MATERIAL ALTERATION
Instruments Law (NIL) hence it is not a negotiable instrument. There was only a
PNB v CA; G.R. No. 107508; 25 Apr 1996; 256 SCRA 491
Published on 27 January 2018 in Legal Chyme by Claudine
FACTS:
The Ministry of Education issued a check drawnagainst petitioner bank. The
payee deposited the questioned check in its savings account with Capitol
City Development Bank (Capitol) which in turn deposited the same in its account
with respondent bank. After petitioner cleared the check, respondent
bank credited Capitol for the amount. However, petitioner returned the check to
PBCom and debited the latter’s account for the amount covered by
the check because the check number was materially altered.
ISSUE(S):
Whether or not the alteration of the check number was material to its negotiability.
RULING:
What was altered is the serial number of the check in question, an item which, it
can readily be observed, is not an essential requisite for negotiability under
Section 1 of the Negotiable Instruments Law. The aforementioned alteration did
not change the relations between the parties. The name of the drawer and the
drawee were not altered. The intended payee was the same. The sum of money
due to the payee remained the same. Moreover, the check’s serial number is not
the sole indication of its origin. The name of the government agencywhich issued
the subject check was prominently printed therein. The check’s issuer was
therefore sufficiently identified, rendering the referral to the serial
number redundant and inconsequential.
Enrique P. Montinola vs. PNB, et. al., G.R. No. L-2861, Feb 26, 1951
Full Text
Facts: In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental
issued a P100,000.00 Philippine National Bank (PNB) check to Mariano Ramos.
The said check was to be used by Ramos, as disbursing officer of the US forces
at that time, for military purposes.
On the back of the check, Ramos wrote:
Pay to the order of Enrique P. Montinola P30,000 only. The balance to be
deposited in the Philippine National Bank to the credit of M. V. Ramos.
Before Ramos can encash the check, he was made a prisoner of war by the
invading Japanese forces. When he got free in December 1944, he needed some
cash for himself and so he went to a certain Enrique Montinola and made
arrangements. In consideration thereof, Montinola promised to pay 85,000 in
Japanese notes (that time peso notes are valued higher). However, he was only
able to pay 45k in Japanese notes to Ramos.
Later, Montinola sought to have the check encashed but PNB dishonored the
check. It appears that there was an insertion made. Under the signature of Laya,
the words “Agent, Philippine National Bank” was inserted, thus making it appear
that Laya disbursed the check as an agent of PNB and not as provincial treasurer
of Misamis Oriental
ISSUE:
Whether or not the material alteration discharges the instrument?
HELD:
Yes.
First, the Court pointed out: “It was not negotiated according to the Negotiable
partial indorsement and not a negotiation contemplated under the NIL. Only P30k
of the P100k amount of the check was indorsed. This merely make Montinola a
mere assignee – and this is the clear intent of Ramos. Ramos was merely
assigning P30k to Montinola. Montinola may therefore not be regarded as an
indorsee and PNB has all the right to dishonor the check. As mere assignee, he
is subject to all defenses available to the drawer Provincial Treasurer of Misamis
Oriental and against Ramos.
Anent the issue of alteration, the apparent purpose of which is to make the
drawee (PNB) the drawer against which Montinola can recover from directly. The
insertion of the words “Agent, Phil. National Bank” which converts the bank from
a mere drawee to a drawer and therefore changes its liability, constitutes a
material alteration of the instrument without the consent of the parties liable
thereon, and so discharges the instrument. (Section 124 of the Negotiable
Instruments Law).
The check was not legally negotiated within the meaning of the Negotiable
Instruments Law. Section 32 of the same law provides that “the indorsement must
be an indorsement of the entire instrument. An indorsement which purports to
transfer to the indorsee a part only of the amount payable, . . . (as in this case)
does not operate as a negotiation of the instrument.” Montinola may therefore not
be regarded as an indorsee. At most he may be regarded as a mere assignee of
the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject
to all defenses available to the drawer Provincial Treasurer of Misamis Oriental
and against Ramos. Neither can Montinola be considered as a holder in due
course because section 52 of said law defines a holder in due course as a holder
who has taken the instrument under certain conditions, one of which is that he
became the holder before it was overdue. When Montinola received the check, it
was long overdue. And, Montinola is not even a holder because section 191 of
the same law defines holder as the payee or indorsee of a bill or note and
Montinola is not a payee. Neither is he an indorsee for as already stated, at most
he can be considered only as assignee. Neither could it be said that he took it in
good faith. As already stated, he has not paid the full amount of P90,000 for which
Ramos sold him P30,000 of the value of the check. In the second place, as was
stated by the trial court in its decision, Montinola speculated on the check and
took a chance on its being paid after the war.
At any rate, even assuming that there is proper negotiation, Montinola can no
longer encash said check because when he sought to have it encashed in
January 1945, it is already stale there being two and half years passing since its
time of issuance.
International Corporate Bank v CA; G.R. No. 129910; 05 Sep 2006; 501 SCRA
20
Published on 27 January 2018 in Legal Chyme by Claudine
FACTS:
The Ministry of Education and Culture issued fifteenchecks drawn against
respondent bank which accepted them for deposit. After twenty-four hours from
submission of the checks to respondent bank for clearing, petitioner
bank paid the value of the checks and allowed the withdrawals of the deposits.
However, respondent bank returned all the checks without clearing them because
their serial numbers were altered.
ISSUE(S):
Whether or not the alteration of the checks’ serial number was material to their
negotiability.
RULING:
NO. An alteration on the serial number of the check, an item which is not an
essential requisite for negotiability, did not change the relations between the
parties. The name of the drawer and the drawee were not altered. The intended
payee was the same. The sum of money due to the payee remained the same.
Petitioner, thus cannot refuse to accept the check in question on the ground that
the serial number was altered, the same being an immaterial or innocent one.
ACCOMODATION PARTY GSIS agreed to sell to spouses Ong, with the understanding that upon
approval of the compromise agreement, the check will be encashed
accordingly. As the compromise agreement wasn't approved during the
expected period of time, the aforesaid check was replaced with another one
SADAYA V. SEVILLA for the same value. Upon deposit though of the checks by petitioner, it
was dishonored. This prompted the petitioner to file a case against Atty.
19 SCRA 924
Bernares and Santos for violation of BP22. Meanwhile, during the
preliminary investigation, Santos tried to tender a cashier’s check for the
value of the dishonored check but petitioner refused to accept such. This was
consigned by Santos with the clerk of court and he instituted charges against
FACTS: petitioner. The trial court held that consignation wasn't applicable to the case at
bar but was reversed by the CA.
Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the
bank. Varona was the only one who received the proceeds of the HELD:
note. Sadaya and Sevilla both signed as co-
makers to accommodate Varona. Thereafter, the bank collected from Petitioner averred that it is not Santos who is the accommodation party to the
Sadaya. Varona failed to reimburse. instrument but the corporation itself. But assuming arguendo that the
corporation is the accommodation party, it cannot be held liable to the
Consequently, Sevilla died and intestate estate proceedings were check issued in favor of petitioner. The rule on accommodation party
established. Sadaya filed a creditor’s claim on his estate for the payment he doesn't include or apply to corporations which are accommodation parties. This
made on the note. The administrator resisted the claim on the ground is because the issue or indorsement of another is ultra vires. Hence, one who
that Sevilla didn't receive any proceeds of the loan. The trial court has taken the instrument with knowledge of the accommodation
admitted the claim of Sadaya though tis was reversed by the CA. nature thereof cannot recover against a corporation where it is only an
accommodation party. If the form of the instrument, or the nature of the
transaction, is such as to charge the indorsee with the knowledge that the
issue or indorsement of the instrument by the corporation is for the
HELD: accommodation of another, he cannot recover against the corporation
thereon.
Sadaya could have sought reimbursement from Varona, which is right and
just as the latter was the only one who received value for the note By way of exception, an officer or agent of a corporation shall have the
executed. There is an implied contract of indemnity between Sadaya and Varona power to execute or indorse a negotiable paper in the name of the
upon the former’s payment of the obligation to the bank. corporation for the accommodation of a third party only is specifically
authorized to do so. Corollarily, corporate officers have no power to
Surely enough, the obligations of Varona and Sevilla to Sadaya cannot be joint execute for mere accommodation a negotiable instrument of the
and several. For indeed, had payment been made by Varona, Varona couldn't corporation for their individual debts and transactions arising from or in
had reason to seek reimbursement from either Sadaya or Sevilla. After all, the relation to matters in which the corporation has no legitimate concern. Si
proceeds of the loan went to Varona alone. nce such accommodation paper cannot be enforced against the
corporation, the signatories thereof shall be personally liable therefore, as well as
On principle, a solidary accommodation maker—who made payment—has the consequences arising from their acts in connection therewith.
the right to contribution, from his co-accomodation maker, in the absence of
agreement to the contrary between them, subject to conditions imposed STELCO MARKETING V. CA
by law. This right springs from an implied promise to share equally the
burdens thay may ensue from their having consented to stamp their 210 SCRA 51
signatures on the promissory note.

The following are the rules:

1. A joint and several accommodation maker of a negotiable FACTS:
promissory note may demand from the principal debtor reimbursement
for the amount that he paid to the payee Petitioner was engaged in the distribution and sale of structural steel bars. RYL
bought on several occasion large quantities of steel bars but the same were never
2. A joint and several accommodation maker who pays on the said paid for despite several demands by petitioner.
promissory note may directly demand reimbursement from his co-
accommodation maker without first directing his action against the On a relevant date, RYL gave to Armstrong Industries a check in payment
principal debtor provided that of its obligations. The check was drawn by Steelweld Corporation—
a. He made the payment by virtue of a judicial demand allegedly the owner of RYL persuaded the president of Steelweld to
b. A principal debtor is insolvent. accommodate the former in its obligation. The check, when deposited was
thereafter dishonored due to insufficient funds. A case ensued for
It was never shown that there was a judicial demand on Sadaya to pay the
violations of BP22 but the case was dismissed as the check was held to be for
obligation and also, it was never proven that Varona was insolvent. Thus,
accommodation purposes only.
Sadaya cannot proceed against Sevilla for reimbursement.
Thereafter a complaint was filed by petitioner against RYL and Steelweld
CRISOLOGO JOSE V. CA - Accommodation Party for the recovery of sum of money in payment of the steel bars ordered.
RYL was nowhere to be found that is why the proceedings commenced as
177 SCRA 594
against Steelweld only. The trial court decided in favor of petitioner but
FACTS: this was reversed by the CA.

The president of Movers Enterprises, to accommodate its clients Spouses

Ong, issued a check in favor of petitioner Crisologo-Jose. This was in
consideration of a quitclaim by petitioner over a parcel of land, which the
HELD:
Petitioner contends that the acquittal of Lim and Tianson didn't operate to release
Steelweld from its liability as an accommodation party. Noteworthy is that neither
said pronouncement nor any other part of the judgment of
acquittal declared it liable to petitioner. To be sure, as regards an
accommodation party, the condition of lack of notice of any infirmity or
defect in title of the persons negotiating it is of no application since the law
preserves the right of recourse of a holder for value against an
accommodation party notwithstanding knowledge that at the time of taking the
instrument, knew him only as an accommodation party.
Further, there is no evidence to show that petitioner possessed the check
before the instrument’s presentment and dishonor. In what transpired
during the transactions involving the check, evidence and facts show that there
was any participation or intervention on the part of petitioner. What
the record shows is that only after the check was deposited and
dishonored, petitioner came into possession of it in some way and was able to
give it in evidence at the trial of the civil case it has instituted against the drawers
of the check.
Travel-On vs CA
Travel-On, Inc. vs Court of Appeals
G.R. No. L-56169 June 26, 1992
-accommodation party
FACTS:
Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured
tickets on behalf of airline passengers and derived commissions
therefrom. Miranda was sued by petitioner to collect on the six postdated checks
he issued which were all dishonored by the drawee banks. Miranda, however,
claimed that he had already fully paid and even overpaid his obligations and that
refunds were in fact due to him. He argued that he had issued the postdated
checks not for the purpose of encashment to pay his indebtedness but for
purposes of accommodation, as he had in the past accorded similar favors to
petitioner. Petitioner however urges that the postdated checks are per
se evidence of liability on the part of private respondent and further argues that
even assuming that the checks were for accommodation, private respondent is
still liable thereunder considering that petitioner is a holder for value.
ISSUE:
Whether Miranda is liable on the postdated checks he issued even assuming that
said checks were issued for accommodation only.
RULING:
There was no accommodation transaction in the case at bar. 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. 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. In the case at bar, 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. Miranda must be held liable on the checks
involved as petitioner is entitled to the benefit of the statutory presumption that it
was a holder in due course and that the checks were supported by valuable
consideration.
**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. In the case at
bar, Travel-On was the 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.
BPI vs CA
BPI vs. Court of Appeals and Napiza
G.R. No. 112392. February 29, 2000, 326 scra 641
*accommodation party
**liability of general indorser
FACTS:
A certain Henry Chan owned a Continental Bank Manager’s Check payable to
"cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00). Chan
went to the office of Benjamin Napiza and requested him to deposit the check in
his dollar account by way of accommodation and for the purpose of clearing the
same. Private respondent acceded, and agreed to deliver to Chan a signed blank
withdrawal slip, with the understanding that as soon as the check is cleared, both
of them would go to the bank to withdraw the amount of the check upon private
respondent’s presentation to the bank of his passbook. Napiza thus endorsed
the check and deposited it in a Foreign Currency Deposit Unit (FCDU) Savings
Account he maintained with BPI. Using the blank withdrawal slip given by private
respondent to Chan, one Ruben Gayon, Jr. was able to withdraw the amount of
$2,541.67 from Napiza's FCDU account. It turned out that said check deposited
by private respondent was a counterfeit check.
*When BPI demanded the return of $2,500.00, private respondent claimed that
he deposited the check "for clearing purposes" only to accommodate Chan.
**Petitioner claims that private respondent, having affixed his signature at the
dorsal side of the check, should be liable for the amount stated therein in
accordance with the provision of the Negotiable Instruments Law on the liability
of a general indorser (Sec. 66).
ISSUE:*
Whether private respondent is obliged to return the money paid out by BPI on a
counterfeit check even if he deposited the check "for clearing purposes" only to
accommodate Chan.
ISSUE:**
Whether or not respondent Napiza is liable under his warranties as a general
indorser.
RULING:
Ordinarily private respondent may be held liable as an indorser of the check or
even as an accommodation party. However, petitioner BPI, in allowing the
withdrawal of private respondent’s deposit, failed to exercise the diligence of a
good father of a family. BPI violated its own rules by allowing the withdrawal of
an amount that is definitely over and above the aggregate amount of private
respondent’s dollar deposits that had yet to be cleared. The proximate cause of
the eventual loss of the amount of $2,500.00 on BPI's part was its personnel’s
negligence in allowing such withdrawal in disregard of its own rules and the
clearing requirement in the banking system. In so doing, BPI assumed the risk of
incurring a loss on account of a forged or counterfeit foreign check and hence, it
should suffer the resulting damage.
AGRO CONGLOMERATES V. SORIANO
348 SCRA 450
VICENTE R. DE OCAMPO & CO. v. ANITA GATCHALIAN. G.R. No. L-15126.
November 30, 1961.
FACTS:
Anita Gatchalian was interested in buying a car. Manuel Gonzales offered to her
a car owned by plaintiff. Gonzales claimed that he was authorized by the plaintiff
to sell the car. Gonzales order defendant to issue a cross-check to comply on
showing interest in buying the car. Gonzales promised to return the check the
next day.
When Gonzales never appeared after, defendant issue a stop payment order on
the check. She found out that Gonzales used the check as payment to plaintiff's
clinic for his wife's fees. Plaintiff now demands defendant for payment of the
check, in which defendant refused citing that plaintiff is a not a holder in due
course.

The lower court held that defendant should pay plaintiff.

ISSUE: Whether or not De Ocampo is a holder in due course.

FACTS:
RULING:
Petitioner sold to Wonderland Food Industries two parcels of land. They
stipulated under a Memorandum of Agreement that the terms of payment The SC held that plaintiff is a not a holder in due course. There were obvious
would be P1,000,000 in cash, P2,000,000 in shares of stock, and the instances to show that the check was negligently acquired like plaintiff having no
balance would be payable in monthly installments. Thereafter, an liability with defendant and that the check was crossed. Plaintiff failed to exercise
addendum was executed between them, qualifying the cash payment. Inst prudence and caution. Plaintiff should have asked questions to further inquire
ead of cash payment, the vendee authorized the vendor to obtain a loan upon suspicion.
from the financier on which the vendee bound itself to pay for. This loan was to
cover for the payment of P1,000,000. This addendum was not notarized. The presumption of good faith did not apply to plaintiff because the defect was
apparent on the instruments face – it was not payable to defendant or bearer.
Petitioner Soriano signed as maker the promissory notes payable to the
bank. However, the petitioners failed to pay the obligations as they were
MESINA V. IAC
due. During that time, the bank was in financial distress and this
prompted it to endorse the promissory notes for collection. The bank gave ample 145 SCRA 497
time to petitioners then to satisfy their obligations.

The trial court held in favor of the bank. It didn't find merit to the
contention that Wonderland was the one to be held liable for the
promissory notes. FACTS:

Jose Go purchased from Associate Bank a Cashier’s Check, which he left on

top of the manager’s desk when left the bank. The bank manager then
HELD: had it kept for safekeeping by one of its employees. The employee was
then in conference with one Alexander Lim. He left the check in his desk
First, there was no contract of sale that materialized. The original and upon his return, Lim and the check were gone. When Go inquired
agreement was that Wonderland would pay cash and petitioner would about his check, the same couldn't be found and Go was advised to request for
deliver possession of the farmlands. But this was changed through an the stoppage of payment which he did. He executed also an affidavit of loss as
addendum, that petitioner would instead secure a loan and the settlement well as reported it to the police.
of the same would be shouldered by Wonderland.
Petitioners became liable as accommodation parties. They have the right The bank then received the check twice for clearing. For these two times,
after paying the instrument to seek reimbursement from the party they dishonored the payment by saying that
accommodated, since the relation between them has in effect became one of payment has been stopped. After the second time, a lawyer contacted it
principal and surety. demanding payment. He refused to disclose the name of his client and
threatened to sue. Later, the
Furthermore, as it turned out, the contract of surety between Woodland and name of Mesina was revealed. When asked by the police on how he
petitioner was extinguished by the rescission of the contract of sale of the possessed the check, he said it was paid to him Lim. An information for theft
farmland. With the rescission, there was confusion in the persons of was then filed against Lim.
the principal debtor and surety. The addendum thereon likewise lost its
efficacy. A case of interpleader was filed by the bank and Go moved to participate
as intervenor in the complaint for damages. Mesina moved for the
HOLDERS IN DUE COURSE dismissal of the case but was denied. The trial court ruled in the
interpleader case ordering the bank to replace the cashier’s check in favor of Go.

AUG HELD:
14 Petitioner cannot raise as arguments that a cashier’s check cannot be
countermanded from the hands of a holder in due course and that a
cashier’s check is a check drawn by the bank against itself. Petitioner
failed to substantiate that he was a holder in due course. Upon
questioning, he admitted that he got the check from Lim who stole the
check. He refused to disclose how and why it has passed to him. It simply means
that he has notice of the defect of his title over the check from the
start. The holder of a cashier’s check who is not a holder in due course
cannot enforce payment against the issuing bank which dishonors the
same. If a payee of a cashier’s check obtained it from the issuing bank by
fraud, or if there is some other reason why the payee is not entitled to
collect the check, the bank would of course have the right to refuse
payment of the check when presented by payee, since the bank was aware of
the facts surrounding the loss of the check in question.
DOCTRINE OF LAST CLEAR CHANCE
Westmont Bank v Ong; G.R. No. 132560; 30 Jan 2002; 375 SCRA 212
Published on 26 January 2018 in Legal Chyme by Claudine
FACTS:
Two manager’s checks in respondent’s name were issued as payment of the
shares of stocks he sold. His friend got hold of the checks, forgedrespondent’s
signature and deposited them with petitioner bank, where both are depositors.
Petitioner accepted and credited both checks to the forger’s account without
verifying the signature indorsements against respondent’s specimen signature.
His friend immediately withdrew the money and absconded.
general rule, a bank or corporation who has obtained possession of a check with
an unauthorized or forged indorsement of the payee’s signature and who collects
the amount of the check other from the drawee, is liable for the proceeds thereof
to the payee or the other owner, notwithstanding that
the amount has been paid to the person from whom the check was
obtained.
DOCTRINE OF DESIRABLE SHORT CUT—plaintiff uses one action to reach,
by desirable short cut, the person who ought to be ultimately liable as
among the innocent persons involved in the transaction. In other words, the
payee ought to be allowed to recover directly from the collecting bank, regardless
of whether the check was delivered to the payee or not.
On the issue of laches, Ong didn't sit on his rights. He immediately sought the
intervention of Tamlinco’s family to collect the sum of money, and later
the Central Bank. Only after exhausting all the measures to settle the
issue amicably did he file the action.

ISSUE(S):
Whether or not petitioner is liable for the payment of the forged check.

RULING:
YES. The collecting bank is liable to the payee and must bear the loss because
it is its legal duty to ascertain that the payee’s endorsement was genuine before
cashing the check. As a general rule, a bank or corporation who has obtained
possession of a check upon an unauthorized or forged indorsement of the
payee’s signature and who collects the amount of the check from the drawee, is
liable for the proceeds thereof to the payee or other owner, notwithstanding that
the amount has been paid to the person from whom the check was obtained.

WESTMONT BANK V. ONG

373 SCRA 212

FACTS:

Ong was supposed to be the payee of the checks issued by Island

Securities. Ong has a current account with petitioner bank. He opted to
sell his shares of stock through Island Securities. The company in turn
issued checks in favor of Ong but unfortunately, the latter wasn't able to receive
any. His signatures were forged by Tamlinco and the checks were
deposited in his own account with petitioner. Ong then sought to collect
the money from the family of Tamlinco first before filing a complaint with the
Central Bank. As his efforts were futile to recover his money, he filed
an action against the petitioner. The trial and appellate court decided in
favor of Ong.

HELD:

Since the signature of the payee was forged, such signature should be
deemed inoperative and ineffectual. Petitioner, as the collecting bank,
grossly erred in making payment by virtue of said forged signature. The payee,
herein respondent, should therefore be allowed to collect from the collecting
bank.

It should be liable for the loss because it is its legal duty to ascertain that
the payee’s endorsement was genuine before cashing the check. As a