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

] venue should be laid does not preclude the filing of

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

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,
INC., Petitioner, v. LUZON HYDRO
CORPORATION, AUSTRALIA and NEW
ZEALAND BANKING GROUP LIMITED and
SECURITY BANK CORPORATION, Respondents.
FACTS:
CASE SUMMARY:
Transfield, as a contractor, undertook to construct a
hydro-electric power station and complete the same
on or before June 1, 2000. To secure the
performance of its obligation. Transfield opened 2
letters of credits from ANZ Banking Group and
Security Bank in favor of Luzon. Nonetheless,
Transfield was unable to complete the project on
the target date allegedly due to force majeure. Both
Transfield and Luzon filed before separate
arbitration tribunals, ICC and CIAC respectively, to
determine whether force majeure would justify the
delay. Pending the arbitration proceeding,
Transfield filed a complaint for preliminary
injunction against the respondent banks to restrain
them from paying on the securities and also against
Luzon to prevent it from calling on the securities.
RTC issued a TRO but denied the application for
writ of preliminary injunction. CA affirmed RTC.
N.B. When the TRO expired, Luzon was able to
withdraw from ANZ.
xxx
Transfield and Luzon entered into a Turnkey
Contract whereby Transfield undertook, as a
contractor, to construct a 70- Megawatt hydro-
electric power station at the Bakun River in
Benguet and Ilocos Sur.
The contract provides that:
(1) the target completion date of the project is on
June 1, 2000, or such date as may be agreed
upon; and
(2) petitioner is entitled to claim extensions of time
(EOT) for reasons enumerated in the contract e.g.
variations, force majeure, and delays caused by
Luzon itself.
It was also agreed upon that in case of dispute, the
parties are bound to settle their differences through
mediation, conciliation and such other means
enumerated in the contract.
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
amount of US$8.99M.
Nonetheless, in the course of construction,
Transfield sought various EOT to complete the
project. The request for extensions were allegedly
due to force majeure occasioned by typhoon Zeb,
barricades, and demonstrations, which prevented
the on-time completion of the project.
Luzon denied Transfield’s requests for EOT.
Luzon filed a Request for Arbitration before the
Construction Industry Arbitration Commission
(CIAC), while Transfield filed a Request for
Arbitration before the International Chamber of
Commerce (ICC). These arbitration proceedings
would resolve the issues: (1)WON the alleged force
majeure would justify the EOT sought by Transfield,
(2)WON Luzon had the right to terminate the
contract for Transfield’s failure to complete the
project on target date.
Meanwhile, Transfield wrote letters to ANZ and
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.
Transfield also warned the banks that any transfer,
release, or disposition of the securities in favor of
Luzon would constrain it to hold respondent banks
liable for liquidated damages.
Despite Transfield's letters, the banks informed
Transfield that they would pay on the Securities if
and when Luzon called on them.
Transfield filed a complaint for injunction with
prayer for TRO and writ of preliminary injunction
before the RTC. Transfield sought to restrain banks
from calling on the securities and the respondent
banks from paying on the securities.
RTC –denied the application for writ of preliminary
injunction. Applying the “Independent Contract”
principle, Luzon should be allowed to draw on the
securities for liquidated damages. Banks were
mere custodians of the funds and were obligated to
transfer the same to the beneficiary for as long as
the latter could submit the required certification of
its claims. Luzon, as the ultimate beneficiary, may
also invoke the “independent contract” principle.
CA - issued a TRO but failed to act on the
application for preliminary injunction until the TRO
expired.
N.B. As soon as the TRO expired, Luzon went to
ANZ bank and withdrew US$ 4.9M.
CA affirmed RTC decisions; Luzon could call on the
securities pursuant to the first principle in credit law
that the credit itself is independent of the underlying
transaction and that as long as the beneficiary
complied with the credit.
Injunction was the appropriate remedy obtainable
from the local courts.
ISSUES:
1. WON the “Independence Principle” on Letter of
Credit may be invoked by a beneficiary.
2. WON injunction is the proper remedy to restrain
the allegedly wrongful draws on the securities.
HELD:
1. YES. The beneficiary can invoke the
independence principle.
In a letter of credit transaction 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, and particularly, the independence
principle liberates the issuing bank from the duty of
ascertaining compliance by the parties of the main
contract. As it is, the independence doctrine works
for the benefit of both the issuing bank and the
beneficiary.
To say that the independence principle may only be
invoked by the issuing banks would render
nugatory the
purpose for which the letters of credit are used in
commercial transactions. Letters of credit are
employed by the parties desiring to enter into
commercial transactions, not for the benefit of the
issuing bank but mainly for the benefit of the parties
of the original transaction. With the letter of credit,
the party who obtained the letter of credit may
present it to the beneficiary as a security to
convince the latter to enter into the business
transaction.
On the other hand, the beneficiary can be rest
assured of being empowered to call on the letter of
credit as a security in case the commercial
transaction does not push through, or the party who
presented the letter of credit fails to perform his
part.
Prior resolution of any dispute before the
beneficiary is entitled to call on the letter of credit
would convert it into a mere guarantee.
In this case, the Court ruled that ANZ and SBC
banks were left with little or no alternative but to
honor the credit and that it was “ministerial for them
to honor the call for payment. Also, Luzon’s right to
call on the securities was rooted on the following
provisions of the contract:
… provide security to the Employer in the form of 2
irrevocable and confirmed standby letters of credit
… if the contractor fails to comply, the contractor
shall pay the Employer by way of liquidated
damages …
… Employer may deduct the amount of such
damages by drawing on the security …
2. NO. Fraud is an exception to the independence
principle and the remedy for fraudulent abuse is
injunction. However, injunction should not be
granted unless: (a) there is a clear proof of fraud;
(b) the fraud constitutes fraudulent abuse of the
independent purpose of the letter of credit and not
only fraud under the main agreement; and (c)
irreparable injury might follow if injunction is not
granted or the recovery of damages would be
seriously damaged.
In this case, Transfield failed to show that it has a
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
right to draw upon the securities in case of default.
Also, nothing in the contract would indicate that all
disputes regarding delay should first be settled
through arbitration before Luzon would be allowed
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.
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 therefore to the addressee.
Commercial credits
Involve payment of money under a contract of sale.
Becomes payable upon presentation by the seller
beneficiary of the documents that show he has
taken affirmative steps to comply with the sales
agreement. Beneficiary of commercial credit must
demonstrate by documents that he has performed
his contract.
Standby Credits
Payable upon certification of a party’s
nonperformance of the agreement; Documents that
accompany the beneficiary’s draft tend to show that
the applicant has not performed. Beneficiary of the
standby credit must certify that his obligor has not
performed the contract.
In a standby type of letter of credit, the credit is
payable upon certification of a party's
nonperformance of the agreement .
The independence principle assures 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.
● Bank assumes no liability or responsibility
for the form, sufficiency, accuracy,
genuineness, falsification or legal effect of
any documents, or for the generals and/or
particular conditions stipulated in the
documents.
Independent nature maybe:
● Independence in toto – credit is
independent from the underlying agreement
(e.g. standby letter of credit). o
Independence as to the justification aspect
only – e.g in a commercial letter of credit or
repayment standby, which is identical with
the same obligations under the underlying
agreement.
WHEREFORE, the instant petition is DENIED, with
costs against petitioner.
Petitioner is hereby required to answer the charge
of forum-shopping within fifteen (15) days from
notice.