G.R. No. 118492 August 15, 2001
GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs. THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents.

FACTS

Petitioner Gregorio H. Reyes, an officer of the Philippine Racing Club, Inc. (PRCI), sought to remit registration fees for an international conference in Sydney. Through PRCI’s cashier, Godofredo Reyes, they applied with respondent Far East Bank and Trust Company (FEBTC) for a foreign exchange demand draft payable in Australian dollars. FEBTC, lacking a direct account with a Sydney bank, proposed a customary roundabout method: it would draw a draft against Westpac Bank in Sydney (Westpac-Sydney), which would then seek reimbursement from FEBTC’s U.S. dollar account with Westpac Bank in New York (Westpac-New York). PRCI agreed to this arrangement. FEBTC issued the draft, but upon presentment in Sydney, it was dishonored twice because Westpac-Sydney stated FEBTC had “No account” with it. The dishonor occurred due to a clerical error by a Westpac-Sydney employee who misread a cable. The petitioners, attending the conference, were publicly embarrassed at the registration desk when informed they could not register due to the dishonored draft, causing them humiliation and distress.

ISSUE

Whether respondent FEBTC is liable for damages arising from the dishonor of the foreign exchange demand draft it issued.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals’ decision, holding FEBTC not liable for damages. The legal logic centers on the absence of negligence or bad faith on the part of FEBTC. The dishonor was caused by a fortuitous event—a clerical error committed by an employee of Westpac-Sydney, the correspondent bank, in misreading a cable instruction. This error was beyond FEBTC’s control and could not have been reasonably foreseen. The Court found that FEBTC acted in good faith, employed a customary and previously problem-free banking procedure to accommodate its client, and took all reasonable steps to rectify the situation upon learning of the dishonor by promptly communicating with the correspondent banks. Liability for damages under Article 1170 of the Civil Code requires a finding of fraud, negligence, delay, or contravention of the tenor of the obligation. Since the dishonor was not attributable to any fault, negligence, or delay by FEBTC, no actionable wrong existed. The embarrassment suffered by the petitioners, while unfortunate, was a consequence of the independent error of a third-party bank for which FEBTC could not be held vicariously liable. The Court thus upheld the dismissal of the complaint for damages.