Far East Bank & Trust Co. vs. Gold Palace Jewellery Co.

G.R. No. 168274 | August 20, 2008 | J. Nachura

FACTS:
Samuel Tagoe, a foreigner, purchased from respondent Gold Palace Jewellery Co. pieces of
jewelry. As payment, Tagoe offered a foreign draft issued by the United Overseas Bank of Malaysia,
addressed to the Landbank of the Philippines. Petitioner Far East Bank & Trust Company informed Gold
Palace advised Gold Palace not to release the jewelry until the draft had been cleared. The latter followed
FEBTCs advice. Consequently, the manager of Gold Palace deposited the draft in the companys
account with FEBTC. FEBTC, as collecting bank, presented the draft to drawee bank LBP. Thereafter,
Gold Palaces account was credited with the amount stated in the draft.
Tagoe then returned to Gold Palace to claim his purchase. Gold Palace released the same and
even issued an FEBTC check representing an overpayment. Tagoe eventually encashed this and FEBTC
paid the same. Thereafter, LBP informed FEBTC that the foreign draft had been materially altered from
P300 to P380,000 and that LBP will be returning it. FEBTC then refunded LBP, intending to debit Gold
Palaces account in return.
In the meantime, Gold Palace had already used portions of the amount. FEBTC was able to debit
a portion of the amount from Gold Palaces account, without a proper written notice. FEBTC demanded
from Gold Palace the remaining balance. However, the latter did not comply. FEBTC then instituted a
case for sum of money and damages against Gold Palace.
The Regional Trial Court ruled in favor of FEBTC, ordering Gold Palace to pay the remaining
balance on the basis of its warranties as general indorser. However, the Court of Appeals reversed the
RTC decision as FEBTC failed to undergo the proceedings on the protest of the foreign draft or to notify
Gold Palace of the dishonor of the drafts. Thus, FEBTC could not charge Gold Palace on its secondary
liability as an indorser. Its remedy therefore is against the party who made the material alteration.
ISSUE: Whether or not Gold Palace should be held liable for the materially altered foreign draft
RULING:
No. Section 62 of the Negotiable Instruments law provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his acceptance. The same is applicable if
the drawee pays a bill without having previously accepted it. It amounts not only to an assent to the order
of the drawer and recognition of an obligation, but also his clear compliance. The payment of a check
includes its acceptance. In this case, LBP cleared and paid the foreign draft and forwarded the amount to
FEBTC, which credited the same to Gold Palace. LBP then, by said payment, recognized and complied
with its obligation to pay in accordance of his acceptance. LBP was liable on its payment of the check
according to the tenor of the check at the time of payment, which was the raised amount. Therefore, LBP
could not question anymore the payment it erroneously made to a holder in due course. Gold Palace was
not guilty of negligence or participation in the alteration, and was thus a holder in due course. Gold Palace
is protected by Sec. 62 of the NIL. LBP, having the means to communicate with the Malaysian bank,
should have first verified the amount of the draft before clearing and paying it. Gold Palace, on the other
hand, merely relied on the clearance of the banks. FEBTC, consequently, should not have debited Gold
Palaces account.
In some cases, the Court may rule that a drawee bank may recover, having paid to an innocent
holder the amount of an uncertified, altered check, from an innocent holder if said drawee bank was in
good faith and without negligence which contributed to the loss. However, this does not apply in the
present case.