G.R. No. L-19001. April 30, 1964.
PRUDENTIAL BANK AND TRUST CO., plaintiff-appellant, vs. SAURA IMPORT AND EXPORT CO., INC., defendant-appellee.

FACTS

Prudential Bank extended an irrevocable letter of credit to Saura Import and Export Co., Inc. to finance the importation of jute mill machinery. The machinery was shipped, and Saura executed a trust receipt in favor of the bank, agreeing to hold the goods in trust with liberty to sell them for the bank’s account. When Saura failed to pay the outstanding balance on the draft, Prudential Bank filed a complaint for collection and for the return of the machinery.
In its answer, Saura asserted that a novation had occurred through the execution of the trust receipt, transforming its role from debtor to agent, and that it was ready to return the unsold machinery. During the protracted trial, evidence presented by Saura revealed that after the complaint was filed but before judgment, the parties had engaged in subsequent negotiations. These negotiations involved the bank authorizing Saura to find a buyer and the bank’s written acknowledgment agreeing to accept P250,000 from a prospective buyer, Frank Halling, in full settlement, with payment extended until 1961.

ISSUE

Whether the action for collection filed by Prudential Bank was premature in light of the subsequent negotiations between the parties.

RULING

The Supreme Court affirmed the dismissal of the complaint, ruling the action was premature. The legal logic centers on the impact of post-complaint negotiations on the justiciability of the claim. While a valid cause of action for collection existed when the complaint was filed in 1955, the subsequent conduct of the parties created a new factual milieu. The bank’s active participation in negotiations—specifically authorizing Saura to sell the machinery and its written agreement to accept a specified sum from Halling by 1961—constituted a tacit modification or suspension of the original obligation under the trust receipt.
Crucially, at the time the case was submitted for decision in April 1961, the agreed extension period until the end of 1961 had not yet expired. The Court found no evidence that Halling was unable to pay within that period. Therefore, the original cause of action alleged in the complaint had lost its immediate force and effect; there was no longer a ripe, justiciable controversy requiring judicial intervention at that time. The Court reserved the bank’s right to file a new action should the new agreement fail, but the instant suit was correctly dismissed as premature.