Commercial Law Review | Divina | 2nd Sem AY 2014-2015 |Page 1
Phil. Virginia Tobacco v. De Los
Angeles
Aug. 19, 1988
Paras, J.
Gabe Ruaro
SUMMARY:
PVTA and Sevilla came to an agreement regarding the importation and
exportation of tobacco, secured by an irrevocable letter of credit. After
a new law was passed, the lower court ordered funds under the letter
of credit to be released. The SC held that this was an alteration of the
terms of the irrevocable letter of credit, which cannot be done.
DOCTRINE:
An order of the court releasing the proceeds of an irrevocable letter of
credit to the applicant, which was issued to pay for tobacco purchased
from the beneficiary of the letter of credit, violates the irrevocable
nature of the letter of credit. An irrevocable letter of credit cannot,
during its lifetime, be cancelled or modified without the express
permission of the beneficiary.
FACTS:
Timoteo Sevilla, as owner and GM of Philippine Associated Resources,
together with the Nationwide Agro-Industrial Development Corp. and the
Consolidated Agro-Producers, Inc., were, after public bidding, awarded the
right to import Virginia Leaf Tobacco in a public bidding. Afterwards,
Nationwide and Consolidated assigned their rights to the Philippine Virginia
Tobacco Administration (PVTA). This left Sevilla’s Philippine Associated
Resources as the only private firm allowed to export 1 kilo of PVTA and
farmer’s low-grade tobacco for every 9 kilos of leaf tobacco actually
exported.1
1 Virginia leaf tobacco is of a higher grade and is more expensive than low-grade
tobacco. The concession here is that Sevilla can mix some of the cheap tobacco
The contract entered into between PVTA and Sevilla was for the
importation of 85 million kilos of Virginia tobacco, with a counterpart
obligation to export 7.63 million kilos of PVAT and/or farmer’s tobacco. In
accordance with this contract, Sevilla bought and exported 2,101 kilos of
tobacco. However, before he could import the Virginia tobacco to be used for
blending, RA 4155 took effect, authorizing the PVTA to grant import
privileges at 4:1 instead of 9:1 and to dispose of all of its tobacco stock at the
best price available.
As a result, the contract was amended, first because of prevailing
market prices, and then to give Sevilla the benefits under RA 4155, subject to
the condiditions that the purchase price be P3.00, that he liquidiate his
unpaid balance, and, pertinently, that he open an irrevocable letter of
credit with the Prudential Bank and Trust Company to secure the payment of
the balance, drawable upon release of the imported tobacco of the Virginia
tobacco.
While Sevilla was negotiating the reduction of procurement costs,
PVTA prepared 2 drafts to be drawn against the LOC.
This led Sevilla to file a complaint for damages for P5,000,000. The
complaint was dismissed by the lower court. However, while on MR, the LC,
through Judge De los Angeles, issued an order directing Prudential Bank to
release the funds under the letter of credit. Before PVTA could file an MR to
challenge the order, Sevilla was able to secure the release of P300,000.
Hence this petition for certiorari, prohibition, and mandamus.
ISSUES/HELD:
1. WON there was GAD in the LC order, because the letter of credit is
irrevocable. (Yes)
RATIO:
In issuing the order, Judge De Los Angeles violated the irrevocability of letters
of credit. An irrevocable letter of credit cannot be cancelled or modified
during its lifetime without the express permission of the beneficiary.
Petition given due course. RTC orders set aside.
with the higher grade tobacco when he exports.