Negotiable Instruments Case Digest: Far East Bank & Trust Co. v. Gold Palace Jewelry Co. (2008)

G.R. No. 168274 August 20, 2008
Lessons Applicable: Liabilities of the Parties (Negotiable Instruments Law)

FACTS:

• June 1998: Samuel Tagoe, a foreigner, purchased from Gold Palace Jewellery Co.'s (Gold Palace's) store at SM-North EDSA several pieces of jewelry valued at P258,000


• paid w/ Foreign Draft issued by the United Overseas Bank (Malaysia) to Land Bank of the Philippines, Manila (LBP) for P380,000


• Teller of Far East Bank, next door tenant, informed Julie Yang-Go (manager of Gold Palace) that a foreign draft has similar nature to a manager's check, but advised her not to release the pieces of jewelry until the draft had been cleared


• Yang issued Cash Invoice so the jewelries can be released 


• Yang deposited the draft in the company's account with the Far East on June 2, 1998


• When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank, cleared the it and Gold Palace's account with Far East was credited 


• June 6, 1998: The foreigner eventually returned to claim the purchased goods. 


• After ascertaining that the draft had been cleared, Yang released the pieces of jewelry and his change, Far East Check of P122,000 paid by the bank


• June 26, 1998: LBP informed Far East that the Foreign Draft had been materially altered from P300 to P300,000and that it was returning the same


• Far East refunded the amount to LBP and debit only P168,053.36 of the amount left in Gold Palace' account without a prior written notice to the account holder


• Far East only notified by phone the representatives of the Gold Palace


• August 12, 1998: Far East demanded from Gold Palace the payment of balance and upon refusal filed in the RTC


• RTC: in favor of Far East on the basis that Gold Palace was liable under the liabilities of a general indorser


• CA: reversed since Far East failed to undergo the proceedings on the protest of the foreign draft or to notify Gold Palace of the draft's dishonor; thus, Far East could not charge Gold Palace on its secondary liability as an indorser

ISSUE: W/N Gold Palace should be liable for the altered Foreign Draft

HELD: NO.  AFFIRMED WITH THE MODIFICATION that the award of exemplary damages and attorney's fees is DELETED

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. 


• 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


• The tenor of the acceptance is determined by the terms of the bill as it is when the drawee accepts.


• 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.


• Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a holder in due course


• LBP, having the most convenient means to correspond with UOB, did not first verify the amount of the draft before it cleared and paid the same


• Gold Palace had no facility to ascertain with the drawer, UOB Malaysia, the true amount in the draft. It was left with no option but to rely on the representations of LBP that the draft was good


• Principle that the drawee bank, having paid to an innocent holder the amount of an uncertified, altered check in good faith and without negligence which contributed to the loss, could recover from the person to whom payment was made as for money paid by mistake - NOT applicable


• The Court is also aware that under the Uniform Commercial Code in the United States of America, if an unaccepted draft is presented to a drawee for payment or acceptance and the drawee pays or accepts the draft, the person obtaining payment or acceptance, at the time of presentment, and a previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that the draft has not been altered - absent any similar provision in our law, cannot extend the same preferential treatment to the paying bank


• 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, it, under the terms of the deposit and the provisions of the NIL, became an agent of the Gold Palace 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. This closure of the transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay and annoyance will arise if a bank at some future time will call on the payee for the return of the money paid to him on the check


• As the transaction in this case had been closed and the principal-agent relationship between the payee and the collecting bank had already ceased, the latter in returning the amount to the drawee bank was already acting on its own and should now be responsible for its own actions. Neither can petitioner be considered to have acted as the representative of the drawee bank when it debited respondent's account, because, as already explained, the drawee bank had no right to recover what it paid. Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon itself. This is precisely because the said indorsement is only for purposes of collection which, under Section 36 of the NIL, is a restrictive indorsement.  It did not in any way transfer the title of the instrument to the collecting bank. Far East did not own the draft, it merely presented it for payment. Considering that the warranties of a general indorser as provided in Section 66 of the NIL are based upon a transfer of title and are available only to holders in due course, these warranties did not attach to the indorsement for deposit and collection made by Gold Palace to Far East. Without any legal right to do so, the collecting bank, therefore, could not debit respondent's account for the amount it refunded to the drawee bank.