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
  • Liability subsists on it even if the sight draft was dishonored for non-acceptance or non-payment
    • liability of Velasquez under the letter of undertaking is direct and primary and independent from the sight draft