8. Rivera v. Spouses Chua G.R. no.

184458 January 14, 2015

Facts:

Petitioner Rivera obtained a loan from his friends, Spouses Salvador and Violeta Chua. Petitioner
made a promissory note stating that “FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay
spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand
Philippine Currency (.120,000.00) on December 31, 1995.” In October 1998, almost three years from the
date of payment stipulated in the promissory note, Rivera issued and delivered to the Spouses Chua, as
payee, a check, dated 30 December 1998, in the amount of 25,000.00 and on 21 December 1998, another
check, duly signed and dated, but blank as to payee. The second check was issued, as per understanding
by the parties, that the amount of 133,454.00 with “cash” as payee. Both checks were dishonored for the
reason “account closed.” Due to Rivera’s unjustified refusal to pay, Spouses Chua filed a suit against him.
Petitioner Rivera contends demand was still necessary in order to charge him liable and that it was grave
error on the part of the appellate court to apply Section 70 of the Negotiable Instruments Law.

Issue:

Whether the promissory note is negotiable instrument, thus the Negotiable Instruments Law applies in this
case.

Held:

No. The subject promissory note is not a negotiable instrument and the provisions of the NIL is not
applicable in this case. Section 1 of the Negotiable Instruments Law requires the concurrence of the
following elements to be a negotiable instrument: (a)It must be in writing and signed by the maker or
drawer; (b)Must contain an unconditional promise or order to pay a sum certain in money; (c)Must be
payable on demand, or at a fixed or determinable future time; (d)Must be payable to order or to bearer;
and (e)Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty. On the other hand, Section 184 of the Negotiable Instruments Law defines what
negotiable promissory note is, and it states that “A negotiable promissory note within the meaning of this
Act is an unconditional promise in writing made by one person to another, signed by the maker, engaging
to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer.
Where a note is drawn to the maker’s own order, it is not complete until indorsed by him.” In this case, the
promissory note is made out to specific persons, herein respondents, the Spouses Chua, and not to order
or to bearer, or to the order of the Spouses Chua as payees. Therefore, the subject promissory note is not
a negotiable instrument and the provisions of the Negotiable Instruments Laws do not apply in this case.
35. FEBTC v. Gold Palace Jewellery Co. G.R. No. 168274 August 20, 2008

Facts:

In June 1998, 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 Draft issued by the United Overseas Bank (Malaysia) addressed to the Land Bank of the
Philippines, Manila (LBP), and payable to the respondent company for P380,000.00. Respondent Yang-
Go, the assistant General Manager of Gold Palace, issued Cash Invoice to the foreigner, informing him that
the pieces of jewelry would be released when the draft had already been cleared. Respondent Yang-Go,
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 jewelries, and because the amount in
the draft was more than the value of the goods purchased, respondent Yang-Go issued, as his change, Far
East Check for P122,000.00. This check was later presented for encashment and was, in fact, paid by the
said bank. On June 1998, or 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. However, Gold Palace did not heed the
demand, hence, Far East consequently instituted civil case for sum of money and damages before the RTC
in Makati.

Issue:

Whether or not respondent Gold Palace Jewellery Co. can be held liable.

Held:

No. Gold Palace Jewellery Co. is not liable. The Negotiable Instruments Law 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. Petitioner Far East Bank 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. Also, 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 of the Negotiable Instruments Law. 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. In this case, 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, Petitioner Far East Bank, 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 Bank, 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 Bank 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 Bank 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 Negotiable Instruments Law, 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 Negotiable
Instruments Law 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. Therefore, Respondent Gold Palace is not liable to Petitioner Far East
Bank. Far East Bank 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.