Velasquez v Solidbank Corporation (2008)
Petitioner: Marlou Velasquez
Respondents: Solidbank Corporation
Concept: Nature and extent of Guaranty.
Doctrine: Under the line of credit, the debtor cannot be both the primary debtor and
guarantor of his own debt. It is inconsistent with the very purpose of a guarantee
which is for the creditor to proceed against a third person if the debtor defaults in his
obligation.
As a general rule, a guarantor can no longer be held liable if the principal obligation
had already been discharged. An exception to this, as in the case at bar, if a person
executes a separate document of undertaking binding himself to reimburse the
sight draft in any case of dishonor for non-acceptance or non-payment by the issuing
bank, that person becomes a principal of the new document and not a mere
guarantor.
FACTS:
1. Wilderness Trading (owned by Velasquez) sold and exported to Goldwell Trading
of Pusan, South Korea dried sea cucumber.
2. To facilitate payment, Goldwell Trading opened a letter of credit in favor of
Wilderness Trading with the Bank of Seoul, Pusan, Korea.
3. Nov 1992: Gonzales applied for credit accommodation with Solidbank Corp. for
pre-shipment financing and were granted.
4. The first two exports to Goldwell were successful. The third NOT successful.
5. Feb 1993 (third export): Velasquez submitted to Solidbank 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 to be drawn on the
letter of credit, chargeable to the account of Bank of Seoul.
6. Velasquez executed a letter of undertaking in favor of Solidbank promising that
the draft will be accepted and paid by Bank of Seoul according to its tenor, and
that he himself will be liable if the sight draft was not accepted for whatever
reason, which also included an acceleration clause to pay the full amount or any
unpaid balance on demand if and when the sight draft is breached.
7. BY VIRTUE OF THE UNDERTAKING, Solidbank advanced the pre-shipment
fees. It then sent all the documents pertinent to the export transaction to the
Bank of Seoul.
8. However, the Bank Solidbank dishonorede the said draft by non-acceptance,
because of late shipment, forged inspection certificate and the absence of
countersignature of the negotiating bank on the inspection certificate and
because Goldwell Trading issued a stop payment order on the sight draft
because most of the bags1 of supposedly dried sea cucumber exported
contained soil.
9. Solidbank Corp. demanded restitution of the sum advance but Velasquez failed
to heed the demand, prompting the former to file a complaint for recovery of sum
of money with the RTC.
10. Velasquez countered by saying that his liability under the sight draft was
extinguished when Solidbank failed to protest its non-acceptance, as required
under the Negotiable Instruments Law (NIL) and the the letter of undertaking is
1 2
60 out of 71 dafuq
TTL
not binding anyway since it is a superfluous document (unecessary and can be
done away with).
RTC: favored Solidbank and ordered Vasquez to pay bec. even w/o protest
Velasquez remained liable under the letter of undertaking which he signed. The
contract of undertaking is the law between them, and it must be enforced accordingly.
Velasquez bound himself to pay on demand all damages which Solidbank may suffer
arising rom or on account of negotiating the sight draft.
CA: affirmed with modification: but still ordered Vasquez to pay Solidbank.
The fact that the draft was dishonored and not paid for by Bank of Seoul, it is
now incumbent upon Velasquez to comply with his obligation under the
Letter of Undertaking.
It reiterated the point of RTC that the contract of undertaking is the law
between them, and must be enforced accordingly, in line with Art. 1159.
Velasquez benefited from the advance payments made by Solidbank to is is
now incumbent upon him to return what he received because the purpose of
the advance payment was not attained. Failing to do so will amount to unjust
enrichment on his part.
ISSUE: WON Velasquez should be held liable even though the letter of undertaking is
a mere accessory contract to the sight draft, the latter being discharged. YES.
RATIO: Velasquez is not liable under the sight draft BUT is liable under his Letter of
Undertaling. [nego answer2] Court explained that a sight draft made payable outside
the Philippines amounts to a foreign bill of exchange. Under Sec. 152 of Nego Ins
Law, a protest is necessary when a foreign bill appearing on its face to be such is
dishonored by non-acceptance. If it is not protested, the drawer and indorsers are
discharged. In the case at bar, admittedly, since Solidbank failed to protest the
dishonor of the sight draft, Velasquez, being the drawer thereof, is discharged from
liability.
HOWEVER, Velasquez can still be made liable under the letter of undertaking, main
reason being the letter of undertaking WAS a separate contract [document] from the
sight draft. This being the case, the liability under the letter of undertaking is separate
and distinct from the sight draft. The liability subsists even if the sight draft was
dishonored. Solidbank agreed to the purchase draft precisely because Velasquez
executed the Letter of Undertaking, assuring the former that Solidbank would still be
paid if the draft is dishonored.
Court cannot accept Velasquezs thesis that he is only a mere guarantor under the
letter of credit. He cannot be both the primary debtor and guarantor of his own debt. It
is inconsistent with the very purpose of a guarantee, which is for the creditor to
proceed against a third person if the debtor defaults in his obligation. To accept
such an argument would make a mockery of commercial transactions. Simply put,
Velasquez bound himself liable to Solidbank under the letter of undertaking IF the
sight draft is not accepted for whatever reason. The dishonor by Bank of Korea
reason enough to hold him liable.
DISPOSITIVE: Case dismissed. CA affirmed. Velasquez ordered to pay Solidbank.
this case is also assigned under nego, module 4