejurisdictionis
acquiredbypublicationandwhereitisnecessarythattheassetsofthe
debtor come within the courts jurisdiction to secure the same for the
benefit of creditors. The reference to all those affected by the
proceedings covers creditors or such other persons or entities holding
assets belonging to the debtor under rehabilitation which should be
reflectedinitsauditedfinancialstatements.Thebanksdonotholdany
assetsofrespondentMayniladthatwouldbematerialtotherehabilitation
proceedingsnorisMayniladliabletothebanksatthispoint.
RespondentMayniladsFinancialStatementasofDecember31,2001
and2002donotshowtheIrrevocableStandbyLetterofCreditaspartof
itsassetsorliabilities,andbyrespondentMayniladsownadmissionitis
not.InissuingtheclarificatoryorderofNovember27,2003,enjoining
petitionerfromclaimingfromanassetthatdidnotbelongtothedebtor
andoverwhichitdidnotacquirejurisdiction,therehabilitationcourtacted
inexcessofitsjurisdiction.
RespondentMayniladinsists,however,thatitisSec.6(b),Rule4of
theInterimRulesthatsupportsitsclaimthatthecommencementofthe
processtodrawontheStandbyLetterofCreditisanenforcementofclaim
prohibited by and under the Interim Rules and the order of public
respondent.
Respondent Maynilad would persuade us that the above provision
justifiesaleaptotheconclusionthatsuchanenforcementisprohibitedby
saidsectionbecauseitisaclaimagainstthedebtor,itsguarantorsand
suretiesnotsolidarilyliablewiththedebtorandthatthereisnothingin
theStandbyLetterofCreditnorinlaw
568
568
SUPREMECOURTREPORTSANNOTATED
MetropolitanWaterworksandSewerageSystemvs.Daway
nor in the nature of the obligation that would show or require the
obligationofthebankstobesolidarywiththerespondentMaynilad.
Wedisagree.
 First,theclaimisnotoneagainstthedebtorbutagainstanentitythat
respondentMayniladhasprocuredtoanswerforitsnonperformanceof
certaintermsandconditionsoftheConcessionAgreement,particularlythe
paymentofconcessionfees.
Secondly,Sec.6(b)ofRule4oftheInterimRulesdoesnotenjointhe
enforcementofallclaimsagainstguarantorsandsureties, butonlythose
claimsagainstguarantorsandsuretieswhoarenotsolidarilyliablewith
thedebtor.RespondentMayniladsclaimthatthebanksarenotsolidarily
liablewiththedebtordoesnotfindsupportinjurisprudence.
WeheldinFeatiBank&TrustCompanyv.CourtofAppeals 16thatthe
conceptofguaranteevisvistheconceptofanirrevocableletterofcredit
are inconsistent with each other. The guarantee theory destroys the
independenceofthebank'sresponsibilityfromthecontractuponwhichit
wasopenedandthenatureofbothcontractsismutuallyinconflictwith
eachother.Incontractsofguarantee,theguarantorsobligationismerely
collateralanditarisesonlyuponthedefaultofthepersonprimarilyliable.
Ontheotherhand,inanirrevocableletterofcredit,thebankundertakesa
primary obligation. We have also defined a letter of credit as an
engagementbyabankorotherpersonmadeattherequestofacustomer
that the issuer shall honor drafts or other demands of payment upon
compliancewiththeconditionsspecifiedinthecredit.17
Lettersofcreditweredevelopedforthepurposeofinsuringtoaseller
paymentofadefiniteamountuponthepresentationofdocuments 18andis
thusacommitmentbytheissuerthatthepartyinwhosefavoritisissued
andwhocancollectuponitwillhavehiscreditagainsttheapplicantofthe
letter,dulypaidintheamount
_______________

16196SCRA576(1991).

17PrudentialBankv.IntermediateAppellateCourt,216SCRA257(1992).

18Ibid.,p.270.

569
VOL.432,JUNE21,2004
569
MetropolitanWaterworksandSewerageSystemvs.Daway
specifiedintheletter.19Theyareineffectabsoluteundertakingstopaythe
moneyadvancedortheamountforwhichcreditisgivenonthefaithofthe
instrument.Theyareprimaryobligationsandnotaccessorycontractsand
whiletheyaresecurityarrangements,theyarenotconvertedtherebyinto
contracts of guaranty.20 What distinguishes letters of credit from other
accessorycontracts,istheengagementoftheissuingbanktopaytheseller
oncethedraftandotherrequiredshippingdocumentsarepresentedtoit. 21
They are definite undertakings to pay at sight once the documents
stipulatedthereinarepresented.
Letters of Credits have long been and are still governed by the
provisionsoftheUniformCustomsandPracticeforDocumentaryCredits
of the International Chamber of Commerce. In the 1993 Revision it
provides in Art. 2 that the expressions Documentary Credit(s) and
Standby Letter(s) of Credit mean any arrangement, however made or
described,wherebyabankactingattherequestandoninstructionsofa
customer or on its own behalf is to make payment against stipulated
document(s)andArt.9thereofdefinestheliabilityoftheissuingbanks
onanirrevocableletterofcreditasadefiniteundertakingoftheissuing
bank, provided that the stipulated documents are presented to the
nominatedbankortheissuingbankandthetermsandconditionsofthe
Creditarecompliedwith,topayatsightiftheCreditprovidesforsight
payment.22
We have accepted, in Feati Bank and Trust Company v. Court of
Appeals23 and BankofAmericaNT&SA v.CourtofAppeals,24 tothe
extent that they are pertinent, the application in our jurisdiction of the
internationalcreditregulatorysetofrulesknownastheUniformCustoms
andPracticeforDocumentaryCredits(U.C.P)issuedbytheInternational
ChamberofCommerce,whichwesaid
_______________

19IsidroClimacov.CentralBankofthePhilippines,63O.G.No.6,p.1348.

20 InsularBankofAsia&Americav.IntermediateAppellateCourt,167SCRA450

(1988).
21BankofAmerica,NT&SAv.CourtofAppeals,228SCRA357(1993).

22Rollo,pp.824825.

23Supra,note16.

24Supra,note21.

570
570
 SUPREMECOURTREPORTSANNOTATED
MetropolitanWaterworksandSewerageSystemvs.Daway
inBankofthePhilippineIslandsv.Nery 25wasjustifiedunderArt.2ofthe
CodeofCommerce,whichstates:
Acts of commerce, whether those who execute them be merchants or not, and
whetherspecifiedinthisCodeornotshouldbegovernedbytheprovisionscontained
init;intheirabsence,bytheusagesofcommercegenerallyobservedineachplace;
andintheabsenceofbothrules,bythoseofthecivillaw.
TheprohibitionunderSec.6(b)ofRule4oftheInterimRulesdoesnot
apply to herein petitioner as the prohibition is on the enforcement of
claimsagainstguarantorsorsuretiesofthedebtorswhoseobligationsare
not solidary with the debtor. The participating banks obligation are
solidarywithrespondentMayniladinthatitisaprimary,direct,definite
andanabsoluteundertakingtopayandisnotconditionedontheprior
exhaustionofthedebtorsassets.Thesearethesamecharacteristicsofa
suretyorsolidaryobligor.
Beingsolidary,theclaimsagainstthemcanbepursuedseparatelyfrom
and independently of the rehabilitation case, as held in Traders Royal
Bankv.CourtofAppeals26 andreiteratedin PhilippineBloomingMills,
Inc.v.CourtofAppeals,27wherewesaidthatpropertyofthesuretycannot
betakenintocustodybytherehabilitationreceiver(SEC)andsaidsurety
canbesuedseparatelytoenforcehisliabilityassuretyforthedebtsor
obligationsofthedebtor.Thedebtsorobligationsforwhichasuretymay
beliableincludefuturedebts,anamountwhichmaynotbeknownatthe
timethesuretyisgiven.
ThetermsoftheIrrevocableStandbyLetterofCreditdonotshowthat
the obligations of the banks are not solidary with those of respondent
Maynilad.Onthecontrary,itisissuedattherequestofandfortheaccount
ofMayniladWaterServices,Inc.,infavoroftheMetropolitanWaterworks
andSewerageSystem,asabondforthefullandpromptperformanceof
theobligationsbytheconcessionaireundertheConcessionAgreement 28
andhereinpetitionerisauthorizedbythebankstodrawonitbythesimple
actofdeliver
_______________

2535SCRA256(1970).

26177SCRA788(1989).
 27G.R.No.142381,October15,2003,413SCRA445.

28Rollo,pp.208212.

571
VOL.432,JUNE21,2004
571
MetropolitanWaterworksandSewerageSystemvs.Daway
ingtotheagentawrittencertificationsubstantiallyintheformAnnexB
oftheLetterofCredit.ItprovidesfurtherinSec.6,thatforaslongasthe
StandbyLetterofCreditisvalidandsubsisting,theBanksshallhonorany
writtenCertificationmadebyMWSSinaccordancewithSec.2,ofthe
StandbyLetterofCreditregardlessofthedateonwhichtheeventgiving
risetosuchWrittenCertificationarose.29
Takingintoconsiderationourownrulingsonthenatureoflettersof
creditandthecustomsandusagedevelopedovertheyearsinthebanking
andcommercialpracticeoflettersofcredit,weholdthatexceptwhena
letterofcreditspecificallystipulatesotherwise,theobligationofthebanks
issuing letters of credit are solidary with that of the person or entity
requestingforitsissuance,thesamebeingadirect,primary,absoluteand
definiteundertakingtopaythebeneficiaryuponthepresentationoftheset
ofdocumentsrequiredtherein.
Thepublicrespondent,therefore,exceededhisjurisdiction,inholding
thathewascompetent toact ontheobligationofthe banksunderthe
LetterofCreditundertheargumentthatthiswasnotasolidaryobligation
withthatofthedebtor.Beingasolidaryobligation,theletterofcreditis
excludedfromthejurisdictionoftherehabilitationcourtandthereforein
enjoiningpetitionerfromproceedingagainsttheStandbyLettersofCredit
towhichithadaclearrightunderthelawandthetermsofsaidStandby
LetterofCredit,publicrespondentactedinexcessofhisjurisdiction.
AdditionalIssues
Weproceedtoconsidertheotherissuesraisedintheoralargumentsand
includedinthepartiesmemoranda:
1.RespondentMayniladarguesthatpetitionerhadaplain,speedyand
adequateremedyundertheInterimRulesitselfwhichprovidesinSec.12,
Rule4thatthecourtmayonmotionormotuproprio,terminate,modifyor
setconditionsforthecontinuanceofthestayorderorrelieveaclaimfrom
coverage thereof. We find, however, that the public respondent had
alreadyaccomplishedthisduringthehearingsetforthetwoUrgent Ex
Parte motions filed by respondent Maynilad on November 21 and 24,
2003,30wherethe
_______________

29Rollo,pp.814815.

30Rollo,pp.129137.

572
572
SUPREMECOURTREPORTSANNOTATED
MetropolitanWaterworksandSewerageSystemvs.Daway
parties including the creditors, Suez and Chinatrust Commercial
presentedtheirrespectivearguments.31Thepublicrespondentthenruled,
after carefully considering/evaluating the import of the arguments and
documentsreferredtobyMaynilad,MWSSand/orthecreditorsChinatrust
CommercialBankandSuezinrelationtotheadmissions,thepleadings,
and/orpertinentportionsoftherecords,thiscourtisoftheconsideredand
humble view that the issue must perforce be resolved in favor of
Maynilad.32Hencetopursuetheiroppositionbeforethesamecourtwould
resultinthepresentationofthesameargumentsandissuespasseduponby
publicrespondent.
Furthermore,Sec.5,Rule3oftheInterimRuleswouldprecludeany
othereffectiveremedyquestioningtheordersoftherehabilitationcourt
since they are immediately executory and a petition for review or an
appealtherefromshallnotstaytheexecutionoftheorderunlessrestrained
or enjoined by the appellate court. In this situation, it had no other
remedybuttoseekrecoursetousthroughthispetitionforcertiorari.
In Silvestrev.TorresandOben,33 wesaidthatitisnotenoughthata
remedy is available to prevent a party from making use of the
extraordinaryremedyof certiorari butthatsuchremedybeanadequate
remedy which is equally beneficial, speedy and sufficient, not only a
remedywhichatsometimeinthefuturemayofferreliefbutaremedy
whichwillpromptlyrelievethepetitionerfromtheinjuriousactsofthe
lowertribunal.Itistheinadequacynotthemereabsenceofallother
legalremediesandthedangeroffailureofjusticewithoutthewrit,that
mustusuallydeterminetheproprietyofcertiorari.34
2.RespondentMayniladarguesthatbycommencingtheprocessfor
payment under the Standby Letter of Credit, petitioner violated an
immediatelyexecutoryorderofthecourtand,therefore,comestoCourt
withuncleanhandsandshouldthereforebedeniedanyrelief.
Itistruethatthestayorderisimmediatelyexecutory.Itisalsotrue,
however,thattheStandbyLetterofCreditandthebanks
_______________

31Rollo,p.36.

32Rollo,p.37.

3357Phil.890(1933).

34Jacav.DavaoLumberCompany,113SCRA107,129(1982).

573
VOL.432,JUNE21,2004
573
MetropolitanWaterworksandSewerageSystemvs.Daway
thatissueditwerenotwithinthejurisdictionoftherehabilitationcourt.
ThecallontheStandbyLetterofCredit,therefore,couldnotbeconsidered
aviolationoftheStayOrder.
3. Respondents claim that the filing of the petition preempts the
originaljurisdictionofthelowercourtiswithoutmerit.Thepurposeofthe
initialhearingistodeterminewhetherthepetitionforrehabilitationhas
meritornot.Theproprietyofthestayorderaswellastheclarificatory
orderhadalreadybeenpasseduponinthehearingpreviouslyhadforthat
purpose.Thedeterminationofwhetherthepublicrespondentwascorrect
inenjoiningthepetitionerfromdrawingontheStandbyLetterofCredit
willhavenobearingonthedeterminationtobemadebypublicrespondent
whetherthepetitionforrehabilitationhasmeritornot.Ourdecisiononthe
instant petition does not preempt the original jurisdiction of the
rehabilitationcourt.
WHEREFORE,thepetitionforcertiorariisGRANTED.TheOrderof
November27,2003oftheRegionalTrialCourtofQuezonCity,Branch
90,isherebydeclaredNULLANDVOIDandSETASIDE.The status
quo Order herein previously issued is hereby LIFTED. In view of the
urgencyattendingthiscase,thisdecisionisimmediatelyexecutory.
Nocosts.
SOORDERED.
Davide,Jr.(C.J.,Chairman),PanganibanandCarpio,JJ.,concur.
YnaresSantiago,J.,OnLeave.
 Petitiongranted.
Note.While Article 2055 of the Civil Code simply provides that
guarantymustbeexpress,Article1403,theStatuteofFrauds,requires
thataspecialpremisetoanswerforthedebt,defaultormiscarriageof
anotherbeinwriting.(Tocaovs.CourtofAppeals,342SCRA20[2000])
o0o

574
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