TRANSFIELD VS LHC

FACTS:
On 26 March 1997, Petitioner Transfield entered into a Turnkey contract under which
Transfield is the Turn-key constructor to construct hydro-electric plants in Benguet
and Ilocos. The contract provides for a period for which it is to be completed and the
extension of Time in case of Force Majeure and Delays caused by the LLHC itself.
Further, in case of dispute, the parties are bound to settle through mediation,
conciliation and such other means stipulated. In order to secure the performance by
Transfield, petitioner, two stand-by letters were opened by the petitioner in favor of
the respondent HLC.
During the course of the construction, the petitioner sought various EOT to
complete the project on alleged grounds of typhoon Zeb, barricades and
demonstration. LHC denied the request and referred the case to arbitration instead.
Meanwhile, foreseeing that LHC would call on the securities, petitioners advised the
respondent bank of the arbitration proceedings pending in the CIAC and ICC in
connection with its alleged default in the performance and warned the respondent
banks that any transfer, release or disposition of the Securities in favor of the LHC
or ay person claiming under LHC would constrain it to hold Respondent bank liable
for liquidated damages.
As petitioner had anticipated, LHC sent notice to petitioner that pursuant to Clause
8.2 of the Turnkey Contract, it failed to comply with its obligation to complete the
Project. Despite the letters of petitioner, however, both banks informed petitioner
that they would pay on the Securities if and when LHC calls on them.
LHC asserted that additional extension of time would not be warranted; accordingly
it declared petitioner in default/delay in the performance of its obligations under the
Turnkey Contract and demanded from petitioner the payment of US$75,000.00 for
each day of delay beginning 28 June 2000 until actual completion of the Project
pursuant to Clause 8.7.1 of the Turnkey Contract. At the same time, LHC served
notice that it would call on the securities for the payment of liquidated damages for
the delay.
On 5 November 2000, petitioner as plaintiff filed a Complaint for Injunction, with
prayer for temporary restraining order and writ of preliminary injunction, against
herein respondents as defendants before the Regional Trial Court (RTC) of Makati.
Petitioner sought to restrain respondent LHC from calling on the Securities and
respondent banks from transferring, paying on, or in any manner disposing of the
Securities or any renewals or substitutes thereof. The RTC issued a seventy-two

(72)-hour temporary restraining order on the same day. The case was docketed as
Civil Case No. 00-1312 and raffled to Branch 148 of the RTC of Makati.

PETITIONERS CONTENTION:
Petitioner contends that the courts below improperly relied on the independence
principle on letters of credit when this case falls squarely within the fraud exception rule.
Respondent LHC deliberately misrepresented the supposed existence of delay despite
its knowledge that the issue was still pending arbitration, petitioner continues.
Petitioner asserts that LHC should be ordered to return the proceeds of the
Securities pursuant to the principle against unjust enrichment and that, under the
premises, injunction was the appropriate remedy obtainable from the competent local
courts.
On 25 August 2003, petitioner filed a Supplement to the Petition[22] and
Supplemental Memorandum,[23] alleging that in the course of the proceedings in the ICC
Arbitration, a number of documentary and testimonial evidence came out through the
use of different modes of discovery available in the ICC Arbitration. It contends that after
the filing of the petition facts and admissions were discovered which demonstrate that
LHC knowingly misrepresented that petitioner had incurred delays notwithstanding its
knowledge and admission that delays were excused under the Turnkey Contractto be
able to draw against the Securities. Reiterating that fraud constitutes an exception to the
independence principle, petitioner urges that this warrants a ruling from this Court that
the call on the Securities was wrongful, as well as contrary to law and basic principles of
equity. It avers that it would suffer grave irreparable damage if LHC would be allowed to
use the proceeds of the Securities and not ordered to return the amounts it had
wrongfully drawn thereon.
In its Manifestation dated 8 September 2003,[24] LHC contends that the
supplemental pleadings filed by petitioner present erroneous and misleading information
which would change petitioners theory on appeal.
In yet another Manifestation dated 12 April 2004, [25] petitioner alleges that on 18
February 2004, the ICC handed down its Third Partial Award, declaring that LHC
wrongfully drew upon the Securities and that petitioner was entitled to the return of the
sums wrongfully taken by LHC for liquidated damages.
LHC filed a Counter-Manifestation dated 29 June 2004,[26] stating that petitioners
Manifestation dated 12 April 2004 enlarges the scope of its Petition for Review of the 31
January 2001 Decision of the Court of Appeals. LHC notes that the Petition for Review
essentially dealt only with the issue of whether injunction could issue to restrain the
beneficiary of an irrevocable letter of credit from drawing thereon. It adds that petitioner
has filed two other proceedings, to wit: (1) ICC Case No. 11264/TE/MW, entitled
Transfield Philippines Inc. v. Luzon Hydro Corporation, in which the parties made claims
and counterclaims arising from petitioners performance/misperformance of its
obligations as contractor for LHC; and (2) Civil Case No. 04-332, entitled Transfield
Philippines, Inc. v. Luzon Hydro Corporation before Branch 56 of the RTC of Makati,

which is an action to enforce and obtain execution of the ICCs partial award mentioned
in petitioners Manifestation of 12 April 2004.
In its Comment to petitioners Motion for Leave to File Addendum to Petitioners
Memorandum, LHC stresses that the question of whether the funds it drew on the
subject letters of credit should be returned is outside the issue in this appeal. At any
rate, LHC adds that the action to enforce the ICCs partial award is now fully within the
Makati RTCs jurisdiction in Civil Case No. 04-332. LHC asserts that petitioner is
engaged in forum-shopping by keeping this appeal and at the same time seeking the
suit for enforcement of the arbitral award before the Makati court.
Respondent SBC in its Memorandum, dated 10 March 2003[27] contends that the
Court of Appeals correctly dismissed the petition for certiorari. Invoking the
independence principle, SBC argues that it was under no obligation to look into the
validity or accuracy of the certification submitted by respondent LHC or into the latters
capacity or entitlement to so certify. It adds that the act sought to be enjoined by
petitioner was already fait accompli and the present petition would no longer serve any
remedial purpose.
In a similar fashion, respondent ANZ Bank in its Memorandum dated 13 March
2003[28] posits that its actions could not be regarded as unjustified in view of the
prevailing independence principle under which it had no obligation to ascertain the truth
of LHCs allegations that petitioner defaulted in its obligations. Moreover, it points out
that since the Standby Letter of Credit No. E001126/8400 had been fully drawn,
petitioners prayer for preliminary injunction had been rendered moot and academic.
At the core of the present controversy is the applicability of the independence
principle and fraud exception rule in letters of credit. Thus, a discussion of the
nature and use of letters of credit, also referred to simply as credits, would provide a
better perspective of the case.
The letter of credit evolved as a mercantile specialty, and the only way to
understand all its facets is to recognize that it is an entity unto itself.
The relationship between the beneficiary and the issuer of a letter of credit is
not strictly contractual, because both privity and a meeting of the minds are
lacking, yet strict compliance with its terms is an enforceable right.
Nor is it a third-party beneficiary contract, because the issuer must honor
drafts drawn against a letter regardless of problems subsequently arising in the
underlying contract.
Since the banks customer cannot draw on the letter, it does not function as an
assignment by the customer to the beneficiary. Nor, if properly used, is it a
contract of suretyship or guarantee, because it entails a primary liability following
a default.
Finally, it is not in itself a negotiable instrument, because it is not payable to
order or bearer and is generally conditional, yet the draft presented under it is
often negotiable.

In commercial transactions, a letter of credit is 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.
The use of credits in commercial transactions serves to reduce the risk of
nonpayment of the purchase price under the contract for the sale of goods. However,
credits are also used in non-sale settings where they serve to reduce the risk of
nonperformance. Generally, credits in the non-sale settings have come to be known as
standby credits.
There are three significant differences between commercial and standby
credits.
First, commercial credits involve the payment of money under a contract of sale.
Such credits become payable upon the presentation by the seller-beneficiary of
documents that show he has taken affirmative steps to comply with the sales
agreement.
In the standby type, the credit is payable upon certification of a party's
nonperformance of the agreement. The documents that accompany the beneficiary's
draft tend to show that the applicant has not performed. The beneficiary of a
commercial credit must demonstrate by documents that he has performed his
contract. The beneficiary of the standby credit must certify that his obligor has
not performed the contract.
By definition, a letter of credit is a written instrument whereby the writer requests or
authorizes the addressee to pay money or deliver goods to a third person and assumes
responsibility for payment of debt therefor to the addressee.
A letter of credit, however, changes its nature as different transactions occur and if
carried through to completion ends up as a binding contract between the issuing and
honoring banks without any regard or relation to the underlying contract or disputes
between the parties thereto.[34]
Since letters of credit have gained general acceptability in international trade
transactions, the ICC has published from time to time updates on the Uniform Customs
and Practice (UCP) for Documentary Credits to standardize practices in the letter of
credit area. The vast majority of letters of credit incorporate the UCP.[35] First published
in 1933, the UCP for Documentary Credits has undergone several revisions, the latest
of which was in 1993.[36]
In Bank of the Philippine Islands v. De Reny Fabric Industries, Inc.,[37] this Court
ruled that the observance of the UCP is justified by Article 2 of the Code of Commerce
which provides that in the absence of any particular provision in the Code of Commerce,
commercial transactions shall be governed by usages and customs generally observed.
More recently, in Bank of America, NT & SA v. Court of Appeals,[38] this Court ruled that
there being no specific provisions which govern the legal complexities arising from

transactions involving letters of credit, not only between or among banks themselves but
also between banks and the seller or the buyer, as the case may be, the applicability of
the UCP is undeniable.
Article 3 of the UCP provides that credits, by their nature, are separate transactions
from the sales or other contract(s) on which they may be based and banks are in no
way concerned with or bound by such contract(s), even if any reference whatsoever to
such contract(s) is included in the credit.
Consequently, the undertaking of a bank to pay, accept and pay draft(s) or negotiate
and/or fulfill any other obligation under the credit is not subject to claims or defenses by
the applicant resulting from his relationships with the issuing bank or the beneficiary. A
beneficiary can in no case avail himself of the contractual relationships existing between
the banks or between the applicant and the issuing bank.
Thus, the engagement of the issuing bank is to pay the seller or beneficiary of the
credit once the draft and the required documents are presented to it.
The so-called independence principle assures the seller or the beneficiary of
prompt payment independent of any breach of the main contract and precludes
the issuing bank from determining whether the main contract is actually
accomplished or not.
Under this principle, banks assume 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, nor do they assume any liability
or responsibility for the description, quantity, weight, quality, condition,
packing, delivery, value or existence of the goods represented by any
documents, or for the good faith or acts and/or omissions, solvency,
performance or standing of the consignor, the carriers, or the insurers of
the goods, or any other person whomsoever.
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.
Can the beneficiary invoke the independence principle?
Petitioner insists that the independence principle does not apply to the instant case
and assuming it is so, it is a defense available only to respondent banks. LHC, on the
other hand, contends that it would be contrary to common sense to deny the benefit of

an independent contract to the very party for whom the benefit is intended. As
beneficiary of the letter of credit, LHC asserts it is entitled to invoke the principle.
As discussed above, in a letter of credit transaction, such as in this case, where the
credit is stipulated as irrevocable, there is a definite undertaking by the issuing bank to
pay the beneficiary provided that the stipulated documents are presented and the
conditions of the credit are complied with. Precisely, the independence principle
liberates the issuing bank from the duty of ascertaining compliance by the parties
in the main contract. As the principles nomenclature clearly suggests, the
obligation under the letter of credit is independent of the related and originating
contract.
In brief, the letter of credit is separate and distinct from the underlying transaction.
Given the nature of letters of credit, petitioners argument that it is only the issuing
bank that may invoke the independence principle on letters of creditdoes not impress
this Court. To say that the independence principle may only be invoked by the issuing
banks would render nugatory the purpose for which the letters of credit are used in
commercial transactions. As it is, the independence doctrine works to the benefit of both
the issuing bank and the beneficiary.
Letters of credit are employed by the parties desiring to enter into commercial
transactions, not for the benefit of the issuing bank but mainly for the benefit of
the parties to the original transactions. With the letter of credit from the issuing bank,
the party who applied for and obtained it may confidently present the letter of credit to
the beneficiary as a security to convince the beneficiary to enter into the business
transaction. On the other hand, the other party to the business transaction, i.e., the
beneficiary of the letter of credit, can be rest assured of being empowered to call on the
letter of credit as a security in case the commercial transaction does not push through,
or the applicant fails to perform his part of the transaction. It is for this reason that the
party who is entitled to the proceeds of the letter of credit is appropriately called
beneficiary.
Petitioners 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. Jurisprudence has laid down a clear distinction between a letter of credit
and a guarantee in that the settlement of a dispute between the parties is not a prerequisite for the release of funds under a letter of credit. In other words, the argument is
incompatible with the very nature of the letter of credit. If a letter of credit is drawable
only after settlement of the dispute on the contract entered into by the applicant and the
beneficiary, there would be no practical and beneficial use for letters of credit in
commercial transactions.
Professor John F. Dolan, the noted authority on letters of credit, sheds more light on
the issue:
The standby credit is an attractive commercial device for many of the
same reasons that commercial credits are attractive. Essentially, these
credits are inexpensive and efficient. Often they replace surety contracts, which

tend to generate higher costs than credits do and are usually triggered by a
factual determination rather than by the examination of documents.
Because parties and courts should not confuse the different functions of the
surety contract on the one hand and the standby credit on the other, the
distinction between surety contracts and credits merits some reflection. The
two commercial devices share a common purpose. Both ensure against
the obligors nonperformance. They function, however, in distinctly different
ways.
Traditionally, upon the obligors default, the surety undertakes to complete the
obligors performance, usually by hiring someone to complete that performance.
Surety contracts, then, often involve costs of determining whether the obligor
defaulted (a matter over which the surety and the beneficiary often litigate) plus
the cost of performance. The benefit of the surety contract to the beneficiary is
obvious. He knows that the surety, often an insurance company, is a strong
financial institution that will perform if the obligor does not. The beneficiary also
should understand that such performance must await the sometimes lengthy
and costly determination that the obligor has defaulted. In addition, the suretys
performance takes time.
The standby credit has different expectations. He reasonably expects that he
will receive cash in the event of nonperformance, that he will receive it promptly,
and that he will receive it before any litigation with the obligor (the applicant)
over the nature of the applicants performance takes place. The standby credit
has this opposite effect of the surety contract: it reverses the financial burden of
parties during litigation.
In the surety contract setting, there is no duty to indemnify the beneficiary until
the beneficiary establishes the fact of the obligors performance. The
beneficiary may have to establish that fact in litigation. During the
litigation, the surety holds the money and the beneficiary bears most of
the cost of delay in performance.
In the standby credit case, however, the beneficiary avoids that litigation burden
and receives his money promptly upon presentation of the required documents.
It may be that the applicant has, in fact, performed and that the beneficiarys
presentation of those documents is not rightful. In that case, the applicant may
sue the beneficiary in tort, in contract, or in breach of warranty; but, during the
litigation to determine whether the applicant has in fact breached the obligation
to perform, the beneficiary, not the applicant, holds the money. Parties that use
a standby credit and courts construing such a credit should understand this
allocation of burdens. There is a tendency in some quarters to overlook this
distinction between surety contracts and standby credits and to reallocate
burdens by permitting the obligor or the issuer to litigate the performance
question before payment to the beneficiary.[42]
While it is the bank which is bound to honor the credit, it is the beneficiary who has
the right to ask the bank to honor the credit by allowing him to draw thereon. The

situation itself emasculates petitioners posture that LHC cannot invoke the
independence principle and highlights its puerility, more so in this case where the banks
concerned were impleaded as parties by petitioner itself.
Respondent banks had squarely raised the independence principle to justify their
releases of the amounts due under the Securities. Owing to the nature and purpose of
the standby letters of credit, this Court rules that the respondent banks were left with
little or no alternative but to honor the credit and both of them in fact submitted that it
was ministerial for them to honor the call for payment.
Furthermore, LHC has a right rooted in the Contract to call on the Securities. The
relevant provisions of the Contract read, thus:
4.2.1. In order to secure the performance of its obligations under this Contract,
the Contractor at its cost shall on the Commencement Date provide security to
the Employer in the form of two irrevocable and confirmed standby letters of
credit (the Securities), each in the amount of US$8,988,907, issued and
confirmed by banks or financial institutions acceptable to the Employer. Each of
the Securities must be in form and substance acceptable to the Employer and
may be provided on an annually renewable basis.
8.7.1 If the Contractor fails to comply with Clause 8.2, the Contractor shall pay
to the Employer by way of liquidated damages (Liquidated Damages for Delay)
the amount of US$75,000 for each and every day or part of a day that shall
elapse between the Target Completion Date and the Completion Date, provided
that Liquidated Damages for Delay payable by the Contractor shall in the
aggregate not exceed 20% of the Contract Price. The Contractor shall pay
Liquidated Damages for Delay for each day of the delay on the following day
without need of demand from the Employer.
8.7.2 The Employer may, without prejudice to any other method of recovery,
deduct the amount of such damages from any monies due, or to become due to
the Contractor and/or by drawing on the Security.
A contract once perfected, binds the parties not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which according to their
nature, may be in keeping with good faith, usage, and law. A careful perusal of the
Turnkey Contract reveals the intention of the parties to make the Securities answerable
for the liquidated damages occasioned by any delay on the part of petitioner. The call
upon the Securities, while not an exclusive remedy on the part of LHC, is certainly an
alternative recourse available to it upon the happening of the contingency for which the
Securities have been proffered. Thus, even without the use of the independence
principle, the Turnkey Contract itself bestows upon LHC the right to call on the
Securities in the event of default.
2. Next, petitioner invokes the fraud exception principle. It avers that LHCs call on
the Securities is wrongful because it fraudulently misrepresented to ANZ Bank and SBC
that there is already a breach in the Turnkey Contract knowing fully well that this is yet
to be determined by the arbitral tribunals.

It asserts that the fraud exception exists when the beneficiary, for the
purpose of drawing on the credit, fraudulently presents to the confirming bank,
documents that contain, expressly or by implication, material representations of
fact that to his knowledge are untrue. In such a situation, petitioner insists,
injunction is recognized as a remedy available to it.
Citing Dolans treatise on letters of credit, petitioner argues that the independence
principle is not without limits and it is important to fashion those limits in light of the
principles purpose, which is to serve the commercial function of the credit. If it does not
serve those functions, application of the principle is not warranted, and the common law
principles of contract should apply.
It is worthy of note that the propriety of LHCs call on the Securities is largely
intertwined with the fact of default which is the self-same issue pending resolution
before the arbitral tribunals. To be able to declare the call on the Securities wrongful or
fraudulent, it is imperative to resolve, among others, whether petitioner was in fact guilty
of delay in the performance of its obligation. Unfortunately for petitioner, this Court is not
called upon to rule upon the issue of defaultsuch issue having been submitted by the
parties to the jurisdiction of the arbitral tribunals pursuant to the terms embodied in their
agreement.[47]
Would injunction then be the proper remedy to restrain the alleged wrongful draws
on the Securities?
Most writers agree that fraud is an exception to the independence principle.
Professor Dolan opines that the untruthfulness of a certificate accompanying a
demand for payment under a standby credit may qualify as fraud sufficient to
support an injunction against payment.The remedy for fraudulent abuse is an
injunction.
However, injunction should not be granted unless:
(a) there is clear proof of fraud;
(b) the fraud constitutes fraudulent abuse of the independent purpose of the letter of
credit and not only fraud under the main agreement; and
(c) irreparable injury might follow if injunction is not granted or the recovery of
damages would be seriously damaged.
In its complaint for injunction before the trial court, petitioner alleged that it is entitled
to a total extension of two hundred fifty-three (253) days which would move the target
completion date. It argued that if its claims for extension would be found meritorious by
the ICC, then LHC would not be entitled to any liquidated damages. [50]
Generally, injunction is a preservative remedy for the protection of ones substantive
right or interest; it is not a cause of action in itself but merely a provisional remedy, an
adjunct to a main suit. The issuance of the writ of preliminary injunction as an ancillary
or preventive remedy to secure the rights of a party in a pending case is entirely within
the discretion of the court taking cognizance of the case, the only limitation being that

this discretion should be exercised based upon the grounds and in the manner provided
by law.[51]
Before a writ of preliminary injunction may be issued, there must be a clear showing
by the complaint that there exists a right to be protected and that the acts against which
the writ is to be directed are violative of the said right. [52] It must be shown that the
invasion of the right sought to be protected is material and substantial, that the right of
complainant is clear and unmistakable and that there is an urgent and paramount
necessity for the writ to prevent serious damage. [53] Moreover, an injunctive remedy may
only be resorted to when there is a pressing necessity to avoid injurious consequences
which cannot be remedied under any standard compensation. [54]
In the instant case, petitioner failed to show that it has a clear and unmistakable
right to restrain LHCs call on the Securities which would justify the issuance of
preliminary injunction. By petitioners own admission, the right of LHC to call on the
Securities was contractually rooted and subject to the express stipulations in the
Turnkey Contract.[55] Indeed, the Turnkey Contract is plain and unequivocal in that it
conferred upon LHC the right to draw upon the Securities in case of default, as provided
in Clause 4.2.5, in relation to Clause 8.7.2, thus:
4.2.5 The Employer shall give the Contractor seven days notice of calling
upon any of the Securities, stating the nature of the default for which the claim
on any of the Securities is to be made, provided that no notice will be required if
the Employer calls upon any of the Securities for the payment of Liquidated
Damages for Delay or for failure by the Contractor to renew or extend the
Securities within 14 days of their expiration in accordance with Clause 4.2.2. [56]
8.7.2 The Employer may, without prejudice to any other method of recovery,
deduct the amount of such damages from any monies due, or to become due,
to the Contractor and/or by drawing on the Security.[57]
The pendency of the arbitration proceedings would not per se make LHCs draws on
the Securities wrongful or fraudulent for there was nothing in the Contract which would
indicate that the parties intended that all disputes regarding delay should first be settled
through arbitration before LHC would be allowed to call upon the Securities. It is
therefore premature and absurd to conclude that the draws on the Securities were
outright fraudulent given the fact that the ICC and CIAC have not ruled with finality on
the existence of default.
Nowhere in its complaint before the trial court or in its pleadings filed before the
appellate court, did petitioner invoke the fraud exception rule as a ground to justify the
issuance of an injunction.[58] What petitioner did assert before the courts below was the
fact that LHCs draws on the Securities would be premature and without basis in view of
the pending disputes between them. Petitioner should not be allowed in this instance to
bring into play the fraud exception rule to sustain its claim for the issuance of an
injunctive relief. Matters, theories or arguments not brought out in the proceedings
below will ordinarily not be considered by a reviewing court as they cannot be raised for
the first time on appeal.[59] The lower courts could thus not be faulted for not applying the
fraud exception rule not only because the existence of fraud was fundamentally

interwoven with the issue of default still pending before the arbitral tribunals, but more
so, because petitioner never raised it as an issue in its pleadings filed in the courts
below. At any rate, petitioner utterly failed to show that it had a clear and unmistakable
right to prevent LHCs call upon the Securities.
Of course, prudence should have impelled LHC to await resolution of the pending
issues before the arbitral tribunals prior to taking action to enforce the Securities. But,
as earlier stated, the Turnkey Contract did not require LHC to do so and, therefore, it
was merely enforcing its rights in accordance with the tenor thereof. Obligations arising
from contracts have the force of law between the contracting parties and should be
complied with in good faith.[60] More importantly, pursuant to the principle of autonomy of
contracts embodied in Article 1306 of the Civil Code, [61] petitioner could have
incorporated in its Contract with LHC, a proviso that only the final determination by the
arbitral tribunals that default had occurred would justify the enforcement of the
Securities. However, the fact is petitioner did not do so; hence, it would have to live with
its inaction.
With respect to the issue of whether the respondent banks were justified in
releasing the amounts due under the Securities, this Court reiterates that pursuant to
the independence principle the banks were under no obligation to determine the
veracity of LHCs certification that default has occurred. Neither were they bound
by petitioners declaration that LHCs call thereon was wrongful. To repeat,
respondent banks undertaking was simply to pay once the required documents
are presented by the beneficiary.
At any rate, should petitioner finally prove in the pending arbitration proceedings
that LHCs draws upon the Securities were wrongful due to the non-existence of the fact
of default, its right to seek indemnification for damages it suffered would not normally be
foreclosed pursuant to general principles of law.
Moreover, in a Manifestation, dated 30 March 2001, LHC informed this Court that
the subject letters of credit had been fully drawn. This fact alone would have been
sufficient reason to dismiss the instant petition.
Settled is the rule that injunction would not lie where the acts sought to be enjoined
have already become fait accompli or an accomplished or consummated act In Ticzon
v. Video Post Manila, Inc. this Court ruled that where the period within which the former
employees were prohibited from engaging in or working for an enterprise that competed
with their former employerthe very purpose of the preliminary injunction has expired,
any declaration upholding the propriety of the writ would be entirely useless as there
would be no actual case or controversy between the parties insofar as the preliminary
injunction is concerned.
xxx
xxx.
WHEREFORE, the instant petition is DENIED, with costs against petitioner.
Petitioner is hereby required to answer the charge of forum-shopping within fifteen
(15) days from notice.

SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.