Ernestina Crisologo-Jose vs.

CA and Ricardo Santos

Facts:

 Ricardo Santos Jr. was the VP of Mover Enterprises in charge of marketing and sales
 President was atty. Oscar Benares
 April 30 1980: Atty Benares, in accommodation of his clients, sps Ong, issued a check drawn against Traders Royal
Bank payable to Ernestina Crisologo-Jose dated June 14 1980 amounting to 45k
o It was supposed to be signed by Atty Benares and treasurer but treasurer was not available so Santos signed
the check instead.
o Check was issued in consideration of the waiver or quitclaim by Jose over a certain property which GSIS
agreed to sell to the clients of Atty Benares (sps ong)
 Understanding: upon approval of compromise agreement with sps ong check will be encashed
 CA was not approved within the expected period of time
 First check amounting to 45k was replaced by Atty Benares with another Traders Bank
check dated Aug 10 1980 (45k again) also payable to Jose
 Replacement check was signed by atty benares and santos
 When check was deposited by Jose with her account it was dishonored for insufficiency of funds
o Subsequent depositing was also dishonored
 Jose filed a criminal complaint for violation of BP 22 against Benares and Santos
 During PI
o Santos tendered a cashier’s check for 45k dates April 10 1981 to Jose
o Jose refused to receive check so Santos encashed the check and deposited the amount with the Clerk of
Court on Aug 14
o Cashier’s check was purchased by Atty Benares and given to Jose to be applied in payment of dishonored
check
 RTC: dismissed
o Not persuaded that consignation in art 1256 is applicable to case
 CA: reversed and set aside
 Jose contention:
o CA erred in holding that Santos is an accommodation party under NIL and debtor to Jose to the extent of
the amount of check
 Santos:
o Accommodation party is Mover Enterprise and not Santos who merely signed in representative capacity
 ACCOMMODATION PARTY
o Sec. 29. Liability of accommodation party an accommodation party is one who has signed the instrument
as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his
name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of taking the instrument, knew him to be only an accommodation party.
o Requisites:
 Person must be a party to instrument, signing as maker, drawer, acceptor, or indorser
 Person must not receive value
 Person must sign for the purpose of lending his name for the credit of some other person

Issue: W/N mover enterprise may be held liable on the accommodation instrument

Held:

NO (BUT pwede personally kay Benares and Santos). Sec. 29 does not include nor apply to corporations which are
accommodation parties. The issue or indorsement of negotiable paper by corporation w/o consideration and for
accommodation of another is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation
nature thereof cannot recover against a corporation where it is only an accommodation party. An exception is if an officer
or agent of the corporation is specially authorized to execute or indorse a negotiable paper in the name of corporation.
corporate officers, such as the president and vice-president, have no power to execute for mere accommodation a negotiable
instrument of the corporation for their individual debts or transactions arising from or in relation to matters in which the
corporation has no legitimate concern. Since such accommodation paper cannot thus be enforced against the corporation,
especially since it is not involved in any aspect of the corporate business or operations, the inescapable conclusion in law
and in logic is that the signatories thereof shall be personally liable therefor, as well as the consequences arising from their
acts in connection therewith. IN THIS CASE, Jose knew that the check was issue at the instance and for the personal account
of Atty. Benares who merely prevailed upon respondent Santos to act as co-signatory in accordance with the arrangement
of the corporation with its depository bank. it was a personal undertaking of said corporate officers was apparent to petitioner
by reason of her personal involvement in the financial arrangement and the fact that, while it was the corporation's check
which was issued to her for the amount involved, she actually had no transaction directly with said corporation.

CONSIGNATION:

Contention: there is no creditor-debtor relationship between parties; consignation not proper

Santos is an accommodation party and hence liable for the value of check. The fact that he was only a co-signatory does not
detract from his personal liability. A co-maker or co-drawer under the circumstances in this case is as much an
accommodation party as the other co-signatory or, for that matter, as a lone signatory in an accommodation instrument. He
is in effect as co-surety for the accommodated party with whom he and his co-signatory. Remedy of consignation is proper
BUT no consignation

Intestate Estate of Victor Sevilla, Simeon Sadaya vs. Francisco Sevilla

Facts:

 March 28 1949: Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and severally, in favor of BPI
or its order a PN for 15k with 8% interest payable on demand
o Entire 15k was received from the bank by Varona alone
o Sevilla and Sadaya signed the PN as co-makers only to favor Varona
o Payments were made but there was a balance of 4k
 Oct 6 1952: Bank collected from Sadaya 4k balance together w interest so its 5.4k and Varona failed to reimburse
Sadaya
 Sevilla died. Intestate proceedings started. Francisco Sevilla was named as admin
 Sadaya filed a creditor’s claim for 5.7k
o Admin resisted saying that Sevilla did not receive any amount as consideration for the PN but signed it only
as surety for Varona
 RTC:
o Issued an order admitting the claim of Sadaya and directed admin to pay from any available funds belonging
to estate of Sevilla
 CA:
o Set aside

Issue: W/N Sevilla should reimburse Sadaya

Held:

NO. In this case, it’s undisputed Sevilla and Sadaya are solidary accommodation parties while Varona is the accommodated
party. As to their relation to BPI, all the makers are liable solidarily. Further, Sadaya can demand reimbursement from
Varona. As to reimbursement from Sevilla, Sadaya has the right to receive contribution from his co-accommodation maker.
There’s an implied promise between the accommodation makers to equally share the burden from the note. Sevilla and
Sadaya are Oscar’s co-guarantors and therefore the Civil Code Art. 2073 apply.
Rules before co-accommodator can reimburse himself from co-accommodator:
1. A joint and several accommodation maker of a negotiable PN may demand from principal debtor reimbursement
for the amount that he paid to the payee
2. A joint and several accommodation maker who pays on the note may directly demand reimbursement from his co-
accommodation maker without first directing his action against the accommodated party provided
a. he makes payment by virtue of a judicial demand
b. the accommodated party is insolvent.

Here, Sadaya paid voluntarily and without judicial demand and there’s no evidence Varona is insolvent. Consequently,
Sadaya has no right to demand reimbursement from Sevilla.

Travel-On Inc vs. CA, and Arturo Miranda

Facts:

 Travel On: travel agency selling airline tickets on commission basis for and in behalf of different airline companies
 Miranda: had revolving credit line with Travel On
o Procured tickets from TO on behalf of airline passengers and derived commission from there
 TO filed a suit to collect 6 checks issued by Miranda with total face amount of 115k
o Allegation
 From Aug 5 1969 to Jan 16 1970, TO sold and delivered various airline tickets to Miranda @ total
price of 278k & to settle that account Miranda paid various amount in cash and in kind and issued
6 postdated checks amounting to 115k
 Checks were all dishonored by drawee banks
 March 1972 Miranda made another payment of 10k reducing his indebtedness to 105k
 Miranda:
o Admitted he had transactions with TO during period stipulated
o Claims that he had already fully paid and even overpaid and there are refunds due to him
o Issued postdated checks for purposes of accommodation as he had in the past
 Testified he issued checks in name of TO in order that its Gen Man, Elita Montilla, could show to
TO’s BOD that the accounts receivable of company were still good
 Montilla tried to encash but checks were dishonored and were subsequently returned to him after
accommodation purpose had been attained
o Contested that several tickets were debited to his account
o Claimed reimbursements of his alleged over payments
 Montilla:
o Accommodation extended related to situations where one or more of its passengers needed money in HK
and upon request of TO, Miranda would contact his friends in HK to advance HK money
o Passenger then pays TO upon return and payment will be credited by TO to Miranda’s running account
 RTC: TO pay Miranda 8k (overpayments)
o Indebtedness was not satisfactorily established
o Postdated checks were issued not for the purpose of encashment to pay his indebtedness but to
accommodate Gen Man of TO to enable her to show BOD that TO was financially stable
 CA: affirmed
 TO contentions:
o Postdated checks are per se evidence of liability on part of Miranda
o Miranda is still liable considering that TO is holder for value

Issue: W/N checks issued were for accommodation and hence, Miranda is not liable
Held:

NO. In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party lends his
credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder in due
course, who gave full value therefor to the accommodated party. The latter, in other words, receives or realizes full value
which the accommodated party then must repay to the accommodating party, unless of course the accommodating party
intended to make a donation to the accommodated party. But the accommodating party is bound on the check to the holder
in due course who is necessarily a third party and is not the accommodated party. Having issued or indorsed the check, the
accommodating party has warranted to the holder in due course that he will pay the same according to its tenor. IN THIS
CASE, Travel-On was payee of all six (6) checks, it presented these checks for payment at the drawee bank but the checks
bounced. Travel-On obviously was not an accommodated party; it realized no value on the checks which bounced.
Furthermore, Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course, that the
checks were supported by valuable consideration. Miranda did not successfully rebut these presumptions. The only evidence
that Miranda offered was his own self-serving uncorroborated testimony. Thus, Miranda must be held liable on the six (6)
checks here involved. Those checks in themselves constituted evidence of indebtedness.

Agro Conglomerates Inc and Mario Soriano vs. CA and Regent Savings and Loan Bank Inc

Facts:

 July 17 1982: Agro Conglomerates sold 2 parcels of land to Wonderland Food Industries
o MOA: purchase price of 5M would be settled by Wonderland under ff T&C
 1M paid in cash upon signing of agreement
 2M worth of common shares of stock of Wonderland
 2M paid in 4 equal installments (1st payment due 180 days after signing and every 6 months after
with interest of 18%)
o July 19:
 AC, WFI, and Regent Savings executed an Addendum
 Revision of initial payments of 1M and prepaid interest of 360k
 Revision: instead of paying ^ WFI authorizes AC to obtain loan from Regent Savings in
the amount of 1.360M plus interest; full amount paid directly to AC and WFI undertakes
to pay the full amount of loan (WFI is liable to pay entire proceeds incl interest and other
charges)
 NOT NOTARIZED
 Mario Soriano signed as maker of several PNs payable to RS
o Bank released proceeds to AC
o But AC failed to meet their obligations
o Bank was experiencing financial turmoil & was under Central Bank’s control
o CB endorsed PNs to bank for collection
o RS gave AC opportunity to settle their account by extending payment due dates
o Soriano manifested intention to re-structure loan yet did not show up nor submit his formal written request
 RS filed complaint for collection of sums of money
 AC defense:
o Novation and insisted valid substitution of debtor
o Addendum specifically states that although PNs were in their name WFI was responsible for payment
 RTC: RS
o WFI did not comply with its obligation under Addendum as agreement to turn over farmland did not
materialize
o No sale of land hence WFI not liable
 CA: affirmed
Issue:

Held:

NO SALE.

When addendum was placed in agreement, a subsidiary contract of suretyship had taken effect since petitioners signed the
promissory notes as maker and accommodation party for the benefit of Wonderland. Petitioners became liable as
accommodation party.

An accommodation party is a person who has signed the instrument as maker, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person and is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an accommodation party. e has
the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation between them
has in effect become one of principal and surety, the accommodation party being the surety.

Suretyship is defined as the relation which exists where one person has undertaken an obligation and another person is also
under the obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are
bound, one rather than the other should perform. surety’s liability to the creditor or promisee of the principal is said to be
direct, primary and absolute; in other words, he is directly and equally bound with the principal.

NO NOVATION

Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place
of the debtor, or by subrogating a third person in the rights of the creditor.

Requisites:

1) There must be a previous valid obligation;

2) There must be an agreement of the parties concerned to a new contract;
3) There must be the extinguishment of the old contract; and
4) There must be the validity of the new contract

IN THIS CASE, 1st requisite is lacking. There was no novation by "substitution" of debtor because there was no prior
obligation which was substituted by a new contract. It will be noted that the promissory notes, which bound the petitioners
to pay, were executed after the addendum. The addendum modified the contract of sale, not the stipulations in the promissory
notes which pertain to the surety contract. At this instance, Wonderland apparently assured the payment of future debts to
be incurred by the petitioners. Consequently, only a contract of surety arose. It was wrong for petitioners to presume a
novation had taken place. The well-settled rule is that novation is never presumed it must be clearly and unequivocally
shown.

ALSO contract of surety between Wonderland and the petitioners was extinguished by the rescission of the contract of sale
of the farmland. HENCE, no obligation.

Melva Theresa Alviar Gonzales vs. RCBC

Facts:

 Gonzales was an employee of RCBC as new accounts clerk in retail banking dept
 Foreign check amounting to $7.5k was drawn by Dr Zapanta of Ade Medical Group against drawee bank Wilshire
Center Bank payable to Eva Alviar (mother of Gonzales)
o Alviar endorsed the check
 RCBC gives special accommodations to its employees to receive check’s value w/o awaiting clearing period
o Gonzales presented check to Olivia Gomez, head of retail banking
 o Gomez requested Gonzales to endorse; Gonzales did
o Gomez agreed to the early encashment of check and signed it but indicated her authority of up to 17.5k
only
o Gonzales presented check to Carlos Ramos; Ramos signed (with ok annotation)
o Gonzales presented check to Zornosa who scrutinized the entries and signatures of check; he authorized its
encashment
o Gonzales received peso equivalent amounting to 155k
 RCBC tried to collect amount of check to drawee bank through correspondent bank (First Interstate Bank of
California) but it was dishonored on 2 occasions bec of irregular indorsement
o RCBC sent the check again but it was returned because the account was closed
 RCBC demanded payment from Gonzales
o Gonzales settled by agreeing that payment be made through salary deductions
 ^ communicated by letter dated Nov 27 1987
 Deductions were made starting oct 1987
 March 7 1988: RCBC sent demand letter to Alviar for payment of her obli but she did not respond
 Due to this ^, RCBC sent a letter to Gonzales reminding her of her liability as indorser of check
 Gonzales resigned
o Only 12k was deducted from her salary (covers 10 months)
 RCBC filed complaint for sum of money against Alviar, Gonzales and her husband
 Gonzales filed counter-claim
 RTC: Alvair and sps Gonzales liable
 CA: affirmed

Issue: W/N petitioner is liable??

Held:

NO. Under sec 66 of the NIL, the warranties where a general indorser may be liable extend only to the state of instrument
@ time of indorsement. This provision cannot be used by the party which introduced defect on the instrument who
qualifiedly indorsed it. This is because it results in the absurd situation where a subsequent party may render an instrument
useless and let innocent parties bear the loss while the one who rendered it useless gets away. IN THIS CASE, only the
signature of Olivia Gomez, an RCBC employee, was a qualified endorsement because of the phrase "up to ₱17,500.00
only." There can be no other acceptable explanation for the dishonor of the foreign check than this signature of Olivia
Gomez with the phrase "up to ₱17,500.00 only" accompanying it. foreign drawee bank refused to pay the bearer of this
dollar-check drawn by Don Zapanta because of the defect introduced by RCBC, through its employee, Olivia Gomez. It is,
therefore, a useless piece of paper if returned in that state to its original payee, Eva Alviar. Hence, had it not been for the
qualified endorsement ("up to ₱17,500.00 only") of Olivia Gomez, who is the employee of RCBC, there would have been
no reason for the dishonor of the check, and full payment by drawee bank therefor would have taken place as a matter of
course.

ALSO, the holder or subsequent endorser who tries to claim under the instrument which had been dishonored for "irregular
endorsement" must not be the irregular endorser himself who gave cause for the dishonor. Otherwise, a clear injustice results
when any subsequent party to the instrument may simply make the instrument defective and later claim from prior endorsers
who have no knowledge or participation in causing or introducing said defect to the instrument, which thereby caused its
dishonor.

CONCLUSION: RCBC, which caused the dishonor of the check upon presentment to the drawee bank, through the qualified
endorsement of its employee, Olivia Gomez, cannot hold prior endorsers, Alviar and Gonzales in this case, liable on the
instrument. RCBC should bear the loss.
Tomas Ang vs. Associated Bank and Antonio Ang Eng Liong (SORRY THIS IS LONG)

Facts:

 Aug 28 1990: Associated Bank filed a collection suit against Antonio Ang Eng Liong and Tomas Ang for 2 PNs
they executed as principal debtor and co-maker
 Bank’s allegations:
o Liong and Ang obtained 50k loan evidenced by PN and 30k loan also evidenced by PN
o They agreed that loan would be payable jointly and severally on Jan 31 1979 and Dec 8 1978
o Loan would earn 14% interest per annum, 2% service charge, 1% penalty charge per month from due date,
atty fees = to 20% of outstanding obli
o Despite repeated demands, Liong and Ang failed and refused to settle their obli which resulted to total
indebtedness of 539k
 Liong’s answer:
o Admitted securing loan amounting to 80k
o Pleads that bank be ordered to submit a more reasonable computation considering that there had been no
correct and reasonable statement of account sent to him by bank
o Alleges that bank was collecting excessive interest, penalty charges, atty fees despite knowledge that his
business was destroyed by fire (no source of income)
 Ang’s answer: he filed counter-claim (against Bank) & cross-claim (against Liong)
o Bank is not real party in interest as it is not holder of PNs much less a holder for value or holder in due
course
o Bank knew that he did not receive any valuable consideration for affixing his signatures on the PNs but
merely lent his name as accommodation party
o Accepted PNs in blank w only printed provisions and signature of Liong; it was the bank who completed
the PNs upon the orders, instructions, or representations by Liong
o One PN (PN DVO-78-382) was completed in excess of or contrary to auth given by Ang to Liong. Ang
wanted to borrow only 30k from bank
o His signature for PN ^ was procured through fraudulent means when Liong claimed that his first loan (50k)
did not push through
o PN did not indicate what capacity he was intended to be bound
o Bank granted Liong successive extensions of time w/o his knowledge and consent
o Bank caused inclusion of stipulations like waiver of presentment for payment and notice of dishonor which
are against public policy
o Notes were impaired since they were never presented for payment & demands were made several years
after Liong could no longer pay
o Cross-claim against Liong: he should be reimbursed by Liong any and all sums he may be adjudged liable
to pay
 Bank’s answer to Ang: (there are a lot but I’ll put the one abt liability na lang)
o fact that Ang never received any money in consideration of 2 loans and that such was known to the bank
are immaterial because as an accommodation maker he is considered as a solidary debtor who is primarily
liable for the payment of the promissory notes
o using Section 29 of NIL bank said that absence or failure of consideration is not a matter of defense; neither
is the fact that the holder knew him to be only an accommodation party.
 RTC:
o Ordered Liong to pay principal amount of 80k (penalty charge and atty fee were reduced 4 being excessive)
 THERE WAS ANOTHER TRIAL
o RTC: rendered judgement against bank and dismissed complaint for lack of cause of action
  It was proven that at the time of suit, bank was not the holder of notes but it was Asset Privatization
Trust (APT)
 Associated Bank is one of DBP’s non-performing accs. PNB and DBP executed a Deed of
Transfer w National Gov’t. They transferred their non-performing assets (NPA) to National
Govt and National Govt as trustor transferred NPA by way of trust to APT.
 APT was the holder by virtue of Deeds of Transfer and Trust Agreement hence APT is the
one empowered to bring suit to enforce payment & not Bank
 CA: reversed and set aside RTC ruling
 Bank is holder under sec 191 of NIL
 Despite trust agreement APT is not holder bec it is neither the payee or indorsee
 Hence, Ang is liable as accommodation party

Issue: W/N Ang is liable

Held:

YES.

RE: APT or BANK?

Court said its APT at the time of filing of complaint. Bank was not the real party in interest because of the trust agreement.
HOWEVER, there was a supervening event. The “buy-back” of bank by its former owner. Due to re acquisition from APT
when case was pending in RTC, bank reclaimed its real and actual interest over unpaid PNs hence it qualifies as holder.

RE: ACCOMMODATION

Accommodation party is one who meets ALL 3 requisites:

1. He must be party to the instrument signing as maker, drawer, acceptor, indorser

2. Must not receive value
3. Must sign for the purpose of lending his name or credit to some other person.

An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives
no part of the consideration for the instrument but assumes liability to the other party/ies thereto. He is liable on the
instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to be merely
an accommodation party, as if the contract was not for accommodation. the relation between an accommodation party and
the accommodated party is one of principal and surety. he is deemed an original promisor and debtor from the beginning.
the surety's liability to the creditor is immediate, primary and absolute; he is directly and equally bound with the principal.

Art. 2080 of CC does not apply in a contract of suretyship. Art 2047 provides that when a person is bound solidarily liable
to his principal provisions of sec 4 ch 3, title 1 book 4 (joint & solidary obligations) shall apply. IN THIS CASE, Ang agreed
to be “jointly and severally” liable under 2 PNs that he co-signed with Liong (principal debtor). Hence, it is completely
immaterial if the bank would opt to proceed only against petitioner or Antonio Ang Eng Liong or both of them since the
law confers upon the creditor the prerogative to choose whether to enforce the entire obligation against any one, some or
all of the debtors. Nonetheless, petitioner, as an accommodation party, may seek reimbursement from Antonio Ang Eng
Liong, being the party accommodated.

RE: BANK’S KNOWLEDGE THAT HE DID NOT RECEIVE ANY VALUE IN SIGNING PNS

in issuing the two promissory notes, petitioner as accommodating party warranted to the holder in due course that he would
pay the same according to its tenor. Not a defense that he did not receive any value because the phrase "without receiving
value therefor" used in Sec. 29 of the NIL means "without receiving value by virtue of the instrument" and not as it is
apparently supposed to mean, "without receiving payment for lending his name.”. It is enough that value was given for the
note at the time of its creation. IN THIS CASE, a sum of money was received by virtue of the notes, hence, it is immaterial
so far as the bank is concerned whether one of the signers, particularly petitioner, has or has not received anything in
payment of the use of his name.

RE: EXTENSION OF PERIOD OF PAYMENT

since the liability of an accommodation party remains not only primary but also unconditional to a holder for value, even if
the accommodated party receives an extension of the period for payment without the consent of the accommodation party,
the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value
is concerned, he is a solidary co-debtor

Far East Bank & Trust Company vs. Gold Palace Jewellery CO.

Facts:

 June 1998: Samuel Tagoe purchased from Gold Palace Jewellery several pieces of jewelry valued at 258k
o For payment, he offered foreign draft issued by United Overseas Bank (Malaysia) addressed to Land Bank
of PH and payable to Gold Palace for 380k
 Before receiving draft, Judy yang, gen manger, of Gold Palace inquired from Far East Bank the nature of draft
o She was informed that it was similar to a manager’s check but she was advised not to release jewelries until
draft had been cleared
o Gen Man issued cash invoice and told Tagoe to come back and the jewelry will be released when draft had
been cleared
o JULIE Yang-Go, manager, deposited draft in company’s account with Far East
 When Far East presented draft for clearing, to Land Bank (drawee bank) Land Bank cleared it and United Bank’s
account with Land Bank was debited. Gold Palace’s acc with Far East was credited with amount
 Tagoe came back to claim goods
o Yang released the pieces and because amount in draft was more than value of goods, she issued a change
in check amounting to 122k
o Check was presented for encashment and Far East paid it
 June 26: Land Bank informed Far East that draft had been materially altered from 300 pesos to 380k & they will
return it (draft???)
o Material alteration was discovered by United Bank after Land Bank informed them that its funds were being
depleted ff the encashment of the draft
o Far East refunded 380k to Land Bank w intention to debit the amount from Gold Palace’s account
o HOWEVER, Gold Palace already utilized their money so the balance of its account was already inadequate
o Far East was able to debit only 168k but it was done w/o prior notice to Gold Palace; they only notified
Gold Palace by phone
 Aug 12 1998: Far East demanded payment of 211k
o Gold palace did not heed; Far East filed complaint for sum of money and damages
 Gold Palace’s answer:
o Denied material allegations
o No cause of action bc draft was cleared & they are not party to material alteration
o Counterclaimed for damages because Far East confiscated their balance w/o basis which resulted to
operational loss
 RTC: ordered Gold Palace to pay
 CA: reversed
o Far East failed to undergo proceedings of protest of foreign draft or notify Gold Palace of draft’s dishonor
o Far East could not charge Gold Palace on its secondary liability as an indorser
o As Land bank cleared check remedy should be against party responsible 4 alteration
o Gold palace neither altered draft nor knew of alteration it could not be held liable
Issue: W/N Gold Palace is liable?/ W/N Land Bank can recover?/ W/N Far East was right in debiting?????

Held:

NO. NIL provides that the acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his
acceptance. This 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 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.
IN THIS CASE, drawee bank (Land Bank) cleared and paid the subject foreign draft and forwarded the amount thereof to
the collecting bank (Far East). Far East then credited it to the account of Gold Palace. Hence, following 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. IN SHORT, LBP was liable
on its payment of the check according to the tenor of the check at the time of payment. LBP could no longer repudiate the
payment it erroneously made to a due course holder. (LAND BANK CANNOT RECOVER WHAT IT PAID)

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, before it became overdue and without notice of any dishonor, in good faith and
for value, and absent any knowledge of any infirmity in the instrument or defect in the title of the person negotiating it. GP
relied on the drawee bank's clearance and payment of the draft and not being negligent (it delivered the purchased jewelry
only when the draft was cleared and paid) GP is protected by sec 62. Far East should not have debited the money paid by
the drawee bank from GP's account.

AGENCY

When Golden Palace deposited check with Far East, Far East became the agent of GP for the collection of amount in the
draft. The subsequent payment by Land Bank and collection of amount by Far East extinguished the principal-agent
relationship between payee (GP) and Far East. When Far East returned the amount to Land Bank, Far East was acting on
its own and should be responsible for its actions. Far East could not have acted as rep of Land Bank because Land Bank had
no right to recover what it paid. Far East cannot invoke warranty of payee who indorsed doc because indorsement is
restrictive as its purpose is only for collection. (FAR EAST DOES NOT HAVE THE RIGHT TO DEBIT GP’S ACCOUNT)