PHILIPPINE NATIONAL BANK v.

SAN MIGUEL CORPORATION

G.R. No. 186063 | January 15, 2014 | Peralta, J.
Letters of Credit

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.

FACTS:
 SMC and Goroza entered into an Exclusive Dealership Agreement wherein Goroza was given the right to
sell SMC’s various beer products. Goroza applied for a credit line with SMC, one of the line’s requirement
was a letter of credit (LOC). Goroza then applied for and was granted a LOC by PNB for 2M. Under the LOC,
PNB is obliged to release the proceeds of Goroza’s credit line to SMC upon presentation of invoices and
receipts of Goroza’s purchases. Goroza availed of the line and started selling the products.
 Goroza again applied for an additional credit line which PNB granted for 2.4M. Making Goroza’s total credit
line 4.4M. Goroza initially paid his credit, however, after almost a year, he eventually started to become
delinquent. SMC demanded payments for 3.7M v. Goroza and PNB, but neither of them paid. Hence,
complaint for collection of sum of money. Goroza failed to file his answer and was declared in default. Trial
ensued insofar as Goroza was concerned. RTC found Goroza liable to SMC. Meanwhile, the pre-trial bet.
SMC and PNB ensued.
 Goroza filed a Notice of Appeal while SMC filed a MR. RTC granted SMC’s MR – increasing award of the
litigation expenses, and gave due course to Goroza’s appeal. Trial continued w/ respect to PNB. PNB filed
an urgent motion to terminate proceedings arguing that a decision was already rendered finding Goroza
solely liable. RTC denied the same.
 RTC issued a supplemental judgment inserting the phrase “without prejudice to the decision that will be
made v. PNB”; as well as an Amended order including “this appeal applies only to Goroza and w/o prejudice
to continuance of the hearing on PNB. PNB’s MR was denied. PNB then filed for certiorari under 65 with CA
imputing grave abuse of discretion. CA denied the same, as well as PNB’s MR.
 Hence this petition where PNB argues that the CA erred in ruling that the proceedings v. it may continue
despite complete adjudication of relief in favor of SMC. Order found Goroza solely liable, thus settling both
their obligations. There is no longer any ground to hold it for trial.

ISSUE:
Whether CA erred in holding that the proceedings may continue v. PNB despite complete adjudication of relief in
favor of SMC.

HELD:
No. 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 letter of credit, however, changes its nature as different transactions occur and 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 so-called "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. The obligation under the LOC is independent of the
related and originating contract. The LOC is separate and distinct from the underlying principle.

In this case, PNB cannot evade responsibility on the sole ground that the judgment found Goroza liable and ordered
him to pay the amount sought to be recovered. PNB’s liability, if any, under the LOC is yet to be determined.
Petition denied, CA affirmed.

Note:
As re: procedural aspect of the case
PNB argues that CA erred in holding that the RTC was correct in rendering the questioned orders. RTC lost its
jurisdiction over the entire case when Goroza perfected his appeal. Thus, the supplemental judgment and amended
order were void for having been issued w/o or in excess of jurisdiction.

SC: No. S4 R36 of ROC provides that, in an action against several defendants, the court may, when a several judgment
is proper, render judgment against one or more of them, leaving the action to proceed against the others.

Appeal of Goroza assailing the judgment finding him liable, will not prevent the continuation of the ongoing trial
between SMC and PNB. The RTC retains jurisdiction insofar as PNB is concerned, because the appeal made by Goroza
was only with respect to his own liability – which PNB admitted in its reply that the judgment was decided solely on
v. Goroza.

Moreover, the propriety of a several judgment is borne by the fact that SMC's cause of action against PNB stems
from the latter's alleged liability under the letters of credit, while SMC's cause of action against Goroza is the latter's
failure to pay his obligation to the former. In addition, RTC judgment against Goroza did not make any determination
as to whether or not PNB is liable under the letter of credit it issued and, if so, up to what extent is its liability.