THE Supreme Court has made permanent the temporary restraining order (TRO) it issued in 2007, enjoining the Sandiganbayan from implementing its resolution ordering the Lucio Tan-controlled Philippine National Bank (PNB) to turn over the proceeds of a $4.4-million letter of credit (LOC) subject of an ill-gotten wealth lawsuit against the Marcos family and business associate Vicente Chuidian.
In a 15-page resolution, the Court held that “it becomes virtually impossible” for the PNB to comply with the order of the Sandiganbayan, taking into consideration the nature of a letter credit.
“Our previous decisions ordering PNB to deposit the proceeds of the letter of credit to an interest-bearing account is patently wrong in light of the very nature of a letter of credit,” the SC’s First Division held in a decision recently released.
On August 6, 2007, the SC ordered Sandiganbayan to immediately enforce its order to compel PNB to remit to the anti-graft court the proceeds of the funds.
In a 21-page decision penned by former Associate Justice Cancio Garcia, the SC’s Second Division denied for lack of merit the petition of the PNB assailing the anti-graft court’s resolution dismissing its appeal that it be released from the obligation to remit the disputed LOC.
The High Court stressed that Chuidian, a former business associate of the late dictator, remains the lawful payee-beneficiary of the subject LOC, unless the government can prove in court that he has no right to claim the amount.
In its November 6, 2007 ruling, the Sandiganbayan declared that it will no longer allow further postponement pursuant to directives from the SC warning PNB against noncompliance.
This prompted PNB to elevate anew before the SC the matter, arguing that the November 6 resolution is void for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction.
The bank also asked the Court to issue an order directing the Sandiganbayan to conduct an evidentiary hearing to determine the existence of the alleged proceeds of Letter of Credit SFD-005-85 and to issue a writ of prohibition permanently enjoining respondents from proceeding with any and all action relating to or in connection with the November 6 resolution.
Court records showed Chuidian was tagged as an alleged dummy of former President Ferdinand Marcos and his spouse Imelda Marcos in several illegally acquired companies of the spouses.
The allegations said he used such close relationship with the Marcoses to induce the officers of the Philippine Export and Philippine Foreign Loan Guarantee Corp. (PhilGuarantee), renamed as Trade and Investment Development Corp. (Tidcorp) and now Philippine Export-Import Credit Agency (PhilEXIM), the Board of Investments (BOI) and the Central Bank, to facilitate the procurement and issuance of a loan guarantee in favor of Asian Reliability Co. Inco. (Arci) in the amount of $25 million.
Chuidian allegedly owned 98 percent of Arci. PNB issued the letter of credit to Chuidian in 1985 in exchange for his waiver of government guarantees on a $25-million foreign loan drawn by Arci.
Despite receipt of the proceeds of the loan, Arci defaulted ion the payments, compelling PhilGuarantee to undertake the same. Consequently, PhilGuarantee sued Chuidian before the Santa Clara County Superior Court.
On November 27, 1985, however, PhilGuarantee entered into a compromise agreement with Chuidian. It was agreed that he would assign and surrender title to all of his companies in favor of the Philippine Government. In exchange, PhilGuarantee shall absolve Chuidian from all civil and criminal liability on his defaulted loans.
The agreement also provided that in consideration of the purchase of Chuidian’s shares of stock in Dynetics Inc. and Interlek Inc., the Philippine Government shall pay Chuidian the amount of $5.3 million.
Chuidian received initial payment in the amount of US$700,000.
For the remaining balance, a Letter of Credit Agreement (L/C No. SFD-005-85) was executed between Dynetics, Inc. and PNB on December 12, 1985, in the amount of $4.6 million in favor of Chuidian, from which he would draw $100,000 monthly. Chuidian was able to make two drawings from the letter of credit in the amount of $200,000 before his assets, including L/C No. SFD-005-85, were subsequently sequestered by the Presidential Commission on Good Government (PCGG) on May 30, 1986.
In siding with the PNB, the Court described a letter of credit as an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit.
It added that through a letter of credit, the bank merely substitutes its own promise to pay one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit or commitment fees mutually agreed upon.
It also noted that that the mere opening of a letter of credit does not involve a specific appropriation of a sum of money in favor of the beneficiary but merely signifies that the beneficiary may be able to draw funds upon the letter of credit up to the designated amount specified in the letter.
“It does not convey the notion that a particular sum of money has been specifically reserved or has been held in trust,” the SC pointed out.
In the case of PNB, the Court noted that there are certain conditions before PNB, as the issuing bank, can honor the drafts drawn by the beneficiary.
Unlike in a regular bank deposit or time deposit, the Court noted, no account was created from which funds may be drawn.
It said Dynetics Inc. did not surrender assets unconditionally to the custody of PNB, and neither did PNB credit any account of Dynetics Inc.
“PNB’s own assets did not increase with the issuance of the letter of credit,” the Court said.
Furthermore, the Court held that the letter of credit has been sequestered and placed under the control and custody of the PCGG since March 1986.
The PCGG has also issued a freeze order directing PBP to stop further drawings against the letter of credit. “All the foregoing show that there can be no proceeds to speak of. It comes as no surprise, therefore, that PNB was constrained to file various motions before the Sandiganbayan, one of which is a motion to require deposit from Dynetics Inc./Chuidian and/or PhilGuarantee prior to deposit the proceeds of L/C SFD-005-85 with the Sandiganbayan because PNB felt helpless in complying with the directive,” the Court said.