G.R. No. 116996 December 2, 1999
ANDRES VILLALON, petitioner, vs. COURT OF APPEALS, INSULAR BANK OF ASIA and AMERICA, now PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondents.

FACTS

Petitioner Andres Villalon entered into a partnership with Benjamin Gogo, Jr., wherein Villalon was the capitalist partner and Gogo the industrial partner, using Gogo’s existing business, Greenleaf Export. Villalon invested P207,500.00, deposited in a joint account at respondent Insular Bank of Asia and America (IBAA). Gogo executed a Deed of Assignment of Proceeds from a Letter of Credit (LC) in favor of Villalon. Unbeknownst to Villalon, Gogo later obtained packing credit loans from IBAA, securing them with a separate Deed of Assignment of the same LC proceeds in favor of the bank. IBAA allowed negotiations on the LC to cover Gogo’s loans. Villalon sued Gogo and IBAA, claiming the bank conspired to defraud him and was liable because it was allegedly furnished a copy of his Deed of Assignment.

ISSUE

Whether respondent IBAA can be held liable to petitioner Villalon for the proceeds of the Letter of Credit negotiated by Gogo.

RULING

No. The Supreme Court affirmed the Court of Appeals’ decision, ruling that IBAA cannot be held accountable to Villalon. The legal principle of relativity of contracts under Article 1311 of the Civil Code governs. Contracts, including the Deed of Assignment executed by Gogo in favor of Villalon, take effect only between the parties, their assigns, and heirs. There was no privity of contract between Villalon and IBAA. The bank was not a party to the assignment in Villalon’s favor. The Court upheld the factual finding that there was no clear proof IBAA was furnished a copy of Villalon’s assignment before it granted the loans to Gogo. Consequently, IBAA had no obligation to credit the LC proceeds to Villalon’s account, and he had no cause of action against the bank. The petition, which essentially sought a review of factual findings, was dismissed as these findings are generally conclusive and binding.