Republic
of the
Supreme Court
THIRD DIVISION
MARLOU L. VELASQUEZ, G.R. No. 157309
Petitioner,
Present:
AUSTRIA-MARTINEZ,*
J.,
Acting
Chairperson,
TINGA,**
- versus -
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
Promulgated:
SOLIDBANK
CORPORATION,
Respondent. March 28, 2008
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D E C I S I O N
REYES, R.T., J.:
PARTIES may not impugn the effectivity of a contract, after
much benefit has been gained to the prejudice of another. They are bound by the obligations they
expressly set out to do.
Before Us is a petition for review on
certiorari of the Decision[1] of
the Court of Appeals (CA) which affirmed with modification that of the Regional
Trial Court (
The 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
On
On
As a condition for the issuance of
the sight draft, petitioner executed a letter of undertaking in favor of respondent. Under the terms of the letter of
undertaking, petitioner promised that the draft will be accepted and paid by
Bank of Seoul according to its tenor. Petitioner
also held himself liable if the sight draft was not accepted. The letter of undertaking provided:
SOLIDBANK
CORPORATION
Gentlemen: Re: PURCHASE OF
In consideration of your negotiating the above described draft(s), we hereby warrant that the above referred to draft(s) and accompanying documents are genuine and accurately represent the facts stated therein and that the draft(s) will be accepted and paid in accordance with its/their tenor. We further undertake and agree, jointly and severally, to hold you free and harmless from and to defend all actions, claims and demands whatsoever, and to pay on demand all damages, actual or compensatory, including attorney’s fees, in case of suit, at least equal to __% of the amount due, which you may suffer arising by reason of or on account of your negotiating the above draft(s) because of the following discrepancies or reasons or any other discrepancy or reason whatever:
1) B/L MARKED “SAID TO CONTAIN” & “SHIPPER’S LOAD, STOWAGE & COUNT.”
2) LATE SHIPMENT.
3) QUANTITY SHIPPED @ US$14.00 OVERDRAWN BY 0.06 TON.
4) NO INSPECTION CERTIFICATE PRESENTED.
We hereby undertake to pay on demand the full amount of the draft(s) or any unpaid balance of the draft(s), with interest at the prevailing rate of today from the date of negotiation, plus all charges and expenses whatsoever incurred in connection therewith. You shall neither be obligated to contest or dispute any refusal to accept or to pay the whole or any part of the above draft(s) nor to proceed in anyway against the drawee thereof, the issuing bank, or against any indorser thereof before making a demand on us for the payment of the whole or any unpaid balance of the draft(s).[5] (Emphasis added)
By virtue of the letter of
undertaking, respondent advanced the value of the shipment which, at the
current rate of exchange at that time was P1,495,115.16, less bank
charges, to petitioner. Respondent then
sent all the documents pertinent to the export transaction to the Bank of
Seoul.
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.[6] 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.
Due to the dishonor of the sight
draft and the stop payment order, respondent demanded restitution of the sum
advanced.[7] Petitioner failed to heed the demand.
On
On
IN
VIEW OF THE FOREGOING, judgment is hereby rendered ordering the defendant:
(1)
to pay the plaintiff the principal sum of P1,495,
115.16 plus interest at 20% per annum counted from
(2) to pay attorney’s fees equivalent to 10% of the total amount due the plaintiff; and
(3)
to pay the costs.
SO
ORDERED.[11]
The
This court is not convinced with the defendant’s argument that because of plaintiff’s failure to protest the dishonor of the sight draft, his liability is extinguished because his liability remains under the letter of undertaking which he signed and without which plaintiff would not have advanced or credited to him the amount.
Section
152 of the Negotiable Instruments Law under which defendant claims
extinguishment of his liability to plaintiff is not a bar to the filing of
other appropriate remedies which the aggrieved party may pursue to vindicate
his rights and in this instant case, plaintiff wants his right vindicated by
virtue of the letter of undertaking which defendant signed. By the letter of undertaking, defendant
bound himself to pay on demand all damages including attorney’s fees which
plaintiff may suffer arising by reason of or on account of negotiating the
above draft because of the following discrepancies or any other discrepancy
or reasons whatsoever and further to pay on demand full amount of any unpaid
balance with interest at the prevailing rate. He should be bound to the fulfillment of what he expressly obligated
himself to do and perform in the letter of undertaking without which, plaintiff would not have advance (sic) and credited to him the amount in
the draft. He should not enrich himself
at the expense of plaintiff.[12] (Emphasis added)
Disagreeing, petitioner elevated the
matter to the CA.
On
WHEREFORE, premises considered, the assailed Decision is
hereby AFFIRMED with MODIFICATION.
Defendant-appellant Marlou L. Velasquez is hereby ordered to pay
plaintiff-appellee Solidbank Corporation, the following: (1) the principal
amount of One Million Four Hundred Ninety-Five Thousand One Hundred Fifteen and
Sixteen Centavos (P1,495,115.16) plus interest at twelve percent (12%)
per annum from
SO ORDERED.[13]
In
ruling against petitioner, the CA opined:
The fact that said draft was dishonored and not paid by the Bank of Seoul-Korea, (sic) it is incumbent upon defendant-appellant Velasquez to comply with his obligation under the Letter of Undertaking. He cannot be allowed to impugn the contract of undertaking he entered into by saying that it was a superfluous document, and therefore, not binding on him. The contract of undertaking is the law between them, and must be enforced accordingly. This is in accord with Article 1159 of the New Civil Code, which provides that “obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.” And parties to a contract are bound to the fulfillment of what has expressly been stipulated therein, regardless of the fact that it turn (sic) out to be financially disadvantageous.[14]
x x x x
The fact that Defendant-appellant
benefited from the advance payment made by Plaintiff appellee, (sic) it is incumbent upon him to return
what he received because the purpose of the advance payment was not attained
and/or realized, as the sight draft was not paid accordingly, otherwise, it will result to unjust
enrichment on the part of Defendant-appellant at the expense of
Plaintiff-appellee, in violation of Articles 19 and 22 of the New Civil
Code. The doctrine of unjust enrichment
and restitution simply means that “the exercise of a right ends when the right
disappears, and it disappears when it is abused, especially to the prejudice of
others.”[15] (Emphasis added)
Petitioner
moved for reconsideration[16]
but his motion was denied.[17] Hence, the present recourse.
Issues
Petitioner
raises twin issues for Our consideration, to wit:
THE
COURT OF APPEALS
I.
THE
COURT OF APPEALS RULED THAT PETITIONER IS LIABLE ON THE ACCESSORY CONTRACT, THE
LETTER OF UNDERTAKING, DESPITE THE
II.
THE
COURT OF APPEALS HELD PETITIONER LIABLE UNDER THE ACCESSORY CONTRACT, THE
LETTER OF UNDERTAKING, DESPITE THE
The
main issue is whether or not petitioner should be held liable to respondent
under the sight draft or the letter of undertaking. There is no dispute that petitioner
duly signed and executed these documents. It is likewise admitted that the
sight draft was dishonored by non acceptance by the Bank of Seoul.
Our Ruling
The
petition is without merit.
Petitioner is not liable under the sight draft but he
is liable under his letter of undertaking; liability under the letter of
undertaking was not extinguished by non-protest of the dishonor of the sight
draft.
Petitioner argues that he cannot be
held liable under either the sight draft or the letter of undertaking. He claims that the failure of respondent to
protest the dishonor of the sight draft under Section 152 of the NIL discharged
him from liability under the negotiable instrument. It is also contended that his liability under
the letter of undertaking is that of a mere guarantor; that the letter of
undertaking is only an accessory contract to the sight draft. Since he was discharged from liability under
the sight draft, he cannot be held liable under the letter of undertaking.
For its part, respondent counters
that petitioner’s liability springs from the letter of undertaking,
independently of the sight draft. It
would not have advanced the amount without the letter of undertaking. According to respondent, the letter of
undertaking is an independent agreement and not merely an accessory contract. To permit petitioner to escape liability under
the letter of undertaking would result in unjust enrichment.
Petitioner’s liability under the
letter of undertaking is independent from his liability under the sight draft. He may be held liable under either the sight
draft or the letter of undertaking or both.
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
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. (Emphasis added)
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 non-acceptance or
non-payment.
Respondent agreed to purchase the
draft and credit petitioner its value upon the undertaking that he will
reimburse the amount in case the sight draft is dishonored. The bank would certainly not have agreed to
grant petitioner an advance export payment were it not for the letter of
undertaking. The consideration for the letter
of undertaking was petitioner’s promise to pay respondent the value of the
sight draft if it was dishonored for any reason by the Bank of Seoul.
We cannot accept petitioner’s thesis
that he is only a mere guarantor under the letter of credit. Petitioner cannot be both the primary debtor
and the guarantor of his own debt. This
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. Certainly, to accept such an argument would
make a mockery of commercial transactions.
Petitioner bound himself liable to respondent
under the letter of undertaking if the sight draft is not accepted. He also
warranted that the sight draft is genuine; will be paid by the issuing bank in
accordance with its tenor; and that he will be held liable for the full amount
of the draft upon demand, without necessity of proceeding against the drawee
bank.[20] Petitioner breached his undertaking when the
Bank of Seoul dishonored the sight draft and Goldwell Trading ordered a stop
payment order on it for discrepancies in the export documents.
Petitioner is liable without need for respondent to
establish collateral facts such as violations of the letter of credit.
It is also argued that petitioner
cannot be held liable under the letter of undertaking because respondent failed
to prove that he violated any of the provisions in the letter of credit or that
sixty (60) of the seventy-one (71) bags shipped to Goldwell Trading contained
soil instead of dried sea cucumber.
We cannot agree. 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.[21] Petitioner’s 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 petitioner’s liability
under the letter of undertaking.
Records also show that the Bank of
Seoul found discrepancies in the documents submitted by petitioner. Goldwell Trading issued a stop payment order
because the products shipped were defective. It found that most of the bags shipped
contained soil instead of dried sea cucumber. If petitioner disputes the finding of Goldwell
Trading, he can file a case against said company but he cannot dispute his
liability under either the sight draft or the letter of undertaking.
As We see it, this is a
straightforward case of collection of sum of money on the basis of a letter of
undertaking. Respondent advanced the
export payment to petitioner on the understanding that the draft will be
honored and paid. The draft was
dishonored. Justice and equity dictate
that petitioner be held liable to respondent bank.
WHEREFORE, the
petition is DENIED for lack of
merit. The Decision of the Court of
Appeals dated
SO ORDERED.
RUBEN T. REYES
Associate Justice
WE CONCUR:
MA. ALICIA
AUSTRIA-MARTINEZ
Associate Justice
Acting Chairperson
DANTE O.
TINGA MINITA V.
CHICO-NAZARIO
Associate Justice
Associate Justice
ANTONIO EDUARDO
B. NACHURA
Associate Justice
I
attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court’s Division.
MA. ALICIA
AUSTRIA-MARTINEZ
Associate Justice
Acting Chairperson
Pursuant to Section 13, Article VIII of the
Constitution and the Division Acting Chairperson’s Attestation, I certify that
the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
* Vice Associate Justice Consuelo
Ynares-Santiago, Chairperson, who is on official leave per Special Order No.
497 dated
**
Designated as additional member per Special Order No. 497 dated
[1] Rollo,
pp. 38-55. Penned by Associate Justice
Andres B. Reyes, Jr., with Associate Justices Josefina Guevara-Salonga and
Mario L. Guariña,
[2]
[3] Irrevocable Letter of Credit No.
M2073210NS00040, opened on
[4] Rollo, p. 70.
[5]
[6] Annex “Q.”
[7] Rollo,
pp. 81-82. Demand letters dated
[8] Docketed as Civil Case No. CEB-14080, RTC,
Branch 8,
[9] Rollo, pp. 100-109.
[10]
[11]
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19] Negotiable Instruments Law, Sec. 129 provides:
Sec. 129. Inland
and Foreign Bills of Exchange. – An inland bill of exchange is a bill which
is, or on its face purports to be, both drawn and payable within the
[20] Rollo, pp. 61-62.
[21] New Civil Code, Art. 1315 provides: “Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.”