Atty. Julius Gregory Delgado
COCA-COLA PHILIPPINES, INC. VS. PACIFIC SUGAR HOLDINGS CORP., G.R. NO. 241333 (JUNE 27, 2022): LETTER OF CREDIT NOT ALLOWED AS A COUNTERBOND FOR THE LIFTING OF AN ATTACHMENT
Petitioner Coca-Cola Femsa Philippines, Inc. (Coca-Cola) entered into a Supply and Purchase Agreement (First Supply Agreement) with respondent Pacific Sugar Holdings Corporation (Pacific Sugar) for the purchase of 360,000 Lkg bags of Premium Grade Refined Sugar from January 2008 to April 2008. Subsequently, the parties entered into another Supply and Purchase Agreement (Second Supply Agreement) wherein Pacific Sugar agreed to sell and deliver to Coca-Cola 400,000 Lkg bags of Standard Grade Refined Sugar from January 2009 to June 2009. Because of Pacific Sugar’s failure to deliver premium grade refined sugar, the parties executed two amendments to the First Supply Agreement. Similarly, the parties executed an amendment supply agreement modifying the Second Supply Agreement.
Due to alleged “extremely low productivity of sugar cane, in the country, Pacific Sugar sent a letter to Coca-Cola stating that it will no longer deliver remaining undelivered sugar products and that it is terminating the Supply and Purchase Agreements between the parties. In a January 11, 2009 Letter, Coca-Cola informed Pacific Sugar that it found the latter’s reason unacceptable and demanded full compliance of its obligations under the Supply and Purchase Agreements. However, on January 27, 2010, Pacific Sugar sent another Letter to Coca-Cola notifying it of its unilateral termination of the Supply and Purchase Agreements invoking par. 17 of the Second Supply Agreement which provided that should a party fail to comply with any of its material obligations under the agreement, the other party shall have the right to terminate the agreement upon written notice to the other party.
Coca-Cola sent a Letter to Pacific Sugar demanding payment of Php347,410,104.66 representing additional expenses incurred after it was constrained to purchase the undelivered sugar products from other sellers. After Coca-Cola’s demand went unheeded, it filed a Complaint against Pacific Sugar before the Regional Trial Court and prayed for the issuance of a Writ of Preliminary Attachment. In an Order dated January 21, 2011, the RTC issued an Order granting the prayer for the issuance of a Writ of Preliminary Attachment conditioned upon its posting of a bond in the amount of Php347,410,104.68. On February 8, 2011, the Regional Trial Court issue a Writ of Preliminary Attachment ordering the sheriff to attach Pacific Sugar’s properties, unless the latter makes a deposit or gives a counter-bond in an amount sufficient to satisfy Coca-Cola’s demand.
While the trial on the merits ensued, Pacific Sugar filed a Motion to Dissolve Writ of Preliminary Attachment issued in favor of Coca-Cola upon filing of a Standby Letter of Credit. Over the opposition of Coca-Cola, the RTC granted the motion saying that the Standby Letter of Credit secures the payment of an obligation and may substitute the counter-bond required under Section 17, Rule 57 of the Rules of Court. Since its motion for reconsideration was denied, Coca-Cola filed a Petition for Certiorari before the Court of Appeals which affirmed the ruling of the RTC. Hence, Coca-Cola filed a Petition for Review on Rule 45 before the Supreme Court.
In its Decision, the Supreme Court first restated what is a Writ of Preliminary Attachment and its purposes. A preliminary attachment is an ancillary remedy provided to a litigant which protects their prospective rights while a case is pending by attaching on an opponent’s property in an amount equivalent to their claim. This ensures the preservation of the relief or claim sought. The Court that a writ of preliminary attachment serves two purposes. First, it takes hold of the property of a debtor prior to promulgation of judgment to prevent depletion or loss of the property; and second, it subjects the property to payment to the creditor, assuming a favorable decision is met on the latter’s claim. The Court further held that the writ aims to create a lien on the property of a debtor as security until a judgment is obtained. This ensures the creditor that while the case is pending, the debtor will not dispose or conceal their property to evade responsibilities.
In the instant case, the Supreme Court held that the RTC committed grave abuse of discretion when it accepted a Standby Letter of Credit as a substitute for the requirement of a counter-bond to cause the discharge and lifting of the Writ of Preliminary Attachment. The Court held:
“In allowing the filing of a standby letter of credit as a substitute, the Regional Trial Court held that since petitioner can immediately collect from the surety by mere presentation of certain documents, the filing of a standby letter of credit is more favorable to petitioner than a counter-bond. However, the Regional Trial Court failed to consider that the demands of the standby letter of credit is more onerous than the imposed under the Rules of Court.
Under the Rules of Court, ‘a surety on a counter-bond given to secure the payment of a judgment becomes liable for the payment of the amount due upon: (1) demand made upon the surety; and (2) notice and summary hearing on the same action.’ The judgment oblige need not make a prior demand on the obligor before they may recover upon the counter bond.
Conversely, the standby letter of credit filed by respondent and issued by East West Bank requires petitioner to submit a certification stating among other things that: (1) respondent was given 15 days from service of writ of execution to satisfy the amount of judgment; (2) respondent failed to comply with the writ of execution; and (3) the amount of judgment was left unsatisfied by the respondent.”
The Court held that a standby letter of credit is not an ironclad financial instrument that ensures the automatic payment of a debt once judgment is promulgated. A standby letter of credit brings a third-party in to the transaction that stands to satisfy the judgment once demand is made. The Court held that the danger of this is when the third-party involved, East West Bank in this case, reneges on its obligation, petitioner is left with no recourse but to initiate another proceeding or litigation to enforce satisfaction of judgment.