Transfield Philippines vs Luzon Hydro Electric Corp.

GR No 146717
Tinga, J.

FACTS: Transfield Philippines (Transfield) entered into a turn-key contract

with Luzon Hydro Corp. (LHC).Under the contract, Transfield were to
construct a hydro-electric plants in Benguet and Ilocos. Transfield was given
the sole responsibility for the design, construction, commissioning, testing
and completion of the Project. The contract provides for a period for which
the project is to be completed and also allows for the extension of the period
provided that the extension is based on justifiable grounds such as
fortuitous event. In order to guarantee performance by Transfield, two
stand-by letters of credit were required to be opened. During the
construction of the plant, Transfield requested for extension of time citing
typhoon and various disputes delaying the construction. LHC did not give
due course to the extension of the period prayed for but referred the matter
to arbitration committee. Because of the delay in the construction of the
plant, LHC called on the stand-by letters of credit because of default.
However, the demand was objected by Transfield on the ground that there
is still pending arbitration on their request for extension of time.

Issue: Whether or not LHC can collect from the letters of credit despite the
pending arbitration case

Held: Transfield’s argument that any dispute must first be resolved by the
parties, whether through negotiations or arbitration, before the beneficiary
is entitled to call on the letter of credit in essence would convert the letter
of credit into a mere guarantee.

The independent nature of the letter of credit may be: (a) independence in
toto where the credit is independent from the justification aspect and is a
separate obligation from the underlying agreement like for instance a
typical standby; or (b) independence may be only as to the justification
aspect like in a commercial letter of credit or repayment standby, which is
identical with the same obligations under the underlying agreement. In
both cases the payment may be enjoined if in the light of the purpose of the
credit the payment of the credit would constitute fraudulent abuse of the
credit.
Colinares vs CA
GR No. 90828
Davide, Jr., J.:

FACTS: Petitioners were contracted by Carmelite Sisters for the construction

of their convent. They obtained materials from CM Builders, and obtained a
credit line from Ph Banking Corp. for the payment. The latter approved. The
petitioners also signed a proforma trust receipt as security. Petitioners failed
to pay the loan despite demands from PBC. Through a complaint filed by
PBC, petitioners were prosecuted for violation of the trust receipts law, in
relation to estafa. RTC and CA held them guilty. SC reversed saying that PBC
and petitioners merely intended to enter into a contract of loan and not a
trust receipt.

ISSUE: Whether or not the contract is a loan or a trust receipt.

HELD: The contracts is a loan not a trust receipt. A trust receipt transaction
is any transaction by and between a person referred to as the entruster, and
another person referred to as the entrustee, whereby the entruster who
owns or holds absolute title or security interest over certain specified goods,
documents or instruments, releases the same to the possession of the
entrustee upon the latter’s execution and delivery to the entruster of a
signed document called a “trust receipt” wherein the entrustee binds
himself to hold the designated goods, documents or instruments with the
obligation to turn over to the entruster the proceeds thereof to the extent
of the amount owing to the entruster or as appears in the trust receipt or
the goods, documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions
specified in the trust receipt.
UCPB vs Beluso
GR No. 159912
Chico-Nazaria, J.:

FACTS: On April 1997, spouses Beluso constituted other than promissory

notes, a real estate mortgage over parcels of land. 3 of their promissory
notes were renewed several times. Subsequently, spouses failed to deliver
payment upon UPCB’s demand. As a result, their mortgage was
foreclosed. Spouses filed Petition for Annulment, Accounting and Damages
against UCPB. Trial court ruled in favor of the spouses. CA affirmed the same
decision.

ISSUE: Whether the contract between the spouses Beluso and UPCB is
valid.

HELD: No. Article 1308 of the Civil Code provides:

Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.

The provision stating that the interest shall be at the “rate indicative of DBD
retail rate or as determined by the Branch Head” is indeed dependent solely
on the will of petitioner UCPB. Under such provision, petitioner UCPB has
two choices on what the interest rate shall be: (1) a rate indicative of the DBD
retail rate; or (2) a rate as determined by the Branch Head. As UCPB is given
this choice, the rate should be categorically determinable in both choices. If
either of these two choices presents an opportunity for UCPB to fix the rate
at will, the bank can easily choose such an option, thus making the entire
interest rate provision violative of the principle of mutuality of contracts.
YHT Realty vs CA
GR No. 126780
Tinga, J.:

FACTS: Private Respondent was an Australian businessman-philanthropist

who stayed in a Suites owned by the Petitioner. The Private Respondent
rented a safety deposit box with the said Suite. In Renting the box, he was
asked to sign a waiver “Undertaking For The Use of Safety Deposit Box”
which exonerating the Hotel, its Management and Employees from liability
in case of loss of the item in the box. The companion of the respondent Tan,
while the latter was sleeping with the assistance of the staff of the Hotel,
was allowed to open the depositary box of Respondent. When the
respondent opened the box, he Notice in a number of occasion that the
Money he placed in the box was either missing or lacking. When he
confronted the Management of the hotel, the latter advised that it was his
companion Tan who opened the box.

ISSUE:

1. Whether the Petitioner Committed Gross Negligence for the stolen

property of the Private Respondent?

2. Whether the “Undertaking For The Use of Safety Deposit Box” executed
by the Private Respondent to exonerate the hotel prom liability is null and
void?

HELD

1. The evidence reveals that two keys are required to open the safety
deposit boxes of Tropicana. One key is assigned to the guest while the
other remains in the possession of the management. If the guest
desires to open his safety deposit box, he must request the
management for the other key to open the same. In other words, the
guest alone cannot open the safety deposit box without the
assistance of the management or its employees. Under Article 1170 of
the New Civil Code, those who, in the performance of their obligations,
are guilty of negligence, are liable for damages. Thus, given the fact
that the loss of McLoughlin’s money was consummated through the
negligence of Tropicana’s employees in allowing Tan to open the
safety deposit box without the guest’s consent, both the assisting
employees and YHT Realty Corporation itself, as owner and operator
of Tropicana, should be held solidarily liable pursuant to Article 2193.
2. Yes, Art. 2003. The hotel-keeper cannot free himself from
responsibility by posting notices to the effect that he is not liable for
the articles brought by the guest. Any stipulation between the hotel-
 keeper and the guest whereby the responsibility of the former as set
forth in Articles 1998 to 2001 is suppressed or diminished shall be void.
United Alloy vs UCPB
GR No. 175949
Peralta, J.:

FACTS: On December 18, 2000, herein petitioner corporation, United Alloy

Philippines Corporation (UNIALLOY) applied for and was granted a credit
accommodation by herein respondent United Coconut Planters Bank.
(UCPB) in the amount of PhP 50,000,000.00, as evidenced by a Credit
Agreement. Six (6) Promissory Notes, were later executed by UNIALLOY in
UCPB's favor. In addition, as part of the consideration for the credit
accommodation, UNIALLOY and UCPB also entered into a "lease-purchase"
contract wherein the former assured the latter that it will purchase several
real properties which UCPB co-owns with the Development Bank of the
Philippines. UNIALLOY failed to pay its loan obligations. As a result, UCPB
filed against UNIALLOY, the spouses Chua, Yang and Van Der Sluis an action
for Sum of Money with Prayer for Preliminary Attachment.

ISSUE: Whether or not herein petitioners, together with their co-defendants

bound themselves jointly and severally with UNIALLOY, to pay the latter’s
loan obligations with UCPB.

HELD: The Court rules in the affirmative. As ruled upon by both the RTC and
the CA, UNIALLOY failed to pay its obligations under the above promissory
notes and that herein petitioner Spouses Chua, together with their co-
defendants Van Der Sluis and Yang freely executed a Surety Agreement
whereby they bound themselves jointly and severally with UNIALLOY, to pay
the latter’s loan obligations with UCPB. Petitioners do not deny their liability
under the above quoted Surety Agreement as based on the pertinent
portion of the surety agreement. As correctly held by both the RTC and the
CA, Article 1159 of the Civil Code expressly provides that “obligations arising
from contracts have the force of law between the contracting parties and
should be complied with in good faith.” The Court notes, however, that the
interest rates imposed on the subject promissory notes were made subject
to review and adjustment at the sole discretion and under the exclusive will
of UCPB.
Herrera vs Petrophil
GR No. L-48349
Cruz, J.:

FACTS: On December 5, 1969, a "Lease Agreement" was entered into by the

plaintiff-appellant and ESSO Standard Eastern. Inc., (substituted by Petrophil
Corporation) for twenty (20) years with a condition that monthly rentals should be
paid and there should be advance payment of rentals for the first eight years of the
said contract. Pursuant to the said contract, defendant-appellee paid the advance
rentals for the first eight years. On August 20, 1970, the defendant-appellee,
explained that there had been a mistake in computation, paid to the appellant the
additional sum of P2,182.70, thereby reducing the deducted amount to only
P98,828.03. On October 14, 1974, the plaintiff-appellant sued the defendant-
appellee for the sum of P98,828.03, with interest, claiming this had been illegally
deducted from him in violation of the Usury Law. The defendant-appellee argued
that the amount deducted was not usurious interest but a given to it for paying
the rentals in advance for eight years.

ISSUE: Whether or not the defendant-appellee violated the usury law.

RULING: There is no usury in this case because no money was given by the
defendant-appellee to the plaintiff-appellant, nor did it allow him to use its money
already in his possession. There was neither loan nor forbearance but a mere
discount which the plaintiff-appellant allowed the defendant-appellee to deduct
from the total payments because they were being made in advance for eight years.

To constitute usury, "there must be loan or forbearance; the loan must be of money
or something circulating as money; it must be repayable absolutely and in all
events; and something must be exacted for the use of the money in excess of and
in addition to interest allowed by law." The elements of usury are (1) a loan, express
or implied; (2) an understanding between the parties that the money lent shall or
may be returned; that for such loan a greater rate or interest that is allowed by law
shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to
take more than the legal rate for the use of money loaned. Unless these four things
concur in every transaction, it is safe to affirm that no case of usury can be declared.
Federal Builders, Inc. vs Foundation Specialists

GR No. 194621

Peralta, J.:

FACTS: In 1990, Federal Builders, Inc. entered into an agreement with Foundation
Specialists, Inc. whereby the latter, as subcontractor, undertook the construction
of the diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza at
Salcedo Village, Makati City. On August 30, 1991, FSI made its claim against FBI
through a letter demanding payment for its services but to no avail. FSI then filed
a complaint for sum of money against FBI with accrued interest plus moral and
exemplary damages with attorney’s fees; alleging that FBI refused to pay said
amount despite demand and its completion of 97% of the contracted works. FBI,
on the other hand, claimed that FSI completed only 85% of the contracted works,
failing to finish the diaphragm wall and component works in accordance with the
plans and specifications and abandoning the jobsite. It maintains that because of
FSI’s inadequacy, its schedule in finishing the project has been delayed resulting in
the Project owner’s deferment of its payment. It further interposed counterclaims
for amounts it spent for the remedial works on the alleged defects in FSI’s work

ISSUE:

1. Whether or not FSI incur in delay, entitling FBI to damages.

2. Whether or not the imposition of the 12% legal interest rate, by way of
damages due to delay.

HELD:

1. No. The delay was in fact attributable to FBI from the time an extrajudicial
demand was made by FSI on August 30, 1991. FSI had finished the
construction of the guide wall and diaphragm wall but had not yet
constructed the capping beam for FBI’s failure to deliver the needed
cement despite the demand of FSI.
2. No. As provided in the landmark case of Eastern Shipping Lines, Inc. v. Court
of Appeals, when an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded may
be imposed at the discretion of the court at the rate of 6% per annum.