Pvta Vs. De Los Angeles

Philippine Administration Angeles

Virginia (PVTA) vs.

Tobacco De Los

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.