Mercantile Law

FEBTC FAR EAST BANK & TRUST COMPANY v. GOLD PALACE JEWELLERY CO.,G.R. NO. 168274 August 20, 2008 Negotiable Instruments Law, Alteration


A foreigner purchased from the respondent Gold Palace several pieces of jewelry, and in payment thereof, he offered Foreign Draft No. M-069670 issued by the United Overseas Bank (Malaysia), addressed to the Land Bank of the Philippines (LBP), and payable to the respondent company for P380,000.00.

Yang the assistant general manager of Gold Palace, issued Cash Invoice No. 1609 to the foreigner, asked him to come back, and informed him that the pieces of jewelry would be released when the draft had already been cleared.

The draft was deposited in the company’s account with the said Far East branch. 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.

The foreigner eventually was able to colleot the pieces of jewellery.

After around three weeks, LBP informed Far East that the amount in the  Foreign Draft had been materially altered from P300.00 to P380,000.00. 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. Far East subsequently refunded the P380,000.00 earlier paid by LBP with the intention to debit Golden Palace of the amount it paid.

However, the outstanding balance of Golden Palace’s account was already inadequate, Far East was able to debit only P168,053.36, but this was done without a prior written notice to the account holder. 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. Upon refusal or Gold Palace, Far East filed a case for sum of money and damages.

The RTC rendered a Decision in favor of Far East, ordering Gold Palace to pay the former  actual damages and as attorney’s fees.

On appeal, the CA reversed the ruling of the trial court. It ruled 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.

The CA denied petitioner’s MR which prompted the petitioner to institute the instant Petition for Review on Certiorari.


Whether or not Far East may rightfully debit the money paid by the drawee bank from respondent company’s account.


We deny the petition.

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. The drawee’s 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.

The payment of a check includes its acceptance.

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.

Because of that engagement, LBP could no longer repudiate the payment it erroneously made to a due course holder.

On the other hand, Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a holder in due course.

This construction and application of the law gives effect to the plain language of the NIL and is in line with the sound principle that where one of two innocent parties must suffer a loss, the law will leave the loss where it finds it.

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.

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