Transfield Philippines vs Luzon Hydro Electric Corp.

(GR No 146717, Nov 22, 2004, Tinga)

Transfield entered into a turn-key contract with Luzon Hydro Corp. (LHC).Under the
contract, Transfield were to construct a hydro-electric plants in Benguet and Ilocos.
The contract provides for a period for which the project is to be completed and also
allows for the extension of the period provided that the extension is based on
justifiable grounds such as fortuitous event. In order to guarantee performance by
Transfield, two stand-by letters of credit were required to be opened. During the
construction of the plant,T ransfield requested for extension of time citing fortuitous
events brought about by typhoon, barricades and demonstration. LHC did not give
due course to the extension of the period prayed for but referred the matter to
arbitration committee.

In the meanwhile, because of the delay in the construction of the plant, LHC called
on the stand-by letters of credit because of default. However, the demand was
objected by Transfield on the ground that there is still pending arbitration on their
request for extension of time. LHC invoked the independence principle. On the
other hand, Transfield claims fraud on the part of LHC on calling the stand-by
letters of credit. Under the independence principle, a LC accommodation is entirely
distinct and separate, independent agreement. It is not supposed to be affected by
the main contract upon which it rests.

The court held for the LHC. Following the independence principle, even granting
that there is still issue to be resolved arising from the turn-key project. This issue is
not supposed to affect the obligation of the bank to pay the letter of credit in
question. The court stressed that a LC accommodation is intended to benefit not
only the beneficiary therein but the applicant thereon. On the issue of fraud, the
SC held that there is nothing in the turn-key contract which states that all issues
between the parties must be resolved first before LHC can call on the stand-by LC
but the contract provides that if Transfield defaults, then LHC can call on these
stand-by LC.











G.R. No. 102970 May 13, 1993

LUZAN SIA,
vs.
COURT OF APPEALS and SECURITY BANK and TRUST COMPANY,
respondents.
FACTS: The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant
bank at its Binondo Branch wherein he placed his collection of stamps. The said safety deposit
box leased by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of
the defendant bank .During the floods that took place, floodwater entered into the defendant
bank's premises, seeped into the safety deposit box leased by the plaintiff and caused, according
to the plaintiff, damage to his stamps collection. The defendant bank rejected the plaintiff's claim
for compensation for his damaged stamps collection, so, the plaintiff instituted an action for
damages against the defendant bank.

ISSUE: Whether it was a grave error or an abuse of discretion on the part of the respondent
court when it ruled that respondent SBTC did not fail to exercise the required diligence in
maintaining the safety deposit box

RULING: Note that the primary function is still found within the parameters of a contract of
deposit i.e, the receiving in custody of funds, documents and other valuable objects for
safekeeping. The renting out of the safety deposit boxes is not independent from, but related to
or in conjunction with, this principal function. A contract of deposit may be entered into orally or
in writing (Art. 1969, Civil Code] and, pursuant to Article 1306of the Civil Code, the parties
thereto may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order or public
policy. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty
of fraud, negligence, delay or contravention of the tenor of the agreement [Art. 1170,id.]. In the
absence of any stipulation prescribing the degree of diligence required, that of a good father of a
family is to be observed [Art.1173,id.]. Hence, any stipulation exempting the depositary from
any liability arising from the loss of the thing deposited on account of fraud, negligence or delay
would be void for being contrary to law and public policy. In the instant case, petitioner
maintains that conditions 13 and l4 of the questioned contract of lease of the safety deposit box,
which read:

"13. The bank is a depositary of the contents of the safe and it has neither the possession nor
control of the same.
"14. The bank has no interest whatsoever in said contents, except as herein expressly provided,
and it assumes absolutely no liability in connection therewith." are void as they are contrary to
law and public policy.

Public respondent further postulates that SBTC cannot be held responsible for the destruction or
loss of the stamp collection because the flooding was a fortuitous event and there was no
showing of SBTC's participation in the aggravation of the loss or injury. Both the law and
authority cited are clear enough and require no further elucidation. Unfortunately, however, the
public respondent failed to consider that in the instant case, as correctly held by the trial court,
SBTC was guilty of negligence. thus comes to the succor of the petitioner. The destruction or loss
of the stamp collection which was, in the language of the trial court, the "product of 27 years of
patience and diligence" caused the petitioner pecuniary loss; hence, he must be compensated
therefor.