8/12/2019 Velasquez v. Solidbank Corporation

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MARLOU L. VELASQUEZ . SOLIDBANK CORPORATIONG.R. No. 157309, 28 March 2008, THIRD DIVISION Reyes, .)Wilderness Trading, as seller, undertook to sell dried sea cucumber for export to South Korea

to Goldwell Trading of Pusan, South Korea, as buyer. To facilitate the payment of the products,Goldwell Trading opened a letter of credit in favor of Wilderness Trading with the Bank of Seoul,

Pusan, Korea. Marlou Velasquez, the proprietor of Wilderness Trading, applied for creditaccommodation with Solidbank Corporation (Solidbank) for pre-shipment financing, which wasgranted. The first two export transactions both drawn on the letter of credit were successful, thethird shipment however, was not. For Velasquez third shipment, he negotiated for a documentarysight draft, representing the value of the shipment, to be drawn on the letter of credit, chargeable tothe account of Bank of Seoul. As a condition for the issuance of the sight draft, Velasquez executed aletter of undertaking in favor of Solidbank wherein he promised to pay if the sight draft was notaccepted. By virtue of which, Velasquez was able to advance the value of the shipment. Solidbankfailed to collect on the sight draft when it was presented for payment as it was dishonored by non-acceptance by the Bank of Seoul for alleged breach by Wilderness Trading of certain conditionsunder the terms of their export agreement. Due to the dishonor, Solidbank demanded restitution ofthe sum advance which Velasquez failed to accomplish. Solidbank filed a complaint for recovery ofsum of money before the RTC. The latter ruled in favor of Solidbank and was affirmed by the CA.

ISSUE:Whether Velasquez should be held liable to respondent under the sight draft or the letter of

undertaking.

HELD:Petitioner, Velasquez, is not liable under the sight draft but he is liable under his letter of

undertaking. It bears stressing that it is a separate contract from the sight draft. The liability ofpetitioner under the letter of undertaking is direct and primary. It is independent from his liabilityunder 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 theundertaking that he will reimburse the amount in case the sight draft is dishonored. The bankwould certainly not have agreed to grant petitioner an advance export payment were it not for theletter of undertaking. The consideration for the letter of undertaking was petitioners promise to payrespondent the value of the sight draft if it was dishonored for any reason by the Bank of Seoul.

We cannot accept petitioners thesis that he is only a mere guarantor under the letter ofcredit. Petitioner cannot be both the primary debtor and the guarantor of his own debt. This isinconsistent with the very purpose of a guarantee which is for the creditor to proceed against a thirdperson if the debtor defaults in his obligation. Certainly, to accept such an argument would make amockery of commercial transactions.