[G.R. No. 18058. January 16, 1923.

FABIOLA SEVERINO, Plaintiff-Appellee, v. GUILLERMO SEVERINO, Defendant-

Appellant. FELICITAS VILLANUEVA, Intervenor-Appellee.

This is an action brought by the plaintiff as the alleged natural daughter and sole heir of
one Melecio Severino, deceased, to compel the defendant Guillermo Severino to convey
to her four parcels of land described in the complaint, or in default there of to pay her
the sum of P800,000 in damages for wrongfully causing said land to be registered in his
own name. Felicitas Villanueva, in her capacity as administratrix of the estate of Melecio
Severino, has filed a complaint in intervention claiming the same relief as the original
plaintiff, except in so far as she prays that the conveyance be made, or damages paid,
to the estate instead of to the plaintiff Fabiola Severino. The defendant answered both
complaints with a general denial.

The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the
acknowledged natural child of the said Melecio Severino and ordering the defendant to
convey 428 hectares of the land in question to the intervenor as administratrix of the
estate of the said Melecio Severino, to deliver to her the proceeds in his possession of a
certain mortgage placed thereon by him and to pay the costs. From this judgment only
the defendant appeals.

The land described in the complaint forms one continuous tract and consists of lots Nos.
827, 828, and 874 of the cadaster of Silay, Province of Occidental Negros, which
measure, respectively, 61 hectares, 74 ares and 79 centiares; 76 hectares, 34 ares, and
79 centiares; 52 hectares, 86 ares and 60 centiares and 608 hectares, 77 ares and 28
centiares, or a total of 799 hectares, 75 ares, and 46 centiares.

The evidence shows that Melecio Severino died on the 25th day of May, 1915; that some
428 hectares of the land were recorded in the Mortgage Law Register in his name in the
year 1901 by virtue of possessory information proceedings instituted on the 9th day of
May of that year by his brother Agapito Severino in his behalf; that during the lifetime of
Melecio Severino the land was worked by the defendant, Guillermo Severino, his
brother, as administrator for and on behalf of the said Melecio Severino; that after
Melencio’s death, the defendant Guillermo Severino continued to occupy the land; that
in 1916 a parcel survey was made of the lands in the municipality of Silay, including the
land here in question, and cadastral proceedings were instituted for the registration of
the land titles within the surveyed area; that in the cadastral proceedings the land here
in question was described as four separate lots numbered as above stated; that Roque
Hofileña, as lawyer for Guillermo Severino, filed answers in behalf of the latter in said
proceedings claiming the lots mentioned as the property of his client; that no opposition
was presented in the proceedings to the claims of Guillermo Severino and the court
therefore decreed the title in his favor, in pursuance of which decree certificates of title
were issued to him in the month of March, 1917.

It may be further observed that at the time of the cadastral proceedings the plaintiff
Fabiola Severino was a minor; that Guillermo Severino did not appear personally in
proceedings and did not there testify; that the only testimony in support of his claim was
that of his attorney Hofileña, who swore that he knew the land and that he also knew
that Guillermo Severino inherited the land from his father and that he, by himself, and
through his predecessors in interest, had possessed the land for thirty years.

The appellant presents the following nine assignments of error:jgc:chanrobles.com.ph

"1. The trial court erred in admitting the evidence that was offered by plaintiff in order to
establish the fact that said plaintiff was the legally acknowledged natural child of the
deceased Melecio Severino.

"2. The trial court erred in finding that, under the evidence presented, plaintiff was the
legally acknowledged natural child of Melecio Severino.

"3. The trial court erred in rejecting the evidence offered by defendant to establish the
absence of fraud on his part in securing title to the lands in Nacayao.

"4. The trial court erred in concluding that the evidence adduced by plaintiff and
intervenor established that defendant was guilty of fraud in procuring title to the lands in
question in his name.

"5. The trial court erred in declaring that land that was formerly placed in the name of
Melecio Severino had an extent of either placed in the name of Melecio Severino had an
extent of either 434 hectares at the time of his death.

"6. The trial court erred in declaring that the value of the land in litigation is P500 per
hectare.

"7. The trial court erred in granting the petition of plaintiff for an attachment without
first giving the defendant an opportunity to be heard.

"8. The trial court erred in ordering the conveyance of 428 hectares of land by defendant
to the administratrix.

"9. The trial court erred in failing or refusing to make any finding as to the defendant’s
contention that the petition for attachment was utterly devoid of any reasonable
ground."cralaw virtua1aw library

In regard to the first two assignments of error, we agree with the appellant that the trial
court erred in making a declaration in the present case as to the recognition of Fabiola
Severino as the natural child of Melecio Severino. We have held in the case of Briz and
Remigio (43 Phil., 763), that "The legitimate heirs or kin of a deceased person who
would be prejudiced by a declaration that another person in entitled to recognition as
the natural child of such decedent, are necessary and indispensable parties to any action
in which a judgment declaring the right to recognition is sought." In the present action
only the widow, the alleged natural child, and one of the brothers have not been
included. But, inasmuch as the judgment appealed from is in favor of the intervenor and
not of the plaintiff, except to the extent of holding that the latter is a recognized natural
child of deceased, this question is, from the view we take of the case, of no importance
in its final disposition. We may say, however, in this connection, that the point urged in
appellant’s brief that it does not appear affirmatively from the time of the conception of
Fabiola, her mother was a single woman, may be sufficiently disposed of by a reference
to article 130 of the Civil Code and subsection 1 of section 1 of section 334 of the Code
of Civil Procedure which create the presumption that a child born out of wedlock is
natural rather than illegitimate. The question of the status of the plaintiff Fabiola
Severino and her right to share in the inheritance may, upon notice to all the interested
parties, be determined in the probate proceedings for the settlement of the estate of the
deceased.

The fifth assignment of error relates to the finding of the trial court that the land
belonging to Melecio Severino had an area of 428 hectares. The appellant contends that
the court should have found that there were only 324 hectares inasmuch as one
hundred hectares of the original area were given to Melecio’s brother Donato during the
lifetime of the father Ramon Severino. As it appears that Ramon Severino died in 1896
and that the possessory in formation proceedings, upon which the finding of the trial
court as to the area of the land is principally based, were not instituted until the year
1901, we are not disposed to disturb the conclusions if the trial court on this point.
Moreover, in the year 1913, the defendant Guillermo Severino testified under oath, in
the case of Montelibano v. Severino, that the area of the land by Melecio Severino and of
which he (Guillermo) was the administrator, embraced an area of 424 hectares. The fact
that Melecio Severino, in declaring the land for taxation in 1906, stated that the area
was only 324 hectares and 60 ares while entitled to some weight is not conclusive and is
not sufficient to overcome the positive statement of the defendant and the recitals in the
record of the possessory information proceedings.

The sixth assignment of error is also of minor importance in view of the fact that in the
dispositive part of the decision of the trial court, the only relief given is an order
requiring the appellant to convey to the administratrix the land in question, together
with such parts of the proceeds of the mortgage thereon as remain in his hands. We
may say further that the court’s estimate of the value of the land does not appear
unreasonable and that, upon the evidence before us, it will not be disturbed.

The seventh and ninth assignments of error relate to the ex parte granting by the trial
court of a preliminary attachment in the case and the refusal of the court to dissolve the
same. We find no merit whatever in these assignments and a detailed discussion of
them is unnecessary.

The third, fourth, and eighth assignments of error involve the vital points in the case,
are inter-related and may be conveniently considered together.

The defendant argues that the gist of the instant action is the alleged fraud on his part
in causing the land in question to be registered in his name; that the trial court therefore
erred in rejecting his offer of evidence to the effect that the land was owned in common
by all the heirs of Ramon Severino and did not belong to Melecio Severino exclusively;
that such evidence, if admitted, would have shown that he did not act with fraudulent
intent in taking title to the land; that the trial court erred in holding him estopped from
denying Melecio’s title; that more than a year having elapsed since the entry of the final
decree adjudicating the land to the defendant, said decree cannot now be re-opened;
that the ordering of the defendant to convey the decreed land to the administratrix is,
for all practical purposes, equivalent to the reopening of the decree of registration; that
under section 38 of the Land Registration Act the defendant has an indefeasible title to
the land; and that the question of ownership of the land being thus judicially settled, the
question as to the previous relations between the parties cannot now be inquired into.

Upon no point can the defendant’s contentions be sustained. It may first be observed
that this is not an action under section 38 of the Land Registration Act to reopen or set
aside a decree; it is an action in personam against an agent to compel him to return, or
retransfer, to the heirs or the estate of its principal, the property committed to his
custody as such agent, to execute the necessary documents thereof, to pay damages.

That the defendant came into the possession of the property here in question as the
agent of the deceased Melecio Severino in the administration of the property, cannot be
successfully disputed. His testimony in the case of Montelibano v. Severino (civil case
No. 902 of the Court of First Instance of Occidental Negros and which forms a part of the
evidence in the present case) is, in fact, conclusive in this respect. He there stated under
oath that from the year 1902 up to the time the testimony was given, in the year 1913,
he had been continuously in charge and occupation of the land as the encargado or
administrator of Melecio Severino; that he had always known the land as the property of
Melecio Severino; and that the possession of the latter had been peaceful, continuous,
and exclusive. In his answer filed in the same case, the same defendant, through his
attorney, disclaimed all personal interest in the land and averred that it was wholly the
property of this brother Melecio.

Neither is it disputed that the possession enjoyed by the defendant at the time of
obtaining his decree was of the same character as that held during the lifetime of his
brother, except in so far as shortly before the trial of the cadastral case the defendant
had secured from his brothers and sisters a relinquishment in his favor of such rights as
they might have in the land.

The relations of an agent to his principal are fiduciary and it is an elementary and very
old rule that in regard to property forming the subject-matter of the agency, he is
estopped from acquiring or asserting a title adverse to that of the principal. His position
is analogous to that of a trustee and he cannot consistently, with the principles of good
faith, be allowed to create in himself an interest in opposition to that of his principal or
cestui que trust. Upon this ground, and substantially in harmony with the principles of
the Civil Law (see sentence of the supreme court of Spain of May 1, 1900), the English
Chancellors held that in general whatever a trustee does for the advantage of the trust
estate inures to the benefit of the cestui que trust. (Greenlaw v. King, 5 Jur., 18; Ex
parte Burnell, 7 Jur., 116; Ex parte Hughes, 6 Ves., 617; Ex parte James, 8 Ves., 337;
Oliver v. Court, 8 price, 127.) The same principle has been consistently adhered to in so
many American cases and is so well established that exhaustive citations of authorities
are superfluous and we shall therefore limit ourselves to quoting a few of the numerous
judicial expressions upon the subject. The principle is well stated in the case of Gilber v.
Hewetson (79 Minn., 326):jgc:chanrobles.com.ph

"A receiver, trustee, attorney, agent, or any other person occupying fiduciary relations
respecting property or persons, is utterly disabled from acquiring for his own benefit the
property committed to his custody for management. This rule is entirely independent of
the fact whether any fraud has intervened. No fraud in fact need be shown, and no
excuse will be heard from the trustee. It is to avoid the necessity of any such inquiry
that the rule takes so general a form. The rule stands on the moral obligation to refrain
from placing one’s self in positions which ordinarily excite conflicts between self-interest
and integrity. It seeks to remove the temptation that might arise out of such a relation
to serve one’s self-interest at the expense of one’s integrity and duty to another, by
making it impossible to profit by yielding to temptation. It applies universally to all who
come within its principle."cralaw virtua1aw library

In the case of Massie v. Watts (6 Cranch, 148), the United States Supreme Court,
speaking through Chief Justice Marshall, said:jgc:chanrobles.com.ph

"But Massie, the agent of Oneale, has entered and surveyed a portion of that land for
himself and obtained a patent for it in his own name. According to the clearest and best
established principles of equity, the agent who so acts becomes a trustee for his
principal. He cannot hold the land under an entry for himself otherwise than as trustee
for his principal."cralaw virtua1aw library

In the case of Felix v. Patrick (145 U. S., 317), the United States Supreme Court, after
examining the authorities, said:jgc:chanrobles.com.ph

"The substance of these authorities is that, wherever a person obtains the legal title to
land by any artifice or concealment, or by making use of facilities intended for the
benefit of another, a court of equity will impress upon the land so held by him a trust in
favor of the party who is justly entitled to them, and will order the trust executed by
decreeing their conveyance to the party in whose favor the trust was created." (Citing
Bank of Metropolis v. Guttschlick, 14 Pet., 19, 31; Moses v. Murgatroyd, 1 Johns. Ch.,
119; Cumberland v. Codrington, 3 Johns. Ch., 229, 261; Neilson v. Blight, 1 Johns. Cas.,
205; Weston v. Barker, 12 Johns., 276.)

The same doctrine has also been adopted in the Philippines. In the of Uy Aloc v. Cho Jan
Ling (19 Phil., 202), the facts are stated by the court as follows:jgc:chanrobles.com.ph

"From the facts proven at the trial it appears that a number of Chinese merchants raised
a fund by voluntary subscription with which they purchased a valuable tract of land and
erected a large building to be used as a sort of club house for the mutual benefit of the
subscribers to the fund. The subscribers organized themselves into an irregular
association, which had no regular articles of association, and was not incorporated or
registered in the commercial registry or elsewhere. The association not having any
existence as a legal entity, it was agreed to have the title to the property placed in the
name of one of the members, the defendant, Cho Jan Ling, who on his part accepted the
trust, and agreed to hold the property as the agent of the members of the association.
After the club building was completed with the funds of the members of the association,
Cho Jan Ling collected some 25,000 in rests for which he failed and refused to account,
and upon proceedings being instituted to compel him to do so, he set up title in himself
to the club property as well as to the rents accruing therefrom, falsely alleging that he
had bought the real estate and constructed the building with his own funds, and denying
the claims of the association that it was their funds which had been used for that
purpose."cralaw virtua1aw library

The decree of the court provided, among other things, for the conveyance of the club
house and the land on which it stood from the defendant, Cho Jan Ling, in whose name
it was registered, to the members of the association. In affirming the decree, this court
said:jgc:chanrobles.com.ph

"In the case at bar the legal title of the holder of the registered title is not question; it is
admitted that the members of the association voluntarily obtained the inscription in the
name of Cho Jan Ling, and that they had no right to have that inscription cancelled; they
do not seek such cancellation, and on the contrary they allege and prove that the duly
registered legal title to the property is in Cho Jan Ling, but they maintain, and we think
that they rightly maintain, that he holds it under an obligation, both express and
implied, to deal with it exclusively for the benefit of the members of the association, and
subject to their will."cralaw virtua1aw library

In the case of Camacho v. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho,
took title to the land in his own name, while acting as agent for the municipality. The
court said:jgc:chanrobles.com.ph

"There have been a number of cases before this court in which a title to real property
was acquired by a person in his own name, while acting under a fiduciary capacity, and
who afterwards sought to take advantage of the confidence reposed in him by claiming
the ownership of the property for himself. This court has invariably held such evidence
competent as between the fiduciary and the cestui que trust.

x x x

"What judgment ought to be entered in this case? The court below simply absolved the
defendant from the complaint. The defendant municipality does not ask for a
cancellation of the deed. On the contrary, the deed is relied upon to supplement the oral
evidence showing that the title to the land is in the defendant. As we have indicated in
Consunji v. Tison, 15 Phil., 81, Uy Aloc v. Cho Jan Ling, 19 Phil., 202, the proper
procedure in such a case, so long as the rights of innocent third persons have not
intervened, is to compel a conveyance to the rightful owner. This ought and can be done
under the issues raised and the proof presented in the case at bar."cralaw virtua1aw
library

The case of Sy-Juco and Viardo v. Sy-Juco (40 Phil., 634) is also in point.

As will be seen from the authorities quoted, an agent is not only estopped from denying
hi principal’s title to the property, but he is also disable from acquiring interests therein
adverse to those of his principal during the term of the agency. But the defendant
argues that his title has become res adjudicata through the decree of registration and
cannot now be disturbed.

This contention may, at first sight, appear to possess some force, but on closer
examination it proves untenable. The decree of registration determined the legal title to
the land as of the date of the decree; as to that there is no question. That, under section
38 of the Land Registration Act, this decree became conclusive after one year from the
date of the entry is not disputed and no one attempts to disturb the decree of the
proceedings upon which it is based; the plaintiff in intervention merely contends that in
equity the legal title so acquired inured to the benefit of the estate of Melecio Severino,
the defendant’s principal and cestui que trust and asks that this superior equitable right
be made effective by compelling the defendant, as the holder of the legal title, to
transfer it to the estate.

We have already shown that before the issuance of the decree of registration it was the
undoubted duty of the defendant to restore the property committed to his custody to his
principal, or to the latter’s estate, and that the principal had a right of action in
personam to enforce the performance of this duty and to compel the defendant to
execute the necessary conveyance to that effect. The only question remaining for
consideration is, therefore, whether the decree of registration extinguished this personal
right of action.

In Australia and New Zealand, under statutes in this respect similar to ours, courts of
equity exercise general jurisdiction in matters of fraud and error with reference to
Torrens registered lands, and giving attention to the special provisions of the Torrens
acts, will issue such orders and directions to all the parties to the proceedings as may
seem just and proper under the circumstances. They may order parties to make deeds
of conveyance and if the order is disobeyed, they may cause proper conveyances to be
made by a Master in Chancery or Commissioner in accordance with the practice in equity
(Hogg, Australian Torrens System, p. 847).

In the United States courts have even gone so far in the exercise of their equity
jurisdiction as to set aside final decrees after the expiration of the statutory period of
limitation for the reopening of such decrees (Baart v. Martin, 99 Minn., 197). But,
considering that equity follows the law and that our statutes expressly prohibit the
reopening of a decree after one year from the date of its entry, this practice would
probably be out of question here, especially so as the ends of justice may be attained by
other equally effective, and less objectionable means.

Turning to our own Land Registration Act, we find no indication there of an intention to
cut off, through the issuance of a decree of registration, equitable rights or remedies
such as those here in question. On the contrary, section 70 of the Act
provides:jgc:chanrobles.com.ph

"Registered lands and ownership therein, shall in all respects be subject to the same
burdens and incidents attached by law to unregistered land. Nothing contained in this
Act shall in any way be construed to relieve registered land or the owners thereof from
any rights incident to the relation of husband and wife, or from liability to attachment on
mesne process or levy on execution, or from liability to any lien of any description
established by law on land and the buildings thereon, or the interest of the owner in
such land or buildings, or to change the laws of descent, or the rights of partition
between copartners, joint tenants and other cotenants, or the right to take the same by
eminent domain, or to relieve such land from liability to be appropriated in any lawful
manner for the payment of debts, or to change or affect in any other way any other
rights or liabilities created by law and applicable to unregistered land, except as
otherwise expressly provided in this Act or in the amendments hereof."cralaw virtua1aw
library

Section 102 of the Act, after providing for actions for damages in which the Insular
Treasurer, as the Custodian of the Assurance Fund is a party, contains the following
proviso:jgc:chanrobles.com.ph

"Provided, however, That nothing in this Act shall be construed to deprive the plaintiff of
any action which he may have against any person for such loss or damage or
deprivation of land or of any estate or interest therein without joining the Treasurer of
the Philippine Archipelago as a defendant therein."cralaw virtua1aw library

That an action such as the present one is covered by this proviso can hardly admit of
doubt. Such was also the view taken by this court in the case of Medina One-Quingco v.
Imaz and Warner, Barnes & Co. (27 Phil., 314), in which the plaintiff was seeking to
take advantage of his possession of a certificate of title to deprive the defendant of land
included in that certificate and sold to him by the former owner before the land was
registered. The court decided adversely to plaintiff and in so doing
said:jgc:chanrobles.com.ph

"As between them no question as to the indefeasibility of a Torrens title could arise.
Such an action could have been maintained at any time while the property remained in
the hands of the purchaser. The peculiar force of a Torrens title would have been
brought into play only when the purchaser had sold to an innocent third person for value
the lands described in his conveyance . . . Generally speaking, as between the vendor
and the purchaser the same rights and remedies exists with reference to land registered
under Act No. 496, as exist in relation to land not so registered."cralaw virtua1aw library

In Cabanos v. Register of Deeds of Laguna and Obinana (40 Phil., 620), it was held that,
while a purchaser of land under a pacto de retro cannot institute a real action for the
recovery thereof where the vendor under said sale has caused such lands to be
registered in his name without said vendee’s consent, yet he may have his personal
action based on the contract of sale to compel the execution of an unconditional deed for
the said lands when the period for repurchase has passed.

Torrens titles being based on judicial decrees there is, of course, a strong presumption
in favor of their regularity or validity, and in order to maintain an action such as the
present the proof as to the fiduciary relation of the parties and of the breach of trust
must be clear and convincing. Such proof is, as we have seen, not lacking in this case.

But once the relation and the breach of trust on the part of the fiduciary is thus
established, there is no reason, neither practical nor legal, why he should not be
compelled to make such reparation as may lie within his power for the injury caused by
his wrong, and as long as the land stands registered in the name of the party who is
guilty of the breach of trust and no rights of innocent third parties are adversely
affected, there can be no reason why such reparation should not, in the proper case,
take the form of a conveyance or transfer of the title to the cestui que trust. No reasons
of public policy demand that a person guilty of fraud or breach of trust be permitted to
use his certificate of title as a shield against the consequences of his own wrong.

The judgment of the trial court is in accordance with the facts and the law. In order to
prevent unnecessary delay and further litigation it may, however, be well to attach some
additional directions to its dispositive clauses. It will be observed that lots Nos. 827,
828, and 834 of a total area of approximately 191 hectares, lie wholly within the area to
be conveyed to the plaintiff in intervention and these lots may, therefore, be so
conveyed without subdivision. The remaining 237 hectares to be conveyed lie within the
western part of lot No. 874 and before a conveyance of this portion can be affected a
subdivision of that lot must be made and a technical description of the portion to be
conveyed, as well as of the remaining portion of the lot, must be prepared. The
subdivision shall be made by an authorized surveyor and in accordance with the
provisions of Circular No. 31 of the General Land Registration Office, and the subdivision
and technical descriptions shall be submitted t the Chief of that office for his approval.
Within thirty days after being notified of the approval of said subdivision and technical
descriptions, the defendant Guillermo Severino shall execute good and sufficient deed or
deeds of conveyance in favor of the administratrix of the estate of the deceased Melecio
Severino for said lots Nos. 827, 828, 834, and the 237 hectares segregated from the
western part of lot No. 874 and shall deliver to the register of deeds his duplicate
certificates may be cancelled and new certificates issued. The cost of the subdivision and
the fees of the register of deeds will be paid by the plaintiff in intervention. It is so
ordered.

With these additional directions the judgment appealed from is affirmed, with the costs
against the appellant. The right of the plaintiff Fabiola Severino to establish in the
probate proceedings of the estate of Melecio Severino her status as his recognized
natural child is reserved.
 G.R. No. L-49395 December 26, 1984

GREEN VALLEY POULTRY & ALLIED PRODUCTS, INC., petitioner vs. THE INTERMEDIATE
APPELLATE COURT and E.R. SQUIBB & SONS PHILIPPINE CORPORATION, respondents.

This is a petition to review a decision of the defunct Court of Appeals which affirmed the judgment of
the trial court whereby:

... judgment is hereby rendered in favor of the plaintiff [E.R. Squibb & Sons Philippine
Corporation], ordering the defendant [Green Valley Poultry & Allied Products, Inc.] to
pay the sum of P48,374.74 plus P96.00 with interest at 6% per annum from the filing of
this action; plus attorney's fees in the amount of P5,000.00 and to pay the costs.

On November 3, 1969, Squibb and Green Valley entered into a letter agreement the text of which
reads as follows:

E.R. Squibb & Sons Philippine Corporation is pleased to appoint Green Valley Poultry & Allied
Products, Inc. as a non-exclusive distributor for Squibb Veterinary Products, as recommended
by Dr. Leoncio D. Rebong, Jr. and Dr. J.G. Cruz, Animal Health Division Sales Supervisor.

As a distributor, Green Valley Poultry & Allied Products, Inc. wig be entitled to a discount as
follows:

Feed Store Price (Catalogue)

Less 10%

Wholesale Price

Less 10%

Distributor Price

There are exceptions to the above price structure. At present, these are:

1. Afsillin Improved — 40 lbs. bag

The distributor commission for this product size is 8% off P120.00

2. Narrow — Spectrum Injectible Antibiotics

These products are subject to price fluctuations. Therefore, they are invoiced at net price per
vial.

3. Deals and Special Offers are not subject to the above distributor price structure. A 5%
distributor commission is allowed when the distributor furnishes copies for each sale of a
complete deal or special offer to a feedstore, drugstore or other type of account.

Deals and Special Offers purchased for resale at regular price invoiced at net deal or special
offer price.
 Prices are subject to change without notice. Squibb will endeavor to advise you promptly of
any price changes. However, prices in effect at the tune orders are received by Squibb Order
Department will apply in all instances.

Green Valley Poultry & Allied Products, Inc. win distribute only for the Central Luzon and
Northern Luzon including Cagayan Valley areas. We will not allow any transfer or stocks from
Central Luzon and Northern Luzon including Cagayan Valley to other parts of Luzon, Visayas
or Mindanao which are covered by our other appointed Distributors. In line with this, you will
follow strictly our stipulations that the maximum discount you can give to your direct and
turnover accounts will not go beyond 10%.

It is understood that Green Valley Poultry and Allied Products, Inc. will accept turn-over orders
from Squibb representatives for delivery to customers in your area. If for credit or other valid
reasons a turn-over order is not served, the Squibb representative will be notified within 48
hours and hold why the order will not be served.

It is understood that Green Valley Poultry & Allied Products, Inc. will put up a bond of
P20,000.00 from a mutually acceptable bonding company.

Payment for Purchases of Squibb Products will be due 60 days from date of invoice or the
nearest business day thereto. No payment win be accepted in the form of post-dated checks.
Payment by check must be on current dating.

It is mutually agreed that this non-exclusive distribution agreement can be terminated by either
Green Valley Poultry & Allied Products, Inc. or Squibb Philippines on 30 days notice.

I trust that the above terms and conditions will be met with your approval and that the
distributor arrangement will be one of mutual satisfaction.

If you are agreeable, please sign the enclosed three (3) extra copies of this letter and return
them to this Office at your earliest convenience.

Thank you for your interest and support of the products of E.R. Squibb & Sons Philippines
Corporation. (Rollo, pp. 12- 13.)

For goods delivered to Green Valley but unpaid, Squibb filed suit to collect. The trial court as
aforesaid gave judgment in favor of Squibb which was affirmed by the Court of Appeals.

In both the trial court and the Court of Appeals, the parties advanced their respective theories. Green
Valley claimed that the contract with Squibb was a mere agency to sell; that it never purchased goods
from Squibb; that the goods received were on consignment only with the obligation to turn over the
proceeds, less its commission, or to return the goods ff not sold, and since it had sold the goods but
had not been able to collect from the purchasers thereof, the action was premature.

Upon the other hand, Squibb claimed that the contract was one of sale so that Green Valley was
obligated to pay for the goods received upon the expiration of the 60-day credit period. Both courts
below upheld the claim of Squibb that the agreement between the parties was a sales contract. We
do not have to categorize the contract. Whether viewed as an agency to sell or as a contract of sale,
the liability of Green Valley is indubitable. Adopting Green Valley's theory that the contract is an
agency to sell, it is liable because it sold on credit without authority from its principal. The Civil Code
has a provision exactly in point. It reads:
 Art. 1905. The commission agent cannot, without the express or implied consent of the
principal, sell on credit. Should he do so, the principal may demand from him payment
in cash, but the commission agent shall be entitled to any interest or benefit, which may
result from such sale.

WHEREFORE, the petition is hereby dismissed; the judgment of the defunct Court of Appeals is
affirmed with costs against the petitioner. SO ORDERED.
 G.R. No. L-42465 November 19, 1936

INTERNATIONAL FILMS (CHINA), LTD., plaintiff-appellant, vs. THE LYRIC FILM EXCHANGE,
INC., defendant-appellee.

This is an appeal taken by the plaintiff company International Films (China), Ltd. from the judgment of
the Court of First Instance of Manila dismissing the complaint filed by it against the defendant
company the Lyric Film Exchange, Inc., with costs to said plaintiff.

In support of its appeal the appellant assigns six alleged errors as committed by the court a quo in its
said judgment, which will be discussed in the course of this decision.

The record shows that Bernard Gabelman was the Philippine agent of the plaintiff company
International Films (China), Ltd. by virtue of a power of attorney executed in his favor on April 5, 1933
(Exhibit 1). On June 2, 1933, the International Films (China), Ltd., through its said agent, leased the
film entitled "Monte Carlo Madness" to the defendant company, the Lyric Film Exchange, Inc., to be
shown in Cavite for two consecutive days, that is, on June 1 and 2, 1933, for 30 per cent of the
receipts; in the Cuartel de España for one day, or on June 6, 1933, for P45; in the University Theater
for two consecutive days, or on June 8, and 9, 1933, for 30 per cent of the receipts; in Stotsenburg for
two consecutive days, or on June 18 and 19, 1933, for 30 per cent of the receipts, and in the Paz
Theater for two consecutive days, or on June 21 and 22, 1933, for 30 per cent of the receipts (Exhibit
C). One of the conditions of the contract was that the defendant company would answer for the loss
of the film in question whatever the cause. On June 23, 1933, following the last showing of the film in
question in the Paz Theater, Vicente Albo, then chief of the film department of the Lyric Film
Exchange, Inc., telephoned said agent of the plaintiff company informing him that the showing of said
film had already finished and asked, at the same time, where he wished to have the film returned to
him. In answer, Bernard Gabelman informed Albo that he wished to see him personally in the latter's
office. At about 11 o'clock the next morning, Gabelman went to Vicente Albo's office and asked
whether he could deposit the film in question in the vault of the Lyric Film Exchange, Inc., as the
International Films (China) Ltd. did not yet have a safety vault, as required by the regulations of the
fire department. After the case had been referred to O'Malley, Vicente Albo's chief, the former
answered that the deposit could not be made inasmuch as the film in question would not be covered
by the insurance carried by the Lyric Film Exchange, Inc. Bernard Gabelman then requested Vicente
Albo to permit him to deposit said film in the vault of the Lyric Film Exchange, Inc., under Gabelman's
own responsibility. As there was a verbal contract between Gabelman and the Lyric Film Exchange
Inc., whereby the film "Monte Carlo Madness" would be shown elsewhere, O'Malley agreed and the
film was deposited in the vault of the defendant company under Bernard Gabelman's responsibility.

About July 27, 1933, Bernard Gabelman severed his connection with the plaintiff company, being
succeeded by Lazarus Joseph. Bernard Gabelman, upon turning over the agency to the new agent,
informed the latter of the deposit of the film "Monte Carlo Madness" in the vault of the defendant
company as well as of the verbal contract entered into between him and the Lyric Film Exchange,
Inc., whereby the latter would act as a subagent of the plaintiff company, International Films (China)
Ltd., with authority to show this film "Monte Carlo Madness" in any theater where said defendant
company, the Lyric Film Exchange, Inc., might wish to show it after the expiration of the contract
Exhibit C. As soon as Lazarus Joseph had taken possession of the Philippine agency of the
International Films (China) Ltd., he went to the office of the Lyric Film Exchange, Inc., to ask for the
return not only of the film "Monte Carlo Madness" but also of the films "White Devils" and "Congress
Dances". On August 13 and 19, 1933, the Lyric Film Exchange, Inc., returned the films entitled
"Congress Dances" and "White Devils" to Lazarus Joseph, but not the film "Monte Carlo Madness"
because it was to be shown in Cebu on August 29 and 30, 1933. Inasmuch as the plaintiff would
profit by the showing of the film "Monte Carlo Madness", Lazarus Joseph agreed to said exhibition. It
happened, however, that the bodega of the Lyric Film Exchange, Inc., was burned on August 19,
1933, together with the film "Monte Carlo Madness" which was not insured.

The first question to be decided in this appeal, which is raised in the first assignment of alleged error,
is whether or not the court a quo erred in allowing the defendant company to amend its answer after
both parties had already rested their respective cases.

In Torres Viuda de Nery vs. Tomacruz (49 Phil., 913, 915), this court, through Justice Malcolm, said:

Sections 109 and 110 of the Philippine Code of Civil Procedure, relating to the subjects of
Variance and Amendments in General, should be equitably applied to the end that cases may
be favorably and fairly presented upon their merits, and that equal and exact justice may be
done between the parties. Under code practice, amendments to pleadings are favored, and
should be liberally allowed in furtherance of justice. This liberality, it has been said, is greatest
in the early stages of a lawsuit, decreases as it progresses, and changes at times to a
strictness amounting to a prohibition. The granting of leave to file amended pleadings is a
matter peculiarly within the sound discretion of the trial court. The discretion will not be
disturbed on appeal, except in case of an evident abuse thereof. But the rule allowing
amendments to pleadings is subject to the general but not inflexible limitation that the cause of
action or defense shall not be substantially changed, or that the theory of the case shall not be
altered. (21 R. C. L., pp. 572 et seq.; 3 Kerr's Cyc. Codes of California, sections 469, 470 and
473; Ramirez vs. Murray [1855], 5 Cal., 222; Hayden vs. Hayden [1873], 46 Cal., 332;
Hackett vs. Bank of California [1881], 57 Cal., 335; Hancock vs. Board of Education of City of
Santa Barbara [1903], 140 Cal., 554; Dunphy vs. Dunphy [1911], 161 Cal., 87; 38 L. R. A. [N.
S.], 818.)lawphi1.net

In the case of Gould vs. Stafford (101 Cal., 32, 34), the Supreme Court of California, interpreting
section 473 of the Code of Civil Procedure of said State, from which section 110 of our Code was
taken, stated as follows:

The rule is that courts will be liberal in allowing an amendment to a pleading when it does not
seriously impair the rights of the opposite party — and particularly an amendment to an
answer. A defendant can generally set up as many defenses as he may have. Appellant
contends that the affidavits upon which the motion to amend was made show that it was based
mainly on a mistake of law made by respondent's attorney; but, assuming that to be, so, still
the power of a court to allow an amendment is not limited by the character of the mistake
which calls forth its exercise. The general rule that a party cannot be relieved from an
ordinary contract which is in its nature final, on account of a mistake of law, does not apply to
proceedings in an action at law while it is pending and undetermined. Pleadings are not
necessarily final until after judgment. Section 473 of the Code of Civil Procedure provides that
the court may allow an amendment to a pleading to correct certain enumerated mistakes or "a
mistake in any other respect," and "in other particulars." The true rule is well stated in
Ward vs. Clay (62 Cal. 502). In the case at bar evidence of the lease was given at the first trial;
and we cannot see that the amendment before the second trial put plaintiff in a position any
different from that which he would have occupied if the amendment had been made before the
first trial.

In the case of Ward vs. Clay (82 Cal., 502, 510), the Supreme Court of said State stated:
 The principal purpose of vesting the court with this discretionary power is to enable it "to mold
and direct its proceedings so as to dispose of cases upon their substantial merits," when it can
be done without injustice to either party, whether the obstruction to such a disposition of cases
be a mistake of fact or a mistake as to the law; although it may be that the court should require
a stronger showing to justify relief from the effect of a mistake in law than in case of a mistake
as to matter of fact. The exercise of the power conferred by section 473 of the code, however,
should appear to have, been "in furtherance of justice," and the relief, if any, should be granted
upon just terms.

Lastly, in the case of Simpson vs. Miller (94 Pac., 253), the said Supreme Court of California said:

In an action to recover property which had vested in plaintiff's trustee in bankruptcy prior to the
suit, an amendment to the answer, made after both parties had rested, but before the cause
was submitted, pleading plaintiff's bankruptcy in bar to the action, was properly allowed in the
discretion of the court.

Under the above-cited doctrines, it is discretionary in the court which has cognizance of a case to
allow or not the amendment of an answer for the purpose of questioning the personality of the plaintiff
to bring the action, even after the parties had rested their cases, as it causes no injustice to any of the
parties, and this court will not interfere in the exercise of said discretion unless there is an evident
abuse thereof, which does not exist in this case.

The second question to be decided is whether or not the defendant company, the Lyric Film
Exchange, Inc., is responsible to the plaintiff, International Films (China) Ltd., for the destruction by
fire of the film in question, entitled "Monte Carlo Madness".

The plaintiff company claims that the defendant's failure to return the film "Monte Carlo Madness" to
the former was due to the fact that the period for the delivery thereof, which expired on June 22,
1933, had been extended in order that it might be shown in Cebu on August 29 and 30, 1933, in
accordance with an understanding had between Lazarus Joseph, the new agent of the plaintiff
company, and the defendant. The defendant company, on the other hand, claims that when it wanted
to return the film "Monte Carlo Madness" to Bernard Gabelman, the former agent of the plaintiff
company, because of the arrival of the date for the return thereof, under the contract Exhibit C, said
agent, not having a safety vault, requested Vicente Albo, chief of the film department of the defendant
company, to keep said film in the latter's vault under Gabelman's own responsibility, verbally
stipulating at the same time that the defendant company, as subagent of the International Films
(China) Ltd., might show the film in question in its theaters.

It does not appear sufficiently proven that the understanding had between Lazarus Joseph, second
agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant
company, was that the defendant company would continue showing said film under the same contract
Exhibit C. The preponderance of evidence shows that the verbal agreement had between Bernard
Gabelman, the former agent of the plaintiff company, and Vicente Albo, chief of the film department of
the defendant company, was that said film "Monte Carlo Madness" would remain deposited in the
safety vault of the defendant company under the responsibility of said former agent and that the
defendant company, as his subagent, could show it in its theaters, the plaintiff company receiving 5
per cent of the receipts up to a certain amount, and 15 per cent thereof in excess of said amount.

If, as it has been sufficiently proven in our opinion, the verbal contract had between Bernard
Gabelman, the former agent of the plaintiff company, and Vicente Albo, chief of the film department of
the defendant company, was a sub-agency or a submandate, the defendant company is not civilly
liable for the destruction by fire of the film in question because as a mere submandatary or subagent,
it was not obliged to fulfill more than the contents of the mandate and to answer for the damages
caused to the principal by his failure to do so (art. 1718, Civil Code). The fact that the film was not
insured against fire does not constitute fraud or negligence on the part of the defendant company, the
Lyric Film Exchange, Inc., because as a subagent, it received no instruction to that effect from its
principal and the insurance of the film does not form a part of the obligation imposed upon it by law.

As to the question whether or not the defendant company having collected the entire proceeds of the
fire insurance policy of its films deposited in its vault, should pay the part corresponding to the film in
question which was deposited therein, the evidence shows that the film "Monte Carlo Madness"
under consideration was not included in the insurance of the defendant company's films, as this was
one of the reasons why O'Malley at first refused to receive said film for deposit and he consented
thereto only when Bernard Gabelman, the former agent of the plaintiff company, insisted upon his
request, assuming all responsibility. Furthermore, the defendant company did not collect from the
insurance company an amount greater than that for which its films were insured, notwithstanding the
fact that the film in question was included in the vault, and it would have collected the same amount
even if said film had not been deposited in its safety vault. Inasmuch as the defendant company, The
Lyric Film Exchange, Inc., had not been enriched by the destruction by fire of the plaintiff company's
film, it is not liable to the latter.

For the foregoing considerations, we are of the opinion and so hold: (1) That the court a quo acted
within its discretionary power in allowing the defendant company to amend its answer by pleading the
special defense of the plaintiff company's lack of personality to bring the action, after both parties had
already rested their respective cases; (2) that the defendant company, as subagent of the plaintiff in
the exhibition of the film "Monte Carlo Madness", was not obliged to insure it against fire, not having
received any express mandate to that effect, and it is not liable for the accidental destruction thereof
by fire.

Wherefore, and although on a different ground, the appealed judgment is affirmed, with the costs to
the appellant. So ordered.
 G.R. No. 183486

THE HONGKONG & SHANGHAI BANKING CORPORATION, LIMITED, Petitioner, vs. NATIONAL
STEEL CORPORATION and CITYTRUST BANKING CORPORATION (NOW BANK OF THE
PHILIPPINE ISLANDS), Respondents.

This is a petition for review on certiorari under Rule 45 of the Rules of Court. Petitioner The
Hongkong & Shanghai Banking Corporation, Limited (HSBC) filed this petition to assail the Decision
of the Court of Appeals (CA) dated November 19, 2007 (Assailed Decision) which reversed the ruling
of the Regional Trial Court, Branch 62 of Makati City (RTC Makati) and its Resolution denying
HSBC's Motion for Reconsideration dated June 23, 2008 (Assailed Resolution).

The Facts

Respondent National Steel Corporation (NSC) entered into an Export Sales Contract (the Contract)
with Klockner East Asia Limited (Klockner) on October 12, 1993. 1 NSC sold 1,200 metric tons of
prime cold rolled coils to Klockner under FOB ST Iligan terms. In accordance with the requirements in
the Contract, Klockner applied for an irrevocable letter of credit with HSBC in favor of NSC as the
beneficiary in the amount of US$468,000. On October 22, 1993, HSBC issued an irrevocable and
onsight letter of credit no. HKH 239409 (the Letter of Credit) in favor of NSC. 2 The Letter of Credit
stated that it is governed by the International Chamber of Commerce Uniform Customs and Practice
for Documentary Credits, Publication No. 400 (UCP 400). Under UCP 400, HSBC as the issuing
bank, has the obligation to immediately pay NSC upon presentment of the documents listed in the
Letter of Credit.3 These documents are: (1) one original commercial invoice; (2) one packing list; (3)
one non-negotiable copy of clean on board ocean bill of lading made out to order, blank endorsed
marked 'freight collect and notify applicant;' (4) copy of Mill Test Certificate made out 'to whom it may
concern;' (5) copy of beneficiary's telex to applicant (Telex No. 86660 Klock HX) advising shipment
details including DIC No., shipping marks, name of vessel, port of shipment, port of destination, bill of
lading date, sailing and ETA dates, description of goods, size, weight, number of packages and value
of goods latest two days after shipment date; and (6) beneficiary's certificate certifying that (a) one set
of non-negotiable copies of documents (being those listed above) have been faxed to applicant (FAX
No. 5294987) latest two days after shipment date; and (b) one set of documents including one copy
each of invoice and packing list, 3/3 original bills of lading plus one non-negotiable copy and three
original Mill Test Certificates have been sent to applicant by air courier service latest two days after
shipment date. 4

The Letter of Credit was amended twice to reflect changes in the terms of delivery. On November 2,
1993, the Letter of Credit was first amended to change the delivery terms from FOB ST Iligan to FOB
ST Manila and to increase the amount to US$488,400.5 It was subsequently amended on November
18, 1993 to extend the expiry and shipment date to December 8, 1993. 6 On November 21, 1993,
NSC, through Emerald Forwarding Corporation, loaded and shipped the cargo of prime cold rolled
coils on board MV Sea Dragon under China Ocean Shipping Company Bill of Lading No. HKG
266001. The cargo arrived in Hongkong on November 25, 1993.7

NSC coursed the collection of its payment from Klockner through CityTrust Banking Corporation
(CityTrust). NSC had earlier obtained a loan from CityTrust secured by the proceeds of the Letter of
Credit issued by HSBC.8

On November 29, 1993, CityTrust sent a collection order (Collection Order) to HSBC respecting the
collection of payment from Klockner. The Collection Order instructed as follows: (1) deliver
documents against payment; (2) cable advice of non-payment with reason; (3) cable advice payment;
and (4) remit proceeds via TELEX. 9 The Collection Order also contained the following statement:
"Subject to Uniform Rules for the Collection of Commercial Paper Publication No. 322." 10 Further, the
Collection Order stated that proceeds should be remitted to Standard Chartered Bank of Australia,
Ltd., Offshore Branch Manila (SCB-M) which was, in turn, in charge of remitting the amount to
CityTrust. 11 On the same date, CityTrust also presented to HSBC the following documents: (1) Letter
of Credit; (2) Bill of Lading; (3) Commercial Invoice; ( 4) Packing List; (5) Mill Test Certificate; (6)
NSC's TELEX to Klockner on shipping details; (7) Beneficiary's Certificate of facsimile transmittal of
documents; (8) Beneficiary's Certificate of air courier transmittal of documents; and (9) DHL Receipt
No. 669988911 and Certificate of Origin. 12

On December 2, 1993, HSBC sent a cablegram to CityTrust acknowledging receipt of the Collection
Order. It also stated that the documents will be presented to "the drawee against payment subject to
UCP 322 [Uniform Rules for Collection (URC) 322] as instructed ... " 13 SCB-M then sent a cablegram
to HSBC requesting the latter to urgently remit the proceeds to its account. It further asked that HSBC
inform it "if unable to pay" 14 and of the "reasons thereof." 15 Neither CityTrust nor SCB-M objected to
HSBC's statement that the collection will be handled under the Uniform Rules for Collection (URC
322).

On December 7, 1993, HSBC responded to SCB-M and sent a cablegram where it repeated that "this
bill is being handled subject to [URC] 322 as instructed by [the] collecting bank." 16 It also informed
SCB-M that it has referred the matter to Klockner for payment and that it will revert upon the receipt of
the amount. 17 On December 8, 1993, the Letter of Credit expired.18

On December 10, 1993, HSBC sent another cablegram to SCB-M advising it that Klockner had
refused payment. It then informed SCB-M that it intends to return the documents to NSC with all the
banking charges for its account. 19In a cablegram dated December 14, 1993, CityTrust requested
HSBC to inform it of Klockner's reason for refusing payment so that it may refer the matter to
NSC.20 HSBC did not respond and CityTrust thus sent a follow-up cablegram to HSBC on December
17, 1993. In this cablegram, CityTrust insisted that a demand for payment must be made from
Klockner since the documents "were found in compliance with LC terms and conditions." 21 HSBC
replied on the same day stating that in accordance with CityTrust's instruction in its Collection Order,
HSBC treated the transaction as a matter under URC 322. Thus, it demanded payment from Klockner
which unfortunately refused payment for unspecified reasons. It then noted that under URC 322,
Klockner has no duty to provide a reason for the refusal. Hence, HSBC requested for further
instructions as to whether it should continue to press for payment or return the documents. 22 CityTrust
responded that as advised by its client, HSBC should continue to press for payment. 23

Klockner continued to refuse payment and HSBC notified CityTrust in a cablegram dated January 7,
1994, that should Klockner still refuse to accept the bill by January 12, 1994, it will return the full set
of documents to CityTrust with all the charges for the account of the drawer. 24

Meanwhile, on January 12, 1994, CityTrust sent a letter to NSC stating that it executed NSC's
instructions "to send, ON COLLECTION BASIS, the export documents ... " 25 CityTrust also explained
that its act of sending the export documents on collection basis has been its usual practice in
response to NSC's instructions in its transactions.26

NSC responded to this in a letter dated January 18, 1994.27 NSC expressed its disagreement with
CityTrust's contention that it sent the export documents to HSBC on collection basis. It highlighted
that it "negotiated with CityTrust the export documents pertaining to LC No. HKH 239409 of HSBC
and it was CityTrust, which wrongfully treated the negotiation, as 'on collection basis."' 28 NSC further
claimed that CityTrust used its own mistake as an excuse against payment under the Letter of Credit.
Thus, NSC argued that CityTrust remains liable under the Letter of Credit. It also stated that it
presumes that CityTrust has preserved whatever right of reimbursement it may have against
HSBC. 29

On January 13, 1994, CityTrust notified HSBC that it should continue to press for payment and to
hold on to the document until further notice. 30

However, Klockner persisted in its refusal to pay. Thus, on February 17, 1994, HSBC returned the
documents to CityTrust. 31 In a letter accompanying the returned documents, HSBC stated that it
considered itself discharged of its duty under the transaction. It also asked for payment of handling
charges.32 In response, CityTrust sent a cablegram to HSBC dated February 21, 1994 stating that it is
"no longer possible for beneficiary to wait for you to get paid by applicant." 33 It explained that since
the documents required under the Letter of Credit have been properly sent to HSBC, Citytrust
demanded payment from it. CityTrust also stated, for the first time in all of its correspondence with
HSBC, that "re your previous telexes, ICC Publication No. 322 is not applicable."34 HSBC responded
in cablegram dated February 28, 1994.35 It insisted that CityTrust sent documents which clearly
stated that the collection was being made under URC 322. Thus, in accordance with its instructions,
HSBC, in the next three months, demanded payment from Klockner which the latter eventually
refused. Hence, HSBC stated that it opted to return the documents. It then informed CityTrust that it
considered the transaction closed save for the latter's obligation to pay the handling charges. 36

Disagreeing with HSBC' s position, CityTrust sent a cablegram dated March 9, 1994. 37 It insisted that
HSBC should pay it in accordance with the terms of the Letter of Credit which it issued on October
22, 1993. Under the Letter of Credit, HSBC undertook to reimburse the presenting bank under "ICC
400 upon the presentment of all necessary documents." 38 CityTrust also stated that the reference to
URC 322 in its Collection Order was merely in fine print. The Collection Order itself was only pro-
forma. CityTrust emphasized that the reference to URC 322 has been "obviously superseded by our
specific instructions to 'deliver documents against payment/cable advice non-payment with
reason/cable advice payment/remit proceeds via telex' which was typed in on said form." 39 CityTrust
also claimed that the controlling document is the Letter of Credit and not the mere fine print on the
Collection Order.40HSBC replied on March 10, 1994.41 It argued that CityTrust clearly instructed it to
collect payment under URC 322, thus, CityTrust can no longer claim a contrary position three months
after it made its request. HSBC repeated that the transaction is closed except for CityTrust's
obligation to pay for the expenses which HSBC incurred.42

Meanwhile, on March 3, 1994, NSC sent a letter to HSBC where it, for the first time, demanded
payment under the Letter of Credit. 43 On March 11, 1994, the NSC sent another letter to HSBC
through the Office of the Corporate Counsel which served as its final demand. These demands were
made after approximately four months from the expiration of the Letter of Credit.

Unable to collect from HSBC, NSC filed a complaint against it for collection of sum of money
(Complaint)44 docketed as Civil Case No. 94-2122 (Collection Case) of the RTC Makati. In its
Complaint, NSC alleged that it coursed the collection of the Letter of Credit through CityTrust.
However, notwithstanding CityTrust's complete presentation of the documents in accordance with the
requirements in the Letter of Credit, HSBC unreasonably refused to pay its obligation in the amount of
US$485,767.93.45

HSBC filed its Answer46 on January 6, 1995. HSBC denied any liability under the Letter of Credit. It
argued in its Answer that CityTrust modified the obligation when it stated in its Collection Order that
the transaction is subject to URC 322 and not under UCP 400. 47 It also filed a Motion to Admit
Attached Third-Party Complaint48 against CityTrust on November 21, 1995.49 It claimed that CityTrust
instructed it to collect payment under URC 322 and never raised that it intended to collect under the
Letter of Credit.50 HSBC prayed that in the event that the court finds it liable to NSC, CityTrust should
be subrogated in its place and be made directly liable to NSC. 51 The RTC Makati granted the motion
and admitted the third party complaint. CityTrust filed its Answer52 on January 8, 1996. CityTrust
denied that it modified the obligation. It argued that as a mere agent, it cannot modify the terms of the
Letter of Credit without the consent of all the parties. 53 Further, it explained that the supposed
instruction that the transaction is subject to URC 322 was merely in fine print in a pro forma document
and was superimposed and pasted over by a large pink sticker with different remittance instructions. 54

After a full-blown trial,55 the RTC Makati rendered a decision (RTC Decision) dated February 23,
2000.56 It found that HSBC is not liable to pay NSC the amount stated in the Letter of Credit. It ruled
that the applicable law is URC 322 as it was the law which CityTrust intended to apply to the
transaction. Under URC 322, HSBC has no liability to pay when Klockner refused payment. The
dispositive portion states -

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Plaintiffs Complaint against HSBC is DISMISSED; and, HSBC's Counterclaims against NSC
are DENIED.

2. Ordering Third-Party Defendant CityTrust to pay Third-Party Plaintiff HSBC the following:

2.1 US$771.21 as actual and consequential damages; and

2.2 Pl00,000 as attorney's fees.

3. No pronouncement as to costs.

SO ORDERED.57

NSC and CityTrust appealed the RTC Decision before the CA. In its Assailed Decision dated
November 19, 2007,58the CA reversed the RTC Makati. The CA found that it is UCP 400 and not
URC 322 which governs the transaction. According to the CA, the terms of the Letter of Credit clearly
stated that UCP 400 shall apply. Further, the CA explained that even if the Letter of Credit did not
state that UCP 400 governs, it nevertheless finds application as this Court has consistently
recognized it under Philippine jurisdiction. Thus, applying UCP 400 and principles concerning letters
of credit, the CA explained that the obligation of the issuing bank is to pay the seller or beneficiary of
the credit once the draft and the required documents are properly presented. Under the
independence principle, the issuing bank's obligation to pay under the letter of credit is separate from
the compliance of the parties in the main contract. The dispositive portion held -

WHEREFORE, in view of the foregoing, the assailed decision is hereby REVERSED and SET
ASIDE. HSBC is ordered to pay its obligation under the irrevocable letter of credit in the amount of
US$485,767.93 to NSC with legal interest of six percent (6%) per annum from the filing of the
complaint until the amount is fully paid, plus attorney's fees equivalent to 10% of the principal. Costs
against appellee HSBC.

SO ORDERED.59

HSBC filed a Motion for Reconsideration of the Assailed Decision which the CA denied in its Assailed
Resolution dated June 23, 2008.60
Hence, HSBC filed this Petition for Review on Certiorari61 before this Court, seeking a reversal of the
CA' s Assailed Decision and Resolution. In its petition, HSBC contends that CityTrust's order to
collect under URC 322 did not modify nor contradict the Letter of Credit. In fact, it is customary
practice in commercial transactions for entities to collect under URC 322 even if there is an
underlying letter of credit. Further, CityTrust acted as an agent of NSC in collecting payment and as
such, it had the authority to instruct HSBC to proceed under URC 322 and not under UCP 400.
Having clearly and expressly instructed HSBC to collect under URC 322 and having fully intended the
transaction to proceed under such rule as shown by the series of correspondence between CityTrust
and HSBC, CityTrust is estopped from now claiming that the collection was made under UCP 400 in
accordance with the Letter of Credit.

NSC, on the other hand, claims that HSBC's obligation to pay is clear from the terms of the Letter of
Credit and under UCP 400. It asserts that the applicable rule is UCP 400 and HSBC has no basis to
argue that CityTrust's presentment of the documents allowed HSBC to vary the terms of their
agreement. 62

The Issues

The central question in this case is who among the parties bears the liability to pay the amount stated
in the Letter of Credit. This requires a determination of which between UCP 400 and URC 322
governs the transaction. The obligations of the parties under the proper applicable rule will, in turn,
determine their liability.

The Ruling of the Court

We uphold the CA.

The nature of a letter of credit

A letter of credit is a commercial instrument developed to address the unique needs of certain
commercial transactions. It is recognized in our jurisdiction and is sanctioned under Article 567 63 of
the Code of Commerce and in numerous jurisprudence defining a letter of credit, the principles
relating to it, and the obligations of parties arising from it.

In Bank of America, NT & SA v. Court of Appeals,64 this Court defined a letter of credit as " ... a
financial device developed by merchants as a convenient and relatively safe mode of dealing with
sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his
goods before he is paid, and a buyer, who wants to have control of the goods before
paying."65 Through a letter of credit, a buyer obtains the credit of a third party, usually a bank, to
provide assurance of payment.66

This, in turn, convinces a seller to part with his or her goods even before he or she is paid, as he or
she is insured by the third party that he or she will be paid as soon as he or she presents the
documents agreed upon. 67

A letter of credit generally arises out of a separate contract requiring the assurance of payment of a
third party. In a transaction involving a letter of credit, there are usually three transactions and three
parties. The first transaction, which constitutes the underlying transaction in a letter of credit, is a
contract of sale between the buyer and the seller. The contract may require that the buyer obtain a
letter of credit from a third party acceptable to the seller. The obligations of the parties under this
contract are governed by our law on sales.
The second transaction is the issuance of a letter of credit between the buyer and the issuing bank.
The buyer requests the issuing bank to issue a letter of credit naming the seller as the beneficiary. In
this transaction, the issuing bank undertakes to pay the seller upon presentation of the documents
identified in the letter of credit. The buyer, on the other hand, obliges himself or herself to reimburse
the issuing bank for the payment made. In addition, this transaction may also include a fee for the
issuing bank's services. 68 This transaction constitutes an obligation on the part of the issuing bank to
perform a service in consideration of the buyer's payment. The obligations of the parties and their
remedies in cases of breach are governed by the letter of credit itself and by our general law on
obligations, as our civil law finds suppletory application in commercial documents. 69

The third transaction takes place between the seller and the issuing bank. The issuing bank issues
the letter of credit for the benefit of the seller. The seller may agree to ship the goods to the buyer
even before actual payment provided that the issuing bank informs him or her that a letter of credit
has been issued for his or her benefit. This means that the seller can draw drafts from the issuing
bank upon presentation of certain documents identified in the letter of credit. The relationship
between the issuing bank and the seller is not strictly contractual since there is no privity of contract
nor meeting of the minds between them. 70 It also does not constitute a stipulation pour autrui in favor
of the seller since the issuing bank must honor the drafts drawn against the letter of credit regardless
of any defect in the underlying contract.71 Neither can it be considered as an assignment by the buyer
to the seller-beneficiary as the buyer himself cannot draw on the letter. 72 From its inception, only the
seller can demand payment under the letter of credit. It is also not a contract of suretyship or guaranty
since it involves primary liability in the event of default. 73 Nevertheless, while the relationship
between the seller-beneficiary and the issuing bank is not strictly contractual, strict payment under the
terms of a letter of credit is an enforceable right. 74 This enforceable right finds two legal
underpinnings. First, letters of credit, as will be further explained, are governed by recognized
international norms which dictate strict compliance with its terms. Second, the issuing bank has an
existing agreement with the buyer to pay the seller upon proper presentation of documents. Thus, as
the law on obligations applies even in commercial documents, 75 the issuing bank has a duty to the
buyer to honor in good faith its obligation under their agreement. As will be seen in the succeeding
discussion, this transaction is also governed by international customs which this Court has
recognized in this jurisdiction. 76

In simpler terms, the various transactions that give rise to a letter of credit proceed as follows: Once
the seller ships the goods, he or she obtains the documents required under the letter of credit. He or
she shall then present these documents to the issuing bank which must then pay the amount
identified under the letter of credit after it ascertains that the documents are complete. The issuing
bank then holds on to these documents which the buyer needs in order to claim the goods shipped.
The buyer reimburses the issuing bank for its payment at which point the issuing bank releases the
documents to the buyer. The buyer is then able to present these documents in order to claim the
goods. At this point, all the transactions are completed. The seller received payment for his or her
performance of his obligation to deliver the goods. The issuing bank is reimbursed for the payment it
made to the seller. The buyer received the goods purchased.

Owing to the complexity of these contracts, there may be a correspondent bank which facilitates the
ease of completing the transactions. A correspondent bank may be a notifying bank, a negotiating
bank or a confirming bank depending on the nature of the obligations assumed. 77 A notifying bank
undertakes to inform the seller-beneficiary that a letter of credit exists. It may also have the duty of
transmitting the letter of credit. As its obligation is limited to this duty, it assumes no liability to pay
under the letter of credit. 78 A negotiating bank, on the other hand, purchases drafts at a discount from
the seller-beneficiary and presents them to the issuing bank for payment. 79 Prior to negotiation, a
negotiating bank has no obligation. A contractual relationship between the negotiating bank and the
seller-beneficiary arises only after the negotiating bank purchases or discounts the
drafts. 80 Meanwhile, a confirming bank may honor the letter of credit issued by another bank or
confirms that the letter of credit will be honored by the issuing bank. 81 A confirming bank essentially
insures that the credit will be paid in accordance with the terms of the letter of credit. 82 It therefore
assumes a direct obligation to the seller-beneficiary. 83

Parenthetically, when banks are involved in letters of credit transactions, the standard of care
imposed on banks engaged in business imbued with public interest applies to them. Banks have the
duty to act with the highest degree of diligence in dealing with clients. 84 Thus, in dealing with the
parties in a letter of credit, banks must also observe this degree of care.

The value of letters of credit in commerce hinges on an important aspect of such a commercial
transaction. Through a letter of credit, a seller-beneficiary is assured of payment regardless of the
status of the underlying transaction. International contracts of sales are perfected and consummated
because of the certainty that the seller will be paid thus making him or her willing to part with the
goods even prior to actual receipt of the amount agreed upon. The legally demandable obligation of
an issuing bank to pay under the letter of credit, and the enforceable right of the seller-beneficiary to
demand payment, are indispensable essentials for the system of letters of credit, if it is to serve its
purpose of facilitating commerce. Thus, a touchstone of any law or custom governing letters of credit
is an emphasis on the imperative that issuing banks respect their obligation to pay, and that seller-
beneficiaries may reasonably expect payment, in accordance with the terms of a letter of credit.

Rules applicable to letters of credit

Letters of credit are defined and their incidences regulated by Articles 567 to 57285 of the Code of
Commerce. These provisions must be read with Article 286 of the same code which states that acts of
commerce are governed by their provisions, by the usages and customs generally observed in the
particular place and, in the absence of both rules, by civil law. In addition, Article 5087 also states that
commercial contracts shall be governed by the Code of Commerce and special laws and in their
absence, by general civil law.

The International Chamber of Commerce (ICC)88 drafted a set of rules to govern transactions
involving letters of credit. This set of rules is known as the Uniform Customs and Practice for
Documentary Credits (UCP). Since its first issuance in 1933, the UCP has seen several revisions, the
latest of which was in 2007, known as the UCP 600. However, for the period relevant to this case, the
prevailing version is the 1993 revision called the UCP 400. Throughout the years, the UCP has grown
to become the worldwide standard in transactions involving letters of credit. 89 It has enjoyed near
universal application with an estimated 95% of worldwide letters of credit issued subject to the UCP. 90

In Bank of the Philippine Islands v. De Reny Fabric Industries, Inc.,91 this Court applied a provision
from the UCP in resolving a case pertaining to a letter of credit transaction. This Court explained that
the use of international custom in our jurisdiction is justified by Article 2 of the Code of Commerce
which provides that acts of commerce are governed by, among others, usages and customs generally
observed. Further, in Feati Bank & Trust Company v. Court of Appeals,92 this Court ruled that the
UCP should be applied in cases where the letter of credit expressly states that it is the governing
rule.93 This Court also held in Feati that the UCP applies even if it is not incorporated into the letter of
the credit.94 The application of the UCP in Bank of Philippine Islands and in Feati was further affirmed
in Metropolitan Waterworks and Sewerage System v. Daway95 where this Court held that "[l]etters of
credit have long been and are still governed by the provisions of the Uniform Customs and Practice
for Documentary Credit[s] of the International Chamber of Commerce."96 These precedents highlight
the binding nature of the UCP in our jurisdiction.
Thus, for the purpose of clarity, letters of credit are governed primarily by their own provisions, 97 by
laws specifically applicable to them, 98 and by usage and custom. 99 Consistent with our rulings in
several cases, 100 usage and custom refers to UCP 400. When the particular issues are not covered
by the provisions of the letter of credit, by laws specifically applicable to them and by UCP 400, our
general civil law finds suppletory app1ication.101

Applying this set of laws and rules, this Court rules that HSBC is liable under the provisions of the
Letter of Credit, in accordance with usage and custom as embodied in UCP 400, and under the
provisions of general civil law.

HSBC 's Liability

The Letter of Credit categorically stated that it is subject to UCP 400, to wit:

Except so far as otherwise expressly stated, this documentary credit is subject to uniform Customs
and Practice for Documentary Credits (1983 Revision), International Chamber of Commerce
Publication No. 400.102

From the moment that HSBC agreed to the terms of the Letter of Credit - which states that UCP 400
applies - its actions in connection with the transaction automatically became bound by the rules set in
UCP 400. Even assuming that URC 322 is an international custom that has been recognized in
commerce, this does not change the fact that HSBC, as the issuing bank of a letter of credit,
undertook certain obligations dictated by the terms of the Letter of Credit itself and by UCP 400.
In Feati, this Court applied UCP 400 even when there is no express stipulation in the letter of credit
that it governs the transaction. 103 On the strength of our ruling in Feati, we have the legal duty to
apply UCP 400 in this case independent of the parties' agreement to be bound by it.

UCP 400 states that an irrevocable credit payable on sight, such as the Letter of Credit in this case,
constitutes a definite undertaking of the issuing bank to pay, provided that the stipulated documents
are presented and that the terms and conditions of the credit are complied with. 104 Further, UCP 400
provides that an issuing bank has the obligation to examine the documents with reasonable
care. 105 Thus, when CityTrust forwarded the Letter of Credit with the attached documents to HSBC, it
had the duty to make a determination of whether its obligation to pay arose by properly examining the
documents.

In its petition, HSBC argues that it is not UCP 400 but URC 322 that should govern the
transaction. 106 URC 322 is a set of norms compiled by the ICC. 107 It was drafted by international
experts and has been adopted by the ICC members. Owing to the status of the ICC and the
international representation of its membership, these rules have been widely observed by businesses
throughout the world. It prescribes the collection procedures, technology, and standards for handling
collection transactions for banks. 108 Under the facts of this case, a bank acting in accordance with
the terms of URC 322 merely facilitates collection. Its duty is to forward the letter of credit and the
required documents from the entity seeking payment to another entity which has the duty to pay. The
bank incurs no obligation other than as a collecting agent. This is different in the case of an issuing
bank acting in accordance with UCP 400. In this case, the issuing bank has the duty to pay the
amount stated in the letter of credit upon due presentment. HSBC claims that while UCP 400 applies
to letters of credit, it is also common for beneficiaries of such letters to seek collection under URC
322. HSBC further claims that URC 322 is an accepted custom in commerce. 109 HSBC's argument is
without merit. We note that HSBC failed to present evidence to prove that URC 322 constitutes
custom and usage recognized in commerce. Neither was there sufficient evidence to prove that
beneficiaries under a letter of credit commonly resort to collection under URC 322 as a matter of
industry practice. HSBC claims that the testimony of its witness Mr. Lincoln MacMahon (Mr.
MacMahon) suffices for this purpose. 110However, Mr. MacMahon was not presented as an expert
witness capable of establishing the existing banking and commercial practice relating to URC 322
and letters of credit. Thus, this Court cannot hold that URC 322 and resort to it by beneficiaries of
letters of credit are customs that

demand application in this case.111

HSBC's position that URC 322 applies, thus allowing it, the issuing bank, to disregard the Letter of
Credit, and merely demand collection from Klockner cannot be countenanced. Such an argument
effectively asks this Court to give imprimatur to a practice that undermines the value and reliability of
letters of credit in trade and commerce. The entire system of letters of credit rely on the assurance
that upon presentment of the proper documents, the beneficiary has an enforceable right and the
issuing bank a demandable obligation, to pay the amount agreed upon. Were a party to the
transaction allowed to simply set this aside by the mere invocation of another set of norms related to
commerce - one that is not established as a custom that is entitled to recognition by this Court - the
sanctity of letters of credit will be jeopardized. To repeat, any law or custom governing letters of credit
should have, at its core, an emphasis on the imperative that issuing banks respect their obligation to
pay and that seller-beneficiaries may reasonably expect payment in accordance with the terms of a
letter of credit. Thus, the CA correctly ruled, to wit:

At this juncture, it is significant to stress that an irrevocable letter of credit cannot, during its lifetime,
be cancelled or modified without the express permission of the beneficiary. Not even partial payment
of the obligation by the applicant-buyer would amend or modify the obligation of the issuing bank. The
subsequent correspondences of [CityTrust] to HSBC, thus, could not in any way affect or amend the
letter of credit, as it was not a party thereto. As a notifying bank, it has nothing to do with the contract
between the issuing bank and the buyer regarding the issuance of the letter of credit. 112 (Citations
omitted)

The provisions in the Civil Code and our jurisprudence apply suppletorily in this case. 113 When a
party knowingly and freely binds himself or herself to perform an act, a juridical tie is created and he
or she becomes bound to fulfill his or her obligation. In this case, HSBC's obligation arose from two
sources. First, it has a contractual duty to Klockner whereby it agreed to pay NSC upon due
presentment of the Letter of Credit and the attached documents. Second, it has an obligation to NSC
to honor the Letter of Credit. In complying with its obligation, HSBC had the duty to perform all acts
necessary. This includes a proper examination of the documents presented to it and making a
judicious inquiry of whether CityTrust, in behalf of NSC, made a due presentment of the Letter of
Credit.

Further, as a bank, HSBC has the duty to observe the highest degree of diligence. In all of its
transactions, it must exercise the highest standard of care and must fulfill its obligations with utmost
fidelity to its clients. Thus, upon receipt of CityTrust's Collection Order with the Letter of Credit, HSBC
had the obligation to carefully examine the documents it received. Had it observed the standard of
care expected of it, HSBC would have discovered that the Letter of Credit is the very same document
which it issued upon the request of Klockner, its client. Had HSBC taken the time to perform its duty
with the highest degree of diligence, it would have been alerted by the fact that the documents
presented to it corresponded with the documents stated in the Letter of Credit, to which HSBC freely
and knowingly agreed. HSBC ought to have noticed the discrepancy between CityTrust's request for
collection under URC 322 and the terms of the Letter of Credit. Notwithstanding any statements by
CityTrust in the Collection Order as to the applicable rules, HSBC had the independent duty of
ascertaining whether the presentment of the Letter of Credit and the attached documents gave rise to
an obligation which it had to Klockner (its client) and NSC (the beneficiary). Regardless of any error
that CityTrust may have committed, the standard of care expected of HSBC dictates that it should
have made a separate detennination of the significance of the presentment of the Letter of Credit and
the attached documents. A bank exercising the appropriate degree of diligence would have, at the
very least, inquired if NSC was seeking payment under the Letter of Credit or merely seeking
collection under URC 322. In failing to do so, HSBC fell below the standard of care imposed upon it.

This Court therefore rules that CityTrust's presentment of the Letter of Credit with the attached
documents in behalf of NSC, constitutes due presentment.1avvphi1 Under the terms of the Letter of
Credit, HSBC undertook to pay the amount of US$485,767.93 upon presentment of the Letter of
Credit and the required documents.114 In accordance with this agreement, NSC, through CityTrust,
presented the Letter of Credit and the following documents: (1) Letter of Credit; (2) Bill of Lading; (3)
Commercial Invoice; (4) Packing List; (5) Mill Test Certificate; (6) NSC's TELEX to Klockner on
shipping details; (7) Beneficiary's Certificate of facsimile transmittal of documents; (8) Beneficiary's
Certificate of air courier transmittal of documents; and (9) DHL Receipt No. 669988911 and
Certificate of Origin.115

In transactions where the letter of credit is payable on sight, as in this case, the issuer must pay upon
due presentment. This obligation is imbued with the character of definiteness in that not even the
defect or breach in the underlying transaction will affect the issuing bank's liability. 116 This is the
Independence Principle in the law on letters of credit. Article 17 of UCP 400 explains that under this
principle, an issuing bank assumes no liability or responsibility "for the form, sufficiency, accuracy,
genuineness, falsification or legal effect of any documents, or for the general and/or particular
conditions stipulated in the documents or superimposed thereon ... " Thus, as long as the proper
documents are presented, the issuing bank has an obligation to pay even if the buyer should later on
refuse payment. Hence, Klockner's refusal to pay carries no effect whatsoever on HSBC's obligation
to pay under the Letter of Credit. To allow HSBC to refuse to honor the Letter of Credit simply
because it could not collect first from Klockner is to countenance a breach of the Independence
Principle.

HSBC's persistent refusal to comply with its obligation notwithstanding due presentment constitutes
delay contemplated in Article 1169 of the Civil Code. 117 This provision states that a party to an
obligation incurs in delay from the time the other party makes a judicial or extrajudicial demand for the
fulfillment of the obligation. We rule that the due presentment of the Letter of Credit and the attached
documents is tantamount to a demand. HSBC incurred in delay when it failed to fulfill its obligation
despite such a demand.

Under Article 1170 of the Civil Code, 118 a party in delay is liable for damages. The extent of these
damages pertains to the pecuniary loss duly proven. 119 In this case, such damage refers to the
losses which NSC incurred in the amount of US$485,767.93 as stated in the Letter of Credit. We also
award interest as indemnity for the damages incurred in the amount of six percent (6%) from the date
of NSC's extrajudicial demand. 120 An interest in the amount of six percent (6%) is also awarded from
the time of the finality of this decision until full payment. 121

Having been remiss in its obligations under the applicable law, rules and jurisprudence, HSBC only
has itself to blame for its consequent liability to NSC.

However, this Court finds that there is no basis for the CA's grant of attorney's fees in favor of NSC.
Article 2208 of the Civil Code122 enumerates the grounds for the award of attorney's fees. This Court
has explained that the award of attorney's fees is an exception rather than the rule. 123 The winning
party is not automatically entitled to attorney's fees as there should be no premium on the right to
litigate. 124 While courts may exercise discretion in granting attorney's fees, this Court has stressed
that the grounds used as basis for its award must approximate as closely as possible the
enumeration in Article 2208. 125 Its award must have sufficient factual and legal justifications. 126 This
Court rules that none of the grounds stated in Article 2208 are present in this case. NSC has not cited
any specific ground nor presented any particular fact to warrant the award of attorney's fees.

CityTrust's Liability

When NSC obtained the services of CityTrust in collecting under the Letter of Credit, it constituted
CityTrust as its agent. Article 1868 of the Civil Code states that a contract of agency exists when a
person binds himself or herself "to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter." In this case, CityTrust bound itself to
collect under the Letter of Credit in behalf of NSC.

One of the obligations of an agent is to carry out the agency in accordance with the instructions of the
principal. 127In ascertaining NSC's instructions to CityTrust, its letter dated January 18, 1994 is
determinative. In this letter, NSC clearly stated that it "negotiated with CityTrust the export documents
pertaining to LC No. HKH 239409 of HSBC and it was CityTrust which wrongfully treated the
negotiation as 'on collection basis."' 128 HSBC persistently communicated with CityTrust and
consistently repeated that it will proceed with collection under URC 322. At no point did CityTrust
correct HSBC or seek clarification from NSC. In insisting upon its course of action, CityTrust failed to
act in accordance with the instructions given by NSC, its principal. Nevertheless while this Court
recognizes that CityTrust committed a breach of its obligation to NSC, this carries no implications on
the clear liability of HSBC. As this Court already mentioned, HSBC had a separate obligation that it
failed to perform by reason of acts independent of CityTrust's breach of its obligation under its
contract of agency. If CityTrust has incurred any liability, it is to its principal NSC. However, NSC has
not raised any claim against CityTrust at any point in these proceedings. Thus, this Court cannot
make any finding of liability against CityTrust in favor of NSC.

WHEREFORE, in view of the foregoing, the Assailed Decision dated November 19, 2007
is AFFIRMED to the extent that it orders HSBC to pay NSC the amount of US$485,767.93. HSBC is
also liable to pay legal interest of six percent (6%) per annum from the time of extrajudicial demand.
An interest of six percent (6%) is also awarded from the time of the finality of this decision until the
amount is fully paid. We delete the award of attorney's fees. No pronouncement as to cost. SO
ORDERED.