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Far East Bank & Trust Co. V.

Gold Palace Jewelry Co

FACTS: Samuel Tagoe, a foreigner, purchased from Gold Palace

(SM North) jewelries worth PHP 258,000.00. As payment, he
offered a foreign draft issued by the United Overseas Bank of
Malaysia addressed to Land Bank, and payable to Gold Palace
for PHP 380,000.00. Judy Yang, the assistant GM of Gold Palace
inquired from Far East Bank (SM North) regarding the draft’s
nature. The teller told her that it was similar to a manager’s
check but advised her to not release the jewelry until the draft
has been cleared. Following the advice, Yang Issued a cash
invoice to Tagoe & told him that the jewelries would be
released when the draft had been cleared. Julie Yang-Go, the
manager of Gold Palace, deposited the draft in the company’s
account with Far East Bank SM North. The latter presented it
for clearing to LBP,the drawee bank, who cleared the same.
United Overseas account with LBP was debitedand Gold
Palace’s account with Far East was credited with the amount
stated in the draft. The pieces of jewelry were then released to
Tagoe and because the amount in the draft wasmore than the
value of the goods, a check for PHP 122,000 was issued to him.
It wasencashed by Tagoe.3 weeks after, LBP informed Far East
that the amount in the foreign draft had beenmaterially-altered
from PHP 300.00 to PHP 380,000.00 and that they will be
returning it. FarEast thus refunded the amount paid by LBP.
Thus, Far East had to seek reimbursement fromGold Palace but
they were only able to debit PHP 168,053.37, which was done
without aprior written notice to Gold Palace as they only
informed them by phone. They thusdemanded the difference
of PHP 211,946.64 from Gold Palace. As the latter did not
respondfavorably, Far East instituted a civil case for sum of
money and damages. Gold Palacedenies the allegations in the
complaint and claims as their defense that the subject
foreigndraft has been cleared and it was not they who caused
the alteration. The RTC ruled in favorof Far East but this was
reversed by the CA as Far East failed to undergo the
proceedings onthe protest and thus, Far East could not charge
Gold Palace on its secondary liability as anindorser. It further
said that the drawee bank had cleared the check and its
remedy shouldbe against the part responsible for the



HELD: No.The acceptor, by accepting the instrument, engages

that he will pay it according tothe tenor of his acceptance . This
provision applies with equal force in case the drawee paysa bill
without having previously accepted it. His actual payment of
the amount in the checkimplies 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 thatobligation. Actual payment by the drawee is greater
than his acceptance, which ismerely 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 foreigndraft and forwarded the amount
thereof to the collecting bank. LBP was liable on itspayment of
the check according to the tenor of the check at the time of
payment, which wasthe raised amount. Thus, LBP could no
longer repudiate the payment it erroneously made toa due
course holder. Gold Palace was not a participant in the
alteration of the draft, was notnegligent, and was a holder in
due course—it received the draft complete and regular on
itsface, before it became overdue and without notice of any
dishonor, in good faith and forvalue, and absent any knowledge
of any infirmity in the instrument or defect in the title of the
person negotiating it.