Negotiable Instruments Case Digest: Velasquez v. Solidbank Corp. (2006)

G.R. No. 157309 March 28, 2008

Lessons Applicable: Protest, acceptance and payment for honor (Negotiable Instruments Law)

FACTS:

Wilderness Trading (Velasquez) sold and exported to Goldwell Trading of Pusan, South Korea dried sea cucumber

To facilitate payment, Goldwell Trading opened a letter of credit in favor of Wilderness Trading in the amount of US$87,500.00 with the Bank of Seoul, Pusan, Korea.

November 12, 1992: Gonzales applied for credit accommodation with Solidbank Corp. for pre-shipment financing - granted.

First two export - successful
Third export - not successful

February 22, 1993: Velasquez submitted to RCBC the necessary documents for his third shipment.

Wanting to be paid the value of the shipment in advance,Velasquez negotiated for a documentary sight draft for US$59,640.00 to be drawn on the letter of credit, chargeable to the account of Bank of Seoul.
Terms:

promised that the draft will be accepted and paid by Bank of Seoul according to its tenor
Velasquez himself liable if the sight draft was not accepted

Solidbank Corp. failed to collect on the sight draft as it was dishonored by non-acceptance by the Bank of Seoul. -reasons:

late shipment
forged inspection certificate
absence of countersignature of the negotiating bank on the inspection certificate

Goldwell Trading issued a stop payment order on the sight draft because most of the bags of dried sea cucumber exported contained soil
Solidbank Corp. demanded restitution of the sum advanced

Gonzales failed to heed the demand

June 3, 1993: Solidbank Corp. filed a complaint for recovery of sum of money with the RTC

alleged that his liability under the sight draft was extinguished when Solidbank Corp. failed to protest its non-acceptance, as required under the Negotiable Instruments Law (NIL)

RTC: favored Solidbank Corp. bec. even w/o protest Velasquez remained liable under the letter of undertaking which he signed
CA: affirmed w/ mod

ISSUE: W/N Velasquez is no longer liable because of failure by Solidbank to file protest against the sight draft (Sec. 152 of NIL) despite the letter of undertaking

HELD: NO. Petition is DENIED. CA Affirmed.

A sight draft made payable outside the Philippines = foreign bill of exchange

When a foreign bill is dishonored by non-acceptance or non-payment, protest is necessary to hold the drawer and indorsers liable

Section 152. In what cases protest necessary. Where a foreign bill appearing on its face to be such is dishonored by non-acceptance, it must be duly protested for non-acceptance, and where such a bill which has not been previously dishonored by non-acceptance, is dishonored by non-payment, it must be duly protested for non-payment. If it is not so protested, the drawer and indorsers are discharged. Where a bill does not appear on its face to be a foreign bill, protest thereof in case of dishonor is unnecessary