G.R. No. 168274, 20 August 2008, 562 SCRA 604


A foreigner, identified as Samuel Tagoe, purchased from the respondent Gold Palace Jewellery Co. several pieces of jewelry valued at P258,000.00. In payment of the same, he offered a Foreign issued by the United Overseas Bank (Malaysia) addressed to the Land Bank of the Philippines, and payable to the respondent company for P380,000.00.

Yang issued Cash Invoice, to the foreigner, informing him that the pieces of jewelry would be released when the draft had already been cleared. Respondent Julie Yang-Go, the manager of Gold Palace deposited the draft in the company’s Far East account. LBP cleared the draft, and Gold Palace’s account with Far East was credited. The foreigner was then able to get the goods, 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. 173088 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 said Foreign Draft had been materially altered from P300.00 to P380,000.00 and that it was returning the same. Intending to debit the amount from respondent’s account, Far East subsequently refunded the P380,000.00 earlier paid by LBP. Meanwhile, Far East was able to debit only P168,053.36 from the Gold Palace’s account as the respondent has already utilized their funds. This was debited without their permission. The bank informed the Gold Palace later thru a phone call.

On August 1998, petitioner demanded from respondents the payment of P211,946. Because Gold Palace did not heed the demand, Far East consequently instituted civil case for sum of money and damages before the RTC in Makati.

RTC ruled in favor of Far East that on the basis of its warranties as a general indorser, Gold Palace was liable to Far East.

On appeal, the CA, reversed the ruling and held 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.


Whether or not Odrada is a holder in due course of the manager’s checks.


No. 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. 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. In this case, the drawee bank cleared and paid the subject foreign draft and forwarded the amount thereof to the collecting bank. The latter, Far East, 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. 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.

SC also notes that Respondent Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a holder in due course—it received the draft complete and regular on its face. Gold Palace relied on the drawee bank’s clearance and payment of the draft. Respondent is also protected by the said Section 62. Commercial policy favors the protection of any one who, in due course, changes his position on the faith of the drawee bank’s clearance and payment of a check or draft.

The fault is in 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. Thus, the 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. Far East then was able to collect from LBP. As the transaction in this case had been closed and the principal-agent relationship between the payee (GoldPalace) and the collecting bank (Far East) had already ceased, the latter in returning the amount to the drawee bank (LBP) was already acting on its own and should now be responsible for its own actions. 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. 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.

SC ruled that, for doing so, Far East must return what it had erroneously taken. The remedy under the law is not against Gold Palace but against the drawee-bank or the person responsible for the alteration.

*Case digest by Jelyn c. Ondong, JD-IV, Andres Bonifacio Law School, SY 2019-2020