Velasquez vs Solidbank (G.R. No. 157309 March 28, 2008)

Velasquez vs Solidbank Corporation
G.R. No. 157309 March 28, 2008

Facts: Petitioner is engaged in the export business operating under the name Wilderness Trading. Respondent is a domestic banking corporation organized under Philippine laws. The case arose out of a business transaction for the sale of dried sea cucumber for export to South Korea between Wilderness Trading, as seller, and Goldwell Trading of Pusan, South Korea, as buyer. To facilitate payment of the products, 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. On November 12, 1992, petitioner applied for credit accommodation with respondent bank for pre-shipment financing. The credit accommodation was granted. Petitioner was successful in his first two export transactions both drawn on the letter of credit. The third export shipment, however, yielded a different result. On February 22, 1993, petitioner submitted to respondent the necessary documents for his third shipment. Wanting to be paid the value of the shipment in advance, petitioner negotiated for a documentary sight draft to be drawn on the letter of credit, chargeable to the account of Bank of Seoul. The sight draft represented the value of the shipment in the amount of US$59,640.00. As a condition for the issuance of the sight draft, petitioner executed a letter of undertaking in favor of respondent. Respondent failed to collect on the sight draft as it was dishonored by non-acceptance by the Bank of Seoul. The reasons given for the dishonor were late shipment, forged inspection certificate, and absence of countersignature of the negotiating bank on the inspection certificate. Goldwell Trading likewise issued a stop payment order on the sight draft because most of the bags of dried sea cucumber exported by petitioner contained soil.

Issue: Whether or not petitioner is liable for the sight draft.

Held: No. Admittedly, petitioner was discharged from liability under the sight draft when respondent failed to protest it for non-acceptance by the Bank of Seoul. A sight draft made payable outside the Philippines is a 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. Verily, respondents failure to protest the non-acceptance of the sight draft resulted in the discharge of petitioner from liability under the instrument.

Section 152 of the NIL is explicit:

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.

Petitioner, however, can still be made liable under the letter of undertaking. It bears stressing that it is a separate contract from the sight draft. The liability of petitioner under the letter of undertaking is direct and primary. It is independent from his liability under the sight draft. Liability subsists on it even if the sight draft was dishonored for nonacceptance or non-payment.

Respondent need not prove that petitioner violated the provisions of the letter of credit in order to be held liable under the letter of undertaking. Parties are bound to fulfill what has been expressly stipulated in the contract. Petitioners liability under the letter of undertaking is clear. He is liable to respondent if the sight draft is not accepted by the Bank of Seoul. Mere non-acceptance of the sight draft is sufficient for liability to attach. Here, the sight draft was dishonored for non-acceptance. The non-acceptance of the sight draft triggered petitioners liability under the letter of undertaking.

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