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

, as represented by
Judy L. Yang, Julie Yang-Go and Kho Soon Huat (August 20, 2008)

Facts:
In June 1998, a foreigner (Samuel Tagoe) purchased from Gold Palaces store
in SM-North Edsa several pieces of jewelry valued at P258,000. As payment,
he offered Foreign Draft No. M-069670 by the United Overseas Bank
(Malaysai) BHD Medan Pasar, Kuala Lumpur Branch (UOB) addressed to the
Land Bank of the Philippines and payable to Gold Palace for P380,000.
Before receiving the draft, the assistant manager Judy Yang inquired from
Far East Bank branch in SM-North Edsa, its neighbor, the nature of the
branch.
The teller in Far East bank said that the draft is similar to a managers check,
but advised her not to release the jewelry until the draft has been cleared.
Following such advice, she issued a Cash Invoice and asked the foreigner to
return for the jewelry when the draft has been cleared.
Julie Yang-Go, the manager of the Gold palace deposited the draft in Far East
bank.
When Far East (collecting bank) presented the draft for clearing to Land
Bank (drawee bank), Land Bank cleared the draft. Thus, UOBs account with
LBP was debited and Gold Palaces account with Far East was credited with
the amount stated in the draft or P380,000.
The foreigner returned to claim the purchased goods. It was released to him
but since the amount in the draft was more than the goods purchased, Judy
Yang issued as change, a Far East Check for P122,000. The foreigner
encashed the check and was paid by Far East bank.
Three weeks laters, Land Bank informed Far East that the amount in the draft
was altered from P300 to P380,000 and that it was returning the same.
The material alteration was discovered by UOB after Land bank informed
them that its funds with Land Bank were being depleted.
Far East refunded the P380,000 earlier paid by Land Bank, intending to debit
the amount from Gold Palaces account.
Far East, without notice to Gold Palace debited the amount from their
account. But because Gold Palaces account was inadequate it was only able
to get P168,053.36.
Far East instituted this case for sum of money and damages against Gold
Palace to recover the balance of P211,946.64.
Gold Palaces Answer:
o No cause of action. The foreign draft was cleared. And that they did
not take part in making the material alterations on the foreign draft.
o They filed a counterclaim for damages when Far East confiscated its
balance.
RTC: in favor of Far East. Ordered Gold Palace to pay the balance because of
its warranties as a general indorser.
 CA: reversed the ruling of the RTC and awarded Gold Palaces counterclaim.
CA ruled that Far East failed to undergo the proceedings on the protest of the
foreign draft or to notify Gold Palace of the drafts dishonor. Thus, Gold
Palace not secondarily liable as an indorser. Because it had cleared the check,
Far Easts remedy is to go against the party responsible for the alteration.
Hence this Petition for Review on Certiorari before the SC.

Issue: WON

Held:
Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides
that the acceptor, by accepting the instrument, engages that he will pay
it according to the tenor of his acceptance. This provision applies with equal
force in case the drawee pays a bill without having previously accepted it. His
actual payment of the amount in the check implies not only his assent to the
order of the drawer and a recognition of his corresponding obligation to pay
the aforementioned sum, but also, his clear compliance with that
obligation. Actual payment by the drawee is greater than his acceptance,
which is merely a promise in writing to pay. The payment of a check includes
its acceptance.
When LBP (drawee) forwarded to the collecting bank (Far East) and Far East
credited Gold Palaces account the value of the draft (P380,000), the said
payment by the drawee recognized and complied with its obligation to pay in
accordance with the tenor of his acceptance.
Tenor of the acceptance
o is determined by the terms of the bill as it is when the drawee accepts.
Land Bank 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.
LBP cannot repudiate the payment it erroneously made to a due course
holder.
Here, Gold Palace, which did not participate in the alteration of the draft, was
a holder in due course, which is:
o Received the draft complete and regular on its face
o Before it became overdue
o Without notice of any dishonor
o In good faith and for value
o And absent any knowledge of any infirmity in the instrument or defect
in the title of the person negotiating it.
Gold Palace relied on the drawee banks clearance and payment of the draft.
Commercial policy favors the protection of any one who, in due course,
changes his position on the faith of the drawee banks clearance and payment
of a check or draft.
Banks can protect themselves by qualifying their acceptance or certification
or by relying on forgery insurance. The drawee bank is in a better position
 compared to the holder to verify with the drawer the matters in the
instrument.
Land Bank should have verified the amount with UOB first before it cleared
and paid the same.
Bank cannot recover the amount paid to Gold Palace by mistake.
Thus, considering that, in this case, Gold Palace is protected by Section 62 of
the NIL, its collecting agent, Far East, should not have debited the money paid
by the drawee bank from respondent company's account.
When Gold Palace deposited the check with Far East, became an agent of the
former for the collection of the amount in the draft. The subsequent payment
by the drawee bank and the collection of the amount by the collecting bank
closed the transaction insofar as the drawee and the holder of the check or
his agent are concerned, converted the check into a mere voucher, and, as
already discussed, foreclosed the recovery by the drawee of the amount
paid.|||

The drawee bank (Land Bank) has no right to recover what it has paid.
When Far East returned the P380,000 to Land Bank, it must be
responsible for its own actions. Far East did not have the legal right as
the collecting bank to debit Gold Palaces account for the amount it
refunded to Land Bank.
Thus, Far East is ordered to return what it took from Bold Palaces account.
Far Easts remedy is aginst the drawee-bank (LBP) or the person responsible
for the alteration. The CA decision is affirmed.