Velasquez v. Solidbank Corp. (2006) G.R. No.

157309 Lessons Applicable: Protest, acceptance and payment for honor (Negotiable Instruments Law) FACTS: Wilderness Trading (Velasquez) sold and exported to Goldwell Trading of Pusan, South Korea dried sea cucumber o To facilitate payment, 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. November 12, 1992: Gonzales applied for credit accommodation with Solidbank Corp. for pre-shipment financing - granted. o First two export - successful o Third export - not successful February 22, 1993: Velasquez submitted to RCBC the necessarydocuments for his third shipment. o Wanting to be paid the value of the shipment in advance,Velasquez negotiated for a documentary sight draft for US$59,640.00 to be drawn on the letter of credit, chargeable to the account of Bank of Seoul. o Terms: promised that the draft will be accepted and paid by Bank of Seoul according to its tenor Velasquez himself liable if the sight draft was not accepted Solidbank Corp. failed to collect on the sight draft as it was dishonored by non-acceptance by the Bank of Seoul. -reasons: o late shipment o forged inspection certificate o absence of countersignature of the negotiating bank on the inspection certificate Goldwell Trading issued a stop payment order on the sight draft because most of the bags of dried sea cucumber exported contained soil Solidbank Corp. demanded restitution of the sum advanced o Gonzales failed to heed the demand June 3, 1993: Solidbank Corp. filed a complaint for recovery of sum of money with the RTC o alleged that his liability under the sight draft was extinguished when Solidbank Corp. failed to protest its nonacceptance, as required under the Negotiable Instruments Law (NIL) RTC: favored Solidbank Corp. bec. even w/o protest Velasquez remained liable under the letter of undertaking which he signed CA: affirmed w/ mod

ISSUE: W/N Velasquez is no longer liable because of failure by Solidbank to file protest against the sight draft (Sec. 152 of NIL) despite the letter of undertaking HELD: NO. Petition is DENIED. CA Affirmed. A sight draft made payable outside the Philippines = foreign bill of exchange o When a foreign bill is dishonored by non-acceptance or non-payment, protest is necessary to hold the drawer and indorsers liable

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 Liability subsists on it even if the sight draft was dishonored for non-acceptance or non-payment o liability of Velasquez under the letter of undertaking is direct and primary and independent from the sight draft

FACTS: Autocorp Group, represented by its President, petitioner Peter Y. Rodriguez, secured two ordinary re-export bond from private respondent Intra Strata Assurance Corporation (ISAC) in favor of public respondent Bureau of Customs (BOC) to guarantee the re-export of one unit of Hyundai Excel 4-door 1.5 LS and Hyundai Sonata 2.4 GLS, and/or to pay the taxes and duties thereon.

Petitioners executed and signed two Indemnity Agreements with identical stipulations in favor of ISAC, agreeing to act as surety of the subject bonds. Petitioner Rodriguez signed the Indemnity Agreements both as President of the Autocorp Group and in his personal capacity. In sum, ISAC issued the subject bonds to guarantee compliance by petitioners with their undertaking with the BOC to re-export the imported vehicles within the given period and pay the taxes and/or duties due thereon. In turn, petitioners agreed, as surety, to indemnify ISAC for the liability the latter may incur on the said bonds. Petitioner Autocorp Group failed to re-export the items guaranteed by the bonds and/or liquidate the entries or cancel the bonds, and pay the taxes and duties pertaining to the said items despite repeated demands made by the BOC, as well as by ISAC. By reason thereof, the BOC considered the two bonds, with a total face value of P1,034,649.00, forfeited. Failing to secure from petitioners the payment of the face value of the two bonds, despite several demands sent to each of them as surety under the Indemnity Agreements, ISAC filed with the RTC on 24 October 1995 an action against petitioners. Petitioners contend that their obligation to ISAC is not yet due and demandable. They cannot be made liable by ISAC in the absence of an actual forfeiture of the subject bonds by the BOC and/or an explicit pronouncement by the same bureau that ISAC is already liable on the said bonds. ISSUES: Whether actual forfeiture of the subject bonds is necessary for the petitioners to be liable to ISAC under the Indemnity Agreements? RULING: The liability of the guarantor already triggers the liability of the debtor. Autocrops liability Actual forfeiture of the subject bonds is not necessary for petitioners to be liable thereon to ISAC as surety under the Indemnity Agreements. Petitioners' obligation to indemnify ISAC became due and demandable the moment the bonds issued by ISAC became answerable for petitioners' non-compliance with its undertaking with the BOC. Stated differently, petitioners became liable to indemnify ISAC at the same time the bonds issued by ISAC were placed at the risk of forfeiture by the BOC for non-compliance by petitioners with its undertaking. It is worthy to note that petitioners did not impugn the validity of the stipulation in the Indemnity Agreements allowing ISAC to proceed against petitioners the moment the subject bonds become due and demandable, even prior to actual forfeiture or payment thereof. Even if they did so, the Court would be constrained to uphold the validity of such a stipulation for it is but a slightly expanded contractual expression of Article 2071 of the Civil Code which provides, inter alia, that the guarantor may proceed against the principal debtor the moment the debt becomes due and demandable. Art. 2071. The guarantor, even before having paid, may proceed against the principal debtor: (1) When he is sued for the payment; (2) In case of insolvency of the principal debtor; (3) When the debtor has bound himself to relieve him from the guaranty within a specified period, and this period has expired; (4) When the debt has become demandable, by reason of the expiration of the period for payment; (5) After the lapse of ten years, when the principal obligation has no fixed period for its maturity, unless it be of such nature that it cannot be extinguished except within a period longer than ten years; (6) If there are reasonable grounds to fear that the principal debtor intends to abscond; (7) If the principal debtor is in imminent danger of becoming insolvent. In all these cases, the action of the guarantor is to obtain release from the guaranty, or to demand a security that shall protect him from any proceedings by the creditor and from the danger of insolvency of the debtor.

Rodriguezs liability Petitioner Rodriguez posits that he is merely a guarantor, and that his liability arises only when the person with whom he guarantees the credit, Autocorp Group in this case, fails to pay the obligation. Petitioner Rodriguez invokes Article 2079 of the Civil Code on Extinguishment of Guaranty, which states: Art. 2079. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The mere failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any extension of time referred to herein. The use of the term guarantee in a contract does not ipso facto mean that the contract is one of guaranty. It thus ruled that both petitioners assumed liability as a regular party and obligated themselves as original promissors, i.e., sureties. The provisions of the Civil Code on Guarantee, other than the benefit of excussion, are applicable and available to the surety. Court finds no reason why the provisions of Article 2079 would not apply to a surety.
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This, however, would not cause a reversal of the Decision of the Court of Appeals. The Court of Appeals was correct that even granting arguendo that there was a modification as to the effectivity of the bonds, petitioners would still not be absolved from liability since they had authorized ISAC to consent to the granting of any extension, modification, alteration and/or renewal of the subject bonds BITANGA v PYRAMID FACTS: 1) On March 26 1997, Pyramid entered into an agreement with Macrogen Realty, of which Bitanga is the President, to construct for the latter a building, located in Sucat, Paraaque. Pyramid then commenced civil, structural, and architectural works on the construction project. However, Macrogen Realty failed to settle respondents progress billings. Bitanga, assured Pyramid that the outstanding account of Macrogen Realty would be paid.Thus, Pyramid continued the construction project. 2) In August 1998, Pyramid suspended work on the construction project since the conditions that it imposed for the continuation thereof, including payment of unsettled accounts, had not been complied with by Macrogen Realty and eventually, on 1 September 1999, respondent instituted with the Construction Industry Arbitration Commission (CIAC) a case for arbitration against Macrogen Realtyseeking payment by the latter of its unpaid billings and project costs. Macrogen, chose to amicably settle the arbitration case and both parties entered into a Compromise Agreement, with Bitanga acting as signatory for and in behalf of Macrogen Realty. 3) Under the Agreement, Macrogen Realty agreed to pay Pyramid the total amount in six equal monthly installments, that if it would default in the payment of two successive monthly installments, immediate execution could issue against it for the unpaid balance, without need of judgment from any court or tribunal. Bitanga guaranteed the obligations of Macrogen Realty under the Compromise Agreement by executing a Contract of Guaranty in favor of respondent, by virtue of which he irrevocably and unconditionally guaranteed the full and complete payment of the principal amount of liability of Macrogen Realty. 4) However, despite this, Macrogen Realty failed and refused to pay all the monthly installments agreed upon in the Compromise Agreement. Thus, on 7 September 2000, respondent moved for the issuance of a writ of execution against Macrogen Realty, which was granted. 5) The sheriff however filed a return stating that he was unable to locate any property of Macrogen Realty, except its bank deposit of P20,242.33, with the Planters Bank, Buendia Branch. Respondent then made, on January 3, 2001, a written demand on petitioner, as guarantor of Macrogen Realty, to pay the P6,000,000.00, or to have properties of the Macrogen Realty sufficient to cover the obligation guaranteed. Said demands met no reply. 6) As to Marilyns (bitangas wife) liability, Pyramid contended that Macrogen Realty was owned and controlled by bitanga and Marilyn and/or by corporations owned and controlled by them. On the theory that since the completion of the construction project would have redounded to the benefit of both petitioner and Marilyn and/or their corporations; and considering, Marilyns interest in a corporation which controls Macrogen Realty, Marilyn cannot be unaware of the obligations incurred by Macrogen Realty and/or petitioner in the course of the business operations of the said corporation. 7) Pyramid filed suit that a judgment be rendered ordering petitioner and Marilyn to comply with their obligation under the Contract of Guaranty by paying respondent the amount of P6,000,000.000.

8) Marilyn contended that, since she did not co-sign the Contract of Guaranty with her husband; nor was she a party to the Compromise Agreement between respondent and Macrogen Realty. She had no part at all in the execution of the said contracts. This was denied ISSUES: (1) whether the defendants were liable under the contract of guarantee dated April 17, 2000 entered into between Benjamin Bitanga and the plaintiff; (2) whether defendant wife Marilyn Bitanga is liable in this action; HELD: A) Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. The guarantor who pays for a debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and resorted to all the legal remedies against the debtor. This is what is otherwise known as the benefit of excussion. Article 2060 of the Civil Code reads: In order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latters demand for payment from him, and point out to the creditor available property of the debtor within Philippine territory, sufficient to cover the amount of the debt. B) Said provision imposes a condition for the invocation of the defense of excussion. Article 2060 of the Civil Code clearly requires that in order for the guarantor to make use of the benefit of excussion, he must set it up against the creditor upon the latters demand for payment and point out to the creditor available property of the debtor within the Philippines sufficient to cover the amount of the debt. C) In this case, despite having been served a demand letter at his office, petitioner still failed to point out to the respondent properties of Macrogen Realty sufficient to cover its debt. Such failure on petitioners part forecloses his right to set up the defense of excussion. D) Article 2059(5) of the Civil Code thus finds application and precludes petitioner from interposing the defense of excussion. We quote: (5) If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation. E) Petition is DENIED.