NEGO

Sec 126


1. Republic v. First National Bank of New York DONDON

Emergency Recit:

Definition: Escheat
a. Reversion of property to the state in the absence of legal heirs or claimants.
b. Property that has reverted to the state when no legal heirs or claimants exist.

Pursuant to Act No. 3936, banks submitted sworn statement of all credits and deposits held by
them in favour of:
1) Persons known to be dead or
2) Who have not made further deposits or withdrawals during the period of 10 years or
more.
The purpose is for the government to subject these to escheat proceedings.
Banks were ordered to deposit these amounts to government account of Treasurer of the
Philippines.

First National Bank claims that it inadvertently included a total amount of Php18,589.89 in its
sworn statement representing Cashiers or Managers checks, demand drafts, and telegraphic
transfer payments. It claims that these items do not fall within the credits and deposits of
unclaimed balances contemplated by Act No. 3936 which should be subject to escheat. In other
words, it asks that these items be excluded.

RTC decision:
Cashiers or Managers check INCLUDED
Demand drafts and telegraphic orders NOT included
Issue: W/N Demand drafts and telegraphic orders come within the meaning of the term
credits or deposits employed in law

The SC held
1) Demand drafts (see definition below) NOT included not escheated due to non-
presentment, no liability yet
2) Telegraphic payment orders included should be escheated!

DEMAND DRAFT should NOT be escheated:
A Bill of Exchange under NIL does not operate as an assignment of funds in the hands of the
drawee who is not liable on the instrument until he accepts it.
Since it is admitted that the demand drafts herein involved have not been presented either for
acceptance or for payment,

NEGO Sec 126

The inevitable consequence is that the appellee bank never had any chance of accepting
or rejecting them.
Verily, appellee bank never became a debtor of the payee concerned and as such the
aforesaid drafts cannot be considered as credits subject to escheat within the meaning
of the law.

TELEGRAPHIC PAYMENT ORDER should be escheated (this is actually already the entire ratio on
telegraphic order from the case):
The transaction is for the establishment of a telegraphic or cable transfer.
The agreement to remit creates a contractual obligation and has been termed a
purchase and sale
The purchaser of a telegraphic transfer upon making payment completes the
transaction insofar as he is concerned, though insofar as the remitting bank is
concerned the contract is executory until the credit is established
SC agreed with Solicitor General comment (main ratio about telegraphic order):
This is so because the drawer bank was already paid the value of the telegraphic transfer
payment order.
In the particular cases under consideration it appears in the books of the defendant bank that
the amounts represented by the telegraphic payment orders appear in the names of the
respective payees.
If the latter choose to demand payment of their telegraphic transfers at the time the same was
(were) received by the defendant bank, there could be no question that this bank would have to
pay them.
Now, the question is, if the payees decide to have their money remain for sometime in the
defendant bank, can the latter maintain that the ownership of said telegraphic payment orders
is now with the drawer bank?
The latter was already paid the value of the telegraphic payment orders otherwise it would not
have transmitted the same to the defendant bank.
Hence, it is absurd to say that the drawer banks are still the owners of said telegraphic payment
orders.

If you want pogi points and discuss also about managers or cashiers checks, see ratio below

BAUTISTA ANGELO, J:

FACTS:
September 25, 1957 Republic of Philippines filed complaint for escheat of certain
unclaimed bank deposit balances under Act No. 3936 against several banks (one of
which was First National City Bank of New York)
Pursuant to Section 2 of Act No. 3936

NEGO Sec 126

The banks submitted to the Treasurer of the Philippines a sworn statement of all
credits and deposits held by them in favour of persons known to be dead or
who have not made further deposits or withdrawals during the period of 10
years or more
It was ordered that these credits and deposits be escheated to the Republic of the
Philippines by ordering the Banks to deposit them to its credit with the Treasurer of the
Philippines
o

First National Bank claims:
The pre-war inactive accounts it submitted totalling more than Php100,000 are subject
to escheat
However, it inadvertently included certain items amounting to Php18,589.89 which are
not credits and deposits contemplated in Act No. 3936
o More specifically, this pertained to Cashiers or Managers checks, demand
drafts, and telegraphic transfer payments
Hence, it claims for that amount NOT to be included in plaintiffs complaint

Trial court judgment:
Cashiers or Managers checks and demand drafts COME WITHIN the purview of Act No.
3936
Telegraphic transfer payments are NOT included
Trial Court (after Motion for Reconsideration) judgment:
Amended initial judgment: Demand drafts are also NOT included now

Section 1, Act No. 3936, provides:
Unclaimed balances within the meaning of this Act shall include credits or deposits of
money, bullion, security or other evidence of indebtedness of any kind, and interest
thereon with banks, as hereinafter defined, in favor of any person unheard from for a
period of ten years or more. Such unclaimed balances, together with the increase and
proceeds thereof, shall be deposited with the Insular Treasurer to the credit of the
Government of the Philippine Islands to be used as the Philippine Legislature may
direct. [Republic vs. First National City Bank of New York, 3 SCRA 851(1961)]

The term unclaimed balances that are subject to escheat include credits or deposits of money,
or other evidence of indebtedness of any kind, with banks, in favor of any person unheard from
for a period of 10 years or more.

ISSUE: W/N Demand drafts and telegraphic orders come within the meaning of the term
credits or deposits employed in law
Can their import be considered as a sum credited on the books of the bank to a person
who appears to be entitled to it?

NEGO Sec 126

Do they create a creditor-debtor relationship between the drawee and the payee?

HELD:
1) Demand drafts NOT included not escheated due to non-presentment, no liability
yet
2) Telegraphic payment orders included should be escheated!

WHEREFORE, the decision of the trial court is hereby modified in the sense that the items
specifically referred to and listed under paragraph 3 of appellee banks answer representing
telegraphic transfer payment orders should be escheated in favor of the Republic of the
Philippines. No costs.

RATIO:

Credit in its usual meaning the sum credited on the books of a company to a person who
appears entitled to it.
It presupposes a creditor-debtor relationship and maybe said to imply ability, by reason
of property or estates, to make a promised payment.
The same is with deposits in a bank where a creditor-debtor relationship arises.

Discussion on DEMAND DRAFT
Bill of exchange payable on demand
As a bill of exchange, it is an open letter of request from, and an order by one person on
another to pay a sum of money therein mentioned to a third person, on demand or at a
future time therein specified
In regular practice:
o Draft is often used, and is the common term, for all bills of exchange.
o And the words draft and bill of exchange are used indiscriminately
However, a Bill of Exchange under Negotiable Instruments Law:
Does not operate as an assignment of funds in the hands of the drawee who is not liable
on the instrument until he accepts it.
This is the clear import of Section 127:
o A bill of exchange of itself does not operate as an assignment of the funds in
the hands of the drawee available for the payment thereon and the drawee is
not liable on the bill unless and until he accepts the same.

Since it is admitted that the demand drafts herein involved have not been presented either for
acceptance or for payment,
The inevitable consequence is that the appellee bank never had any chance of accepting
or rejecting them.

NEGO Sec 126

Verily, appellee bank never became a debtor of the payee concerned and as such the
aforesaid drafts cannot be considered as credits subject to escheat within the meaning
of the law.

Discussion on MANAGERS or CASHIERS CHECK
A cashiers or managers check is a primary obligation of the bank which issues it and constitutes
its written promise to pay upon demand.
A Managers or Cashiers check is very different from a demand draft:
A cashiers check is a check of the banks cashier on his or another bank.
It is in effect a bill of exchange drawn by a bank on itself and accepted in advance by the
act of its issuance
A cashiers check issued on request of a depositor is the substantial equivalent of a
certified check and the deposit represented by the check passes to the credit of the
checkholder, who is thereafter a depositor to that amount
A cashiers check, being merely a bill of exchange drawn by a bank on itself, and
accepted in advance by the act of its issuance, is not subject to countermand by the
payee after indorsement, and has the same legal effects as a certificate of deposit or a
certified check

A demand draft is not therefore of the same category as a cashiers check which should come
within the purview of the law.

Discussion on TELEGRAPHIC PAYMENT ORDER should be escheated!
The transaction is for the establishment of a telegraphic or cable transfer.
The agreement to remit creates a contractual obligation and has been termed a
purchase and sale
The purchaser of a telegraphic transfer upon making payment completes the
transaction insofar as he is concerned, though insofar as the remitting bank is
concerned the contract is executory until the credit is established

SC agreed with Solicitor General comment (Main ratio about telegraphic payment order):
This is so because the drawer bank was already paid the value of the telegraphic transfer
payment order.
In the particular cases under consideration it appears in the books of the defendant bank that
the amounts represented by the telegraphic payment orders appear in the names of the
respective payees.
If the latter choose to demand payment of their telegraphic transfers at the time the same was
(were) received by the defendant bank, there could be no question that this bank would have to
pay them.

NEGO Sec 126

Now, the question is, if the payees decide to have their money remain for sometime in the
defendant bank, can the latter maintain that the ownership of said telegraphic payment orders
is now with the drawer bank?
The latter was already paid the value of the telegraphic payment orders otherwise it would not
have transmitted the same to the defendant bank.
Hence, it is absurd to say that the drawer banks are still the owners of said telegraphic payment
orders.
[Republic vs. First National City Bank of New York, 3 SCRA 851(1961)]



2. Sumacad v Province of Samar - KARL
Facts:
- During the Japanese Occupation, the Province of Samar (Samar) issued a check against
the Philippine National Bank, Cebu Branch (PNB) in favor of Paulino Santos (Santos) in
the amount of P2500.00.
- Santos negotiated the check to a certain James McGuire (McGuire) who then negotiated
the check to Violet Maguire Sumacad.
- After the liberation, McGuire presented the check to the Municipal Treasurer of
Borongan for payment who merely noted it but no payment of the check was made.
- Upon seeking payment of the check against the PNB, the bank requested McGuire to
present photostatic copies of the check as well as a certification from the Provincial
Treasurer.
- Before the certification was made, Samar withdrew the money from their account and
left only P740.00, which was clearly insufficient to cover the payment of the check.
- It was during this time when McGuire transferred his rights to the check to Sumacad.
- Sumacad, unable to encash the check, filed a collection suit with the CFI against PNB
Issue:

WON PNB is liable for the payment of the check (YES)
Ratio:
- PNB cannot be compelled to pay the check due to lack of the required certification.
- However, the act of PNB of asking from McGuire photostatic copies of the check as well
as a certification from the provincial treasurer acts as an implied acceptance of the
check.
- Said gestures would have been empty/meaningless if PNB did not mean to assume the
obligation of paying the check and holding sufficient deposit from Samar.
- However, PNB only becomes subsidiarily liable for the check, PNB being primarily liable
for the payment of the check.
Doctrine:
Sec. 141: Qualified Acceptance- an acceptance is qualified which is:

NEGO Sec 126

a) Conditional; that is to say, which makes payment by the acceptor dependent on the
fulfilment of a condition herein stated
In this case, the submission of the photostatic copy and the certification from the provincial
treasurer became a condition precedent required by the PNB for the payment of the check. By
asking for said requirement, it can be said that PNB is estopped from accepting said check upon
the fulfilment of said condition. However, they will only have subsidiary liability in this case
because Samar withdrew its funds from said bank, leaving an amount insufficient to pay
McGuire/Sumacad. As such, Samar should not expect that PNB will accept. Thus, it is Samar that
is primarily liable.



3. Prudential Bank v. Intermediate Appellate Court (IAC) (S.143 NIL)
Perez de Tagle

Emergency Recit
PRM entered into a contract with Nissho for the importation of textile machineries
PB granted a commercial letter of credit to PRM in favor of Nissho
PB paid drafts drawn against the letter of credit to fulfill PRMs monetary obligation
(P956,384.95) to Nissho.
Only 2 out of 12 drafts were accepted by PRM.
12 years pass, PRM has still not paid PB the amounts advanced by PB to Nissho.
PB brings the case to court, CFI and IAC rule in favor of PRM, saying that PRM is only
liable for the 2 drafts it accepted (P153,645.22); PB then elevates to SC
SC: Rules that presentment for acceptance of the drafts was not necessary given that
they were sight drafts (s.143; NIL)
SC: Rules that drafts were payable on demand (s.7; NIL)
SC: Rules that even if presentment for acceptance was required, PB would be the
acceptor, NOT PRM
SC: Held that PRM is liable for the entire amount and not just for the amount of the 2
accepted drafts

I.
Facts
Prudential Bank (PB) seeks to review and set aside the decision of the IAC which
affirmed in toto the decision of the Rizal CFI
o CFI Case: An action instituted by PB for the recovery of a sum of money
representing the amount paid by it to the Nissho Company Ltd. of Japan for
textile machinery imported by the private respondent, Philippine Rayon Mills,
Inc. (PRM) represented by co-defendant Anacleto R. Chi.

Antecedent Facts

NEGO Sec 126

1962 PRM entered into a contract with Nissho Co., Ltd. of Japan for the importation of
textile machineries under a 5-year deferred payment plan
o [Nego] To effect payment for said machineries, PRM applied for a commercial
letter of credit with PB in favor of Nissho.
By virtue of said application, PB opened Letter of Credit for $128,548.
Against this Letter of Credit, drafts were drawn and issued by Nissho,
which were all paid by PB through its correspondent in Japan, the Bank
of Tokyo, Ltd.
As indicated on their faces, 2 of these drafts accepted by the PRM
through its president, Anacleto R. Chi, while the others were not.
o Upon the arrival of the machineries, PB indorsed the shipping documents to
PRM, which accepted delivery of the same.
o To enable PRM to take delivery of the machineries, PRM executed, by prior
arrangement with PB, a trust receipt, which was signed by Anacleto R. Chi in his
capacity as President (sic) of PRM
Included a stipulation on sureties
1967 PRM ceased business operations
1969 PRMs factory was leased by Yupangco Cotton Mills for an annual rental of
P200,000.00
1973 Lease renewed
1974 All the textile machineries in the PRMs factory were sold to AIC Development
Corporation for P300,000.00
The obligation of PRM arising from the letter of credit and the trust receipt remained
unpaid and unliquidated.
o Repeated formal for the payment of the said trust receipt yielded no result
o Hence, the present action for the collection of the principal amount of
P956,384.95 was filed on October 3, 1974 against the PRM and Anacleto R. Chi.
o In their respective answers, the PRM and Chi interposed identical special
defenses, viz.,
1) The complaint states no cause of action; if there is, the same has
prescribed; and
2) PB is guilty of laches

Lower Courts [skip if pressed for time]
CFI Rizal
o WHEREFORE, judgment is hereby rendered sentencing the defendant Philippine
Rayon Mills, Inc. to pay plaintiff the sum of P153,645.22, the amounts due under
Exhibits "X" & "X-1" (the accepted drafts), with interest at 6% per annum
beginning September 15, 1974 until fully paid.
o Insofar as the amounts involved in drafts Exhs. "X" (sic) to "X-11", inclusive, the
same not having been accepted by defendant Philippine Rayon Mills, Inc.,

NEGO Sec 126

plaintiff's cause of action thereon has not accrued, hence, the instant case is
premature.

IAC
o
o

Affirmed in toto
Pertinent Ratio
With respect to the last ten (10) drafts which had not been presented to
and were not accepted by PRM, PB was not justified in unilaterally
paying the amounts stated therein.
The IAC did NOT agree with the PBs claim that the drafts were sight
drafts, which did not require presentment for acceptance to PRM
because paragraph 8 of the trust receipt presupposes prior acceptance
of the drafts.
Since the ten (10) drafts were not presented and accepted, no valid
demand for payment can be made.

II.

Issues
1) [This is so Nego] Whether presentment for acceptance of the drafts was indispensable
to make Philippine Rayon liable thereon; NAY
2) Whether Philippine Rayon is liable on the basis of the trust receipt;
3) Whether private respondent Chi is jointly and severally liable with Philippine Rayon for
the obligation sought to be enforced and if not, whether he may be considered a
guarantor; in the latter situation, whether the case should have been dismissed on the
ground of lack of cause of action as there was no prior exhaustion of Philippine Rayon's
properties.

III.

Held
WHEREFORE, the instant Petition is hereby GRANTED.
The appealed Decision the IAC and the CFI are hereby REVERSED and SET ASIDE and
another is hereby entered:
o [Nego] Declaring PRM liable on the 12 drafts in question and on the trust
receipt and ordering it to pay petitioner:
The amounts due thereon in the total sum of P956,384.95 with interest
thereon at six percent (6%) per annum less whatever may have been
applied thereto by virtue of foreclosure of mortgages, if any;
A sum equal to ten percent (10%) of the aforesaid amount as attorney's
fees; and
The costs.
o [Not Nego] Declaring Anacleto R. Chi secondarily liable on the trust receipt and
ordering him to pay the face value thereof, with interest at the legal rate,
commencing from the date of the filing of the complaint in Civil Case No. Q-
19312 until the same is fully paid as well as the costs and attorney's fees in the

NEGO Sec 126

sum of P10,000.00 if the writ of execution for the enforcement of the above
awards against Philippine Rayon Mills, Inc. is returned unsatisfied.

IV.

Ratio
Both lower courts concluded that acceptance of the drafts by PRM was indispensable to
make the latter liable thereon.
We are unable to agree with this proposition.

LETTER OF CREDIT
As correctly ruled by the trial court in its Order of 6 March 1975:
o . . . By virtue of said Application and Agreement for Commercial Letter of Credit,
PB was under obligation to pay through its correspondent bank in Japan the
drafts that Nissho Company, Ltd., periodically drew against said letter of credit
from 1963 to 1968, pursuant to PBs contract with PRM.
o In turn, PRM., was obligated to pay PB the amounts of the drafts drawn by
Nissho Company, Ltd. against said plaintiff bank together with any accruing
commercial charges, interest, etc. pursuant to the terms and conditions
stipulated in the Application and Agreement of Commercial Letter of Credit
Annex "A".
A letter of credit is defined as an engagement by a bank or other person made at the
request of a customer that the issuer will honor drafts or other demands for payment
upon compliance with the conditions specified in the credit.
o Through a letter of credit, the bank merely substitutes its own promise to pay
for one of its customers who in return promises to pay the bank the amount of
funds mentioned in the letter of credit plus credit or commitment fees mutually
agreed upon.
In the instant case then, the drawee was necessarily PB.
o It was to PB that the drafts were presented for payment.

SIGHT DRAFTS DO NOT REQUIRE PRESENTMENT FOR PAYMENT
In fact, there was no need for acceptance as the issued drafts are sight drafts.
o Presentment for acceptance is necessary only in the cases expressly provided
for in Section 143 of the Negotiable Instruments Law (NIL):
Sec. 143. When presentment for acceptance must be made. Presentment for
acceptance must be made:
(a) Where the bill is payable after sight, or in any other case, where presentment for
acceptance is necessary in order to fix the maturity of the instrument; or
(b) Where the bill expressly stipulates that it shall be presented for acceptance; or

NEGO Sec 126

(c) Where the bill is drawn payable elsewhere than at the residence or place of
business of the drawee.
In no other case is presentment for acceptance necessary in order to render any
party to the bill liable.

Obviously then, sight drafts do not require presentment for acceptance.

The acceptance of a bill is the signification by the drawee of his assent to the order of
the drawer;
o This may be done in writing by the drawee in the bill itself, or in a separate
instrument.

THE DRAFTS IN QUESTION ARE SIGHT DRAFTS
The parties herein agree, and the trial court explicitly ruled, that the subject, drafts
are sight drafts. Said the latter:
o . . . In the instant case the drafts being at sight, they are supposed to be payable
upon acceptance unless plaintiff bank has given the Philippine Rayon Mills Inc.
time within which to pay the same

THE DRAFTS IN QUESTION ARE PAYABLE ON DEMAND
Corollarily, they are, pursuant to Section 7 of the NIL, payable on demand. Section 7
provides:
Sec. 7. When payable on demand. An instrument is payable on demand
(a) When so it is expressed to be payable on demand, or at sight, or on
presentation; or
(b) In which no time for payment in expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards
the person so issuing, accepting, or indorsing it, payable on demand. (emphasis
supplied)
EVEN ASSUMING PRESENTMENT FOR ACCEPTANCE IS REQUIRED, PB IS THE PARTY TO
WHOM PRESENTMENT FOR ACCEPTANCE MUST BE MADE
Even if these were not sight drafts, thereby necessitating acceptance, it would be PB
and not PRM which had to accept the same for the latter was not the drawee.
o Presentment for acceptance is defined as the production of a bill of exchange to
a drawee for acceptance.
The trial court and the public respondent, therefore, erred in ruling that presentment
for acceptance was an indispensable requisite for PRMs liability on the drafts to attach.

NEGO Sec 126

Contrary to both courts' pronouncements, PRM immediately became liable thereon

upon petitioner's payment thereof. Such is the essence of the letter of credit issued by
the petitioner.

4. New Pacific Timber Company vs. Hon. Seneris, Ricardo Tong, Sheriff Hakim Abdulwahid
(Geraldez)

Emergency Recit:
There was a judgment for collection of sum of money against New Pacific Timber COMPANY and
for Ricardo TONG. A compromise agreement was struck. COMPANY did not comply. Writ of
execution was ordered against it for P63,130. COMPANY offered P50,000 in cashiers check,
P13,130 in cash. TONG refused. Eventually, auction happens. COMPANY claims judge committed
grave abuse for allowing sale to happen and not forcing TONG to accept check and cash. SC rules
for COMPANY. SC says that a cashiers check is deemed as cash. By certifying a check: cash of
drawer is segregated; it is equivalent to acceptance by drawee bank; enables user thereof to use
it as money; operates as assignment of funds to creditor. Auction sale is nullified and TONG is
ordered to accept tender by COMPANY.
Facts:
1. There was a complaint for collection of a sum of money against COMPANY filed by
Ricardo TONG.
2. On July 19, 1974, a compromise judgment was rendered by the respondent Judge in
accordance with an amicable settlement entered into by the parties the terms and
conditions of which, are as follows:
(1) That defendant will pay to the plaintiff P54,500.00 at 6% interest per annum
to be reckoned from August 25, 1972;
(2) That defendant will pay P6,000.00 as attorney's fees for which P5,000.00 had
been acknowledged received by the plaintiff;
(3) That the entire amount of P54,500.00 plus interest, plus the balance of
P1,000.00 for attorney's fees will be paid within five months from today; and,
(4) Failure to comply with any condition, a writ of execution may be issued by
this Court for the satisfaction of the obligation.
3. COMPANY failed to comply. Writ of execution was issued for the amount of P63,130.00
pursuant to which, the Ex-Officio Sheriff levied upon the following personal properties
of the petitioner, to wit:

NEGO Sec 126

(1) American Lathe 24, (1) American Lathe 18 Cracker Wheeler, and (1) Rockford
Shaper 24
4. Auction sale on January 15, 1975. However, prior to Auction Date, COMPANY deposited
63,130 with Clerk of Court for payment of judgment obligation, consisting of:
a. P50,000 Cashiers Check, Equitable Bank
b. P13,130 Cash
5. TONG refused to accept check and cash deposit. He requested that auction proceed
unless COMPANY produces all cash.
6. Lots of procedural stuff happens before auction, but finally, auction happens and TONG
purchases properties for P50,000, leaving deficiency of P13,130.
a. COMPANY sought certificate of satisfaction of judgment, but court denied.
7. COMPANY files this petition, saying respondent Judge committed grave abuse of
discretion for:
a. Not issuing certificate of satisfaction of judgment, considering he deposited
63,130 in cash and check.
b. Auction was invalid for lack of proper notice.
8. This Court issued TRO enjoining sheriff from delivering personal properties to TONG.
9. Somewhere in the ratio it will also be mentioned that COMPANY tries to stop auction by
actually delivering cash for the full amount.
Issue and Held:
W/N TONG can refuse acceptance of payment by cashiers check and cash. No. SC orders
nullification of auction sale, release of attached properties, and TONGs acceptance of the
P63,130 from COMPANY.
Ratio:
We find the petition to be impressed with merit.
In upholding private respondent's claim that he has the right to refuse payment by means of a
check, the respondent Judge cited the following:
Section 63 of the Central Bank Act:
Sec. 63. Legal Character. Checks representing deposit money do not have
legal tender power and their acceptance in payment of debts, both public and
private, is at the option of the creditor, Provided, however, that a check which
has been cleared and credited to the account of the creditor shall be equivalent
to a delivery to the creditor in cash in an amount equal to the amount credited
to his account.

NEGO Sec 126

Article 1249 of the New Civil Code:
Art. 1249. xx
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the original obligation shall be held in
abeyance.
Likewise, the respondent Judge sustained the contention of the private respondent that he has
the right to refuse payment of the amount of P13,130.00 in cash because the said amount is less
than the judgment obligation, citing the following Article of the New Civil Code:
Art. 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the presentations in which the
obligation consists. Neither may the debtor be required to make partial
payment. xx

It is to be emphasized in this connection that the check deposited by the petitioner in the
amount of P50,000.00 is not an ordinary check but a Cashier's Check of the Equitable
Banking Corporation, a bank of good standing and reputation. As testified to by the Ex-
Officio Sheriff with whom it has been deposited, it is a certified crossed check. 9
o It is a well-known and accepted practice in the business sector that a Cashier's
Check is deemed as cash. Moreover, since the said check had been certified by the
drawee bank, by the certification, the funds represented by the check are
transferred from the credit of the maker to that of the payee or holder, and for all
intents and purposes, the latter becomes the depositor of the drawee bank, with
rights and duties of one in such situation. 10
o Where a check is certified by the bank on which it is drawn, the certification is
equivalent to acceptance. 11
o Said certification "implies that the check is drawn upon sufficient funds in the hands
of the drawee, that they have been set apart for its satisfaction, and that they shall
be so applied whenever the check is presented for payment. It is an understanding
that the check is good then, and shall continue good, and this agreement is as
binding on the bank as its notes in circulation, a certificate of deposit payable to the
order of the depositor, or any other obligation it can assume. The object of
certifying a check, as regards both parties, is to enable the holder to use it as
money." 12

NEGO Sec 126

When the holder procures the check to be certified, "the check operates as an
assignment of a part of the funds to the creditors." 13
Hence, the exception to the rule enunciated under Section 63 of the Central Bank Act to the
effect "that a check which has been cleared and credited to the account of the creditor shall
be equivalent to a delivery to the creditor in cash in an amount equal to the amount
credited to his account" shall apply in this case.
Considering that the whole amount deposited by the petitioner consisting of Cashier's Check
of P50,000.00 and P13,130.00 in cash covers the judgment obligation of P63,000.00 as
mentioned in the writ of execution, then, We see no valid reason for the private respondent
to have refused acceptance of the payment of the obligation in his favor.
o The auction sale, therefore, was uncalled for.
o Furthermore, it appears that on January 17, 1975, the Cashier's Check was even
withdrawn by the petitioner and replaced with cash in the corresponding amount of
P50,000.00 on January 27, 1975 pursuant to an agreement entered into by the
parties at the instance of the respondent Judge.
Obviously, the private respondent is more interested in the levied
properties than in the mere satisfaction of the judgment obligation.
o

5. Velasquez v. Solidbank Corporation [Narvasa]
Emergency Recit:
Velasquez is engaged in the export business to South Korea. Opened a letter of credit
with Bank of Seoul. Also applied for credit accommodation with Solidbank for pre-
shipment financing. On his 3rd shipment, he wanted to be paid in advance so he
negotiated for a documentary sight draft to be drawn against the letter of credit in
Seoul. As a condition of issuance, Solidbank asked for a letter of undertaking from
Velasquezpromising the draft will be accepted and paid according to its tenor.
Subsequently, Bank of Seoul dishonored it by non-acceptance. Solidbank did not
protest. Filed suit for collection instead.
SC: Though Velasquez was discharged on the draft, due to lack of protest. On the basis
of a letter of undertaking, this became is a straightforward case of collection of sum of
money. Solidbank advanced the export payment to Velasquez on the understanding
that the draft will be honored and paid.
Doctrine: 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.

I. FACTS
Velasquez is engaged in the export business operating under the name Wilderness

NEGO Sec 126

Trading. Solidbank 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 South Korea between Wilderness Trading, as seller, and Goldwell Trading of
Pusan, South Korea, as buyer.
To facilitate payment of the products, Goldwell Trading opened a letter of credit in favor
of Wilderness Trading with the Bank of Seoul, Pusan, Korea.
Velasquez applied for credit accommodation with Solidbank bank for pre-shipment
financing.
o 1st & 2nd shipments: success; 3rd: FAIL
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. The sight draft represented the value of the shipment in the amount of
US$59,640.00.
As a condition for the issuance of the sight draft, Velasquez executed a letter of
undertaking in favor of Solidbank. Under the terms of the letter of undertaking,
Velasquez promised that the draft will be accepted and paid by Bank of Seoul according
to its tenor. Velasquez also held himself liable if the sight draft was not accepted. By
virtue of the letter of undertaking, Solidbank advanced the value of the shipment,
valued at P1,495,115.16, to Velasquez.
o Solidbank then sent all the documents pertinent to the export transaction to the
Bank of Seoul.
Draft was dishonored by non-acceptance by the Bank of Seoul.
o Reasons: were late shipment, forged inspection certificate, and absence of
countersignature of the negotiating bank on the inspection certificate.
o Goldwell Trading likewise issued a stop payment order on the sight draft
because most of the bags of dried sea cucumber exported by Velasquez
contained soil.
Solidbank demanded restitution of the sum advanced from Velasquezwho didnt pay.
Solidbank filed w/ RTC.
Velasquez alleged that his liability under the sight draft was extinguished when
Solidbank failed to protest its non-acceptance. He also alleged that the letter of
undertaking is not binding because it is a superfluous document, and that he did not
violate any of the provisions of the letter of credit.
RTC and CA: Ruled in favor of Solidbank, all costs against Velasquez.
o 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.

NEGO Sec 126

Issue: The main question is whether Velasquez is liable to Solidbank due to the principal
contract? NO
Is Velasquez liable due to the accessory contract? YES

Ratio:
Velasquez 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.
(If he wasnt discharged) Velasquezs 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, Velasquez was discharged from liability under the sight draft when
Solidbank failed to protest it for non-acceptance by the Bank of Seoul.
o A sight draft made payable outside the Philippines is a foreign bill of exchange.
When a foreign bill is dishonored by non-acceptance or non-payment, protest is
necessary to hold the drawer and indorsers liable.
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.
Velasquez, is still liable under the letter of undertaking. It is a separate contract from the
sight draft.
o Liability is direct and primary. It is independent from his liability under the sight
draft.
o Liability subsists on it even if the sight draft was dishonored for non-acceptance
or non-payment.
The consideration for the letter of undertaking was Velasquezs promise to pay
Solidbank the value of the sight draft if it was dishonored for any reason by the Bank of
Seoul.
o The bank would certainly not have agreed to grant Velasquez an advance export
payment were it not for the letter of undertaking.
We cannot accept Velasquezs thesis that he is only a mere guarantor under the letter of
credit.1avvphi1 Velasquez cannot be both the primary debtor and the guarantor of his
own debt.
Velasquez also argues that he cannot be held liable under the letter of undertaking because
Solidbank 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

NEGO Sec 126

cucumber.
We cannot agree. Solidbank need not prove that Velasquez 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.
Velasquezs liability under the letter of undertaking is clear. He is liable to Solidbank if
the sight draft is not accepted by the Bank of Seoul.
o Mere non-acceptance of the sight draft is sufficient for liability to attach.

Pasikat lang ba:
Records also show that the Bank of Seoul found discrepancies in the documents
submitted by Velasquez. 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 Velasquez 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.