Velasquez v.

Solidbank FACTS:

Marlou Velasquez, under the name Wilderness Trading is engaged in the export of dried sea cucumber to Goldwell Trading, an entity in Pusan, Korea. Their exchange of transactions is facilitated by a letter of credit opened by Goldwell with the Bank of Seoul in favour of Wilderness. They have had 3 export deals, however the third one failed. This is because by wanting to be paid in advance, Velasquez negotiated a sight draft with Solidbank Corporation to be drawn on the letter of credit and bound himself through a letter of undertaking to be liable in case the draft is not accepted. The sight draft is dishonoured by non-acceptance by the Bank of Seoul for several reasons. Goldwell likewise issued a stop payment order because the shipment of sea cucumber contained soil. Solidbank demanded payment and thereafter filed a claim for recovery of sum of money. Velasquez argues that his liability under the sight draft was extinguished when Solidbank failed to protest its non-acceptance under NIL 152, it follows then that his liability on the letter of undertaking should be likewise extinguished being merely a :superfluous contract. ISSUE: Is Mr. Velasquez liable under the letter of undertaking? HELD: RTC yes. His liability remains under the letter of undertaking which he signed and without which Solidbank would not have advanced or credited to him the amount. CA yes. He is bound to fulfil his undertaking as the letter is the law between him and Solidbank, otherwise he will unjustly enriched at the expense of Solidbank. SC Mr. Velasquez is NOT LIABLE under the SIGHT DRAFT. A sight draft made payable outside the Philippines is a foreign bill of exchange, and when it is dishonoured by non-acceptance or non-payment, PROTEST is necessary to hold the drawer and indorsers liable. Solidbanks failure to protest resulted in the discharge of Mr. Velasquez from liability under the instrument. However he is still LIABLE under the LETTER OF UNDERTAKING where his liability is direct and primary, independent of his liability under the sight draft. And he cannot be deemed merely a guarantor because he cannot be both the primary debtor and the guarantor of his own debt. He has to comply with the tenor of his undertaking under such letter.