Philippine Virginia Tobacco
Administration (PVTA) vs. De Los
Angeles
Facts:
Timoteo Sevilla, proprietor and
General Manager of the Philippine Associated
Resources (PAR) together with two other
entities were awarded in a public bidding the
right to import Virginia leaf tobacco for
blending purposes and exportation by them
of PVTA. Subsequently, the other two entities
assigned their rights to PVTA, and PAR
remained the only private entity accorded
the privilege.
PVTA and Sevilla (in behalf of PAR)
entered into a contract for the importation of
85 million kilos of Virginia leaf tobacco and
exportation of 2.35 million kilos of PVTA.
Pursuant to the contract, Sevilla purchased,
exported and paid for the kilos of tobacco
from PVTA, leaving an unpaid balance of only
3 million pesos. However, before Sevilla
(PAR) could import the counterpart blending
tobacco, R.A. 4155 was passed, authorizing
PVTA to grant import privileges and lower
prices of tobacco stock.
The contract then underwent several
amendments including the additional
stipulation that Sevilla would open an
irrevocable letter of credit with Prudential
Bank and Trust Co. in favor of PVTA to secure
the payment of the balance, drawable only
upon the release of the Bureau of Customs of
the imported Virginia blending tobacco.
As Sevilla negotiated for the reduction
of the procurement cost of the kilos of
Tobacco already exported, PVTA prepared
drafts to be drawn against the letter of credit
for amounts that have already become due
and demandable. Sevilla then filed a
complaint for damages with preliminary
injunction against the petitioner.
PVTA filed an answer with
counterclaim, admitting the execution of the
contract. It alleged however that respondent
Sevilla violated the terms thereof by causing
the issuance of the preliminary injunction to
prevent the former from drawing from the
letter of credit for amounts due and payable
and thus caused PVTa additional damage of
6% per annum. The court sided with Sevilla,
a writ of preliminary injunction was issued by
respondent judge enjoining PVTA from
drawing against the letter of credit.
Subsequently, respondent judge
issued an order directing the Prudential Bank
& Trust Co. to make the questioned release
of funds from the Letter of Credit to Sevilla.
Before petitioner could file a motion for
reconsideration of said order, respondent
Sevilla was able to secure the release of
P300,000.00 and the rest of the amount.
Issue:
Did the judge act with grave abuse of
discretion when he issued the order to make
the questioned release of funds from the
Letter of Credit to Sevilla?
Held:
Yes. In issuing the Order, respondent
Judge violated the irrevocability of the letter
of credit issued by respondent Bank in favor
of petitioner. An irrevocable letter of credit
cannot during its lifetime be cancelled or
modified without the express permission of
the beneficiary or PVTA in this case. (Miranda
and Garrovilla, Principles of Money Credit
and Banking, Revised Edition, p. 291).
Furthermore, the question of whether or not
Sevilla or PAR is entitled to a reduction of the
amount of the payment due must be
answered first before the release of funds
from the Letter of Credit be granted to
Sevilla for the extra amounts it allegedly
paid. This avoids the situation wherein the
trial court disallows of a reduction on the
amounts that needed to be paid by Sevilla
upon a finding that R.A. 4155 is inapplicable.
Sevilla would then still have an unpaid
balance, an obligation which is now
unsecured, which the Court seeks to prevent.