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I
X corporation entered into a contract with PT Contruction Corp. for the
latter to construct and build a sugar mill within six (6) months. They
agreed that in case of delay, PT Construction Corp. will pay X Corporation
P100,000 for every day of delay. To ensure payment of the agreed
amount of damages, PTConstruction Corp. secured from Atlantic Bank a
confirmed and irrevocable letter of credit which was accepted by X
Corporation in due time. One week before the expiration of the six (6)
month period, PTConstruction Corp. requested for an extension of time to
deliver claiming that the delay was due to the fault of X Corporation. A
controversy as to the cause of the delay which involved the workmanship
of the building ensued. The controversy remained unresolved. Despite
the controversy, X Corporation presented a claim against Atlantic Bank
by executing a draft against the letter of credit.
1.Can Atlantic Bank refuse payment due to the unresolved
controversy? Explain. (3%)
2.Can X Corporation claim directly from PT Construction Corp.?
Explain. (3%)
SUGGESTED ANSWER:
1. No, Atlantic Bank cannot refuse payment.
Under the independence principle of letters of credit, the issuing bank is
obliged to pay a draft drawn by the beneficiary upon tender of the
required documents without need of examining the main contract, the
letter of credit being an independent undertaking by the bank.
In the given case, the unresolved controversy as to the cause of the
delay in the main contract does not in any way affect Atlantic Bank's
obligation under the letter of credit. This is especially true since the letter
of credit is designated as irrevocable, which, thus, makes definite the
bank's undertaking to pay.
Hence, considering that all the required documents have been tendered
by X Corporation, Atlantic Bank cannot validly refuse to pay.
2. Yes, X Corporation may directly claim from PT Construction Corp.
Under the Civil Code, which is suppletory to the Code of Commerce, a
contract, once perfected binds the parties not only to the fulfillment of
what has been stipulated but also to all the consequences which
according to their nature may be in keeping with good faith, usage and
law.
XV
Eloise, an accomplished writer, was hired by Petong to write a bimonthly
newspaper column for Diario de Manila, a newly-established newspaper
of which Petong was the editor-in-chief. Eloise was to be paid P1,000 for
each column that was published. In the course of two months, Eloise
submitted three columns which, after some slight editing, were printed in
the newspaper. However, Diario de Manila proved unprofitable and
closed only after two months. Due to the minimal amounts involved,
Eloise chose not to pursue any claim for payment from the newspaper,
which was owned by New Media Enterprises.
Three years later, Eloise was planning to publish an anthology of her
works, and wanted to include the three columns that appeared in the
Diario de Manila in her anthology. She asks for your legal advice:
1.Does Eloise have to secure authorization from New Media
Enterprises to be able to publish her Diario de Manila columns in
her own anthology? Explain fully. (4%)
2.Assume that New Media Enterprises plans to publish Eloise's
columns in its own anthology entitled, "The Best of Diaro de
Manila." Eloise wants to prevent the publication of her columns in
that anthology since she was never paid by the newspaper. Name
one irrefutable legal arguments Eloise could cite to enjoin New
Media Enterprises from including her columns in its anthology. (2%)
SUGGESTED ANSWER:
1. Yes, Eloise has to secure authorization from New Media Enterprise.
In case of a work by an author during and in the course of his
employment, the copyright shall belong to the employer, if the work is
the result of his regular duties, even if the employee uses the time,
facilities and materials of the employer.
The facts reveal that Eloise created the works in question during the
course of her employment with New Media Enterprises. Anent the fact
that she was specifically hired by Petong to write a bimonthly column,
XIX
Industry Bank, which has a net worth of P1 Billion, extended a loan to
Celestial Properties Inc. amounting to P270 Million. The loan was secured
by a mortgage over a vast commercial lot in the Fort Bonifacio Global
City, appraised at P350 Million. After audit, the Bangko Sentral ng
Pilipinas gave notice that the loan to Celestial Properties exceeded the
single borrower's limit of 25% of the bank's net worth under a recent BSP
Circular. In light of other previous similar violations of the credit limit
requirement, the BSP advised Industry Bank to reduce the amount of the
loan to Celestial Properties under pain of severe sanctions. When
Industry Bank informed Celestial Properties that it intended to reduce the
loan by P50 Million, Celestial Properties countered that the bank should
first release a part of the collateral worth P50 Million. Industry Bank
rejected the counter-proposal, and referred the matter to you as counsel.
How would you advise Industry Bank to proceed, with its best interest in
mind? (5%)
SUGGESTED ANSWER:
I would advise Industry Bank to release a part of the collateral worth P50
Million.
While it is true that under the Civil Code a mortgage is one and
indivisible as to the contracting parties so that every portion of the
property mortgaged is answerable for the whole obligation as soon as it
falls due, the Supreme Court has held that this rule is not applicable to a
situation where only a portion of the loan was released. In such a case,
the mortgage on the loan became unenforceable to the extent of the
unreleased portion.
In the case at bar, the loan agreement is for P270 Million. By reducing
the amount to P220 Million (or P270 Million less P50 Million), the real
estate mortgage over the commercial lot became unenforceable to the
extent of P50 Million and subsists as a security only for P220 Million debt.
In other words, in case of default of Celestial Properties, the mortgage
can be foreclosed only to the extent of the P220 Million. (Central Bank of
the Philippines vs. CA, 139 SCRA 46[1985])
Hence, it would be in the best interest of the bank to comply with its
client's request since retaining the entire collateral would not result in
any benefit. On the contrary, it might damage its relationship with its
client by refusing to accommodate its request.