Far East vs. Gold Palace Jewelry, G.R. No.

168274, August 20, 2008

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 FEBTC’s advice. Consequently, the manager of Gold Palace
deposited the draft in the company’s account with FEBTC. FEBTC, as collecting bank, presented
the draft to drawee bank LBP. Thereafter, Gold Palace’s 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 Palace’s 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 Palace’s 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 RTC 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.
HELD:
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 Palace’s 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.