Far

East Bank v. Gold Palace, G.R. No. 168274, 2008

Doctrine: 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.

Facts: Samuel Tagoe, purchased from Gold Palace Jewellery Co.'s (Gold Palace) store at SM-North EDSA several
pieces of jewelry valued at P258,000.00. He offered to pay with Foreign Draft No. M-069670 issued by the
United Overseas Bank BHD Medan Pasar, Kuala Lumpur Branch (UOB), addressed to the Land Bank of the
Philippines, Manila (LBP), and payable to the respondent company for P380,000.00.

After inquiring the nature of the draft from Far East Bank, the assistant general manager Judy Yang was advised
not to release the jewelries until the draft has been cleared. She asked Samuel to return for the release of the
jewelries after the draft has cleared. Consequently, she deposited the draft with the Far East Bank.

When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank, the latter cleared
the same UOB's account with LBP was debited, and Gold Palace's account with Far East was credited with the
amount stated in the draft.

Samuel eventually returned to claim the purchased goods. Yang released the pieces of jewelry; and because the
amount in the draft was more than the value of the goods purchased, she issued, as his change, Far East Check
No. 1730881 for P122,000.00. This check was later presented for encashment and was, in fact, paid by the said
bank.

After around three weeks, LBP informed Far East that the amount in Foreign Draft No. M-069670 had been
materially altered from P300.00 to P380,000.00 and that it was returning the same. The material alteration
was discovered by UOB after LBP had informed it that its funds were being depleted following the encashment
of the subject draft. Intending to debit the amount from respondent's account, Far East subsequently refunded
the P380,000.00 earlier paid by LBP. Gold Palace, in the meantime, had already utilized portions of the amount.
As the outstanding balance of its account was already inadequate, Far East was able to debit only P168,053.36,
without a prior written notice. Far East only notified by phone the respondent company.

Petitioner demanded from respondents the payment of P211,946.64 or the difference between the amount in
the materially altered draft and the amount debited from the respondent company's account. Gold Palace did
not heed the demand, Far East instituted Civil Case No. 99-296 for sum of money and damages before the
Regional Trial Court (RTC), Branch 64 of Makati City.

Respondent denied the material allegations in the complaint and interposed as a defense that the complaint
states no cause of action-the subject foreign draft having been cleared and the respondent not being the party
who made the material alteration. Respondents further counterclaimed for actual damages, moral and
exemplary damages, and attorney's fees considering, among others, that the petitioner had confiscated without
basis Gold Palace's balance in its account resulting in operational loss, and had maliciously imputed to the latter
the act of alteration.

RTC decided in favor of Far East on the basis of its warranties as a general indorser. CA reversed the ruling and
awarded respondent’s counterclaim. It ruled in the main that 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.
Motion for reconsideration was denied. Hence, the instant petition.

Issue: Whether or not Far East is liable for the acceptance of the foreign draft.

Ruling: Yes, Far East is liable for the acceptance of the foreign draft.

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.

Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft and forwarded
the amount thereof to the collecting bank. The latter then credited to Gold Palace's account the payment it
received. Following the plain language of the law, the drawee, by the said payment, recognized and complied
with its obligation to pay in accordance with the tenor of his acceptance. The tenor of the acceptance is
determined by the terms of the bill as it is when the drawee accepts. Stated simply, 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.

Banking institutions can readily protect themselves against liability on altered instruments either by qualifying
their acceptance or certification, or by relying on forgery insurance and special paper which will make
alterations obvious. The drawee bank, in most cases, is in a better position, compared to the holder, to verify
with the drawer the matters stated in the instrument. Were it not for LBP's communication with the drawer
that its account in the Philippines was being depleted after the subject foreign draft had been encashed, then,
the alteration would not have been discovered. What we cannot understand is why 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, on the other hand, 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.

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, the latter, under the terms of the deposit and the provisions of the NIL, 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. 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.

The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East could not debit
the account of Gold Palace, and for doing so, it must return what it had erroneously taken. Far East's remedy
under the law is not against Gold Palace but against the drawee-bank or the person responsible for the
alteration. That, however, is another issue which we do not find necessary to discuss in this case.

Judgement is affirmed with modification that the award of exemplary damages and attorney’s fees is deleted.