MODULE LAW ON NEGOTIABLE INSTRUMENTS

CHAPTER 8-EFFECT OF MATERIAL ALTERATION

Learning Objectives:

1. Define material alteration

2. Determine the effect of material alteration.
3. Differentiate acceptance, manner and time for acceptance.

I. EFFECT OF MATERIAL ALTERATION

What is the effect of material alteration which is not apparent?

1. Avoids the instrument except against:

a. A party who has made the alteration;
b. A party who authorized or assented to the alteration; or
c. The indorsers who indorsed subsequent to the alteration (because of their
warranties)
2. If negotiated to a HIDC, he may enforce the payment thereof according to its
original tenor against the party prior to the alteration. He may also enforce
payment thereof against the party responsible for the alteration for the altered
amount.

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3. If negotiated to a NHIDC, he cannot enforce payment against the party prior to

the alteration. He may however enforce payment according to the altered tenor
from the person who caused the alteration and from the indorsers. (Sec. 124)

Is there material alteration when the serial number of a check had been altered?

No. An alteration is said to be material if it alters the effect of the instrument. It

means an unauthorized change in an instrument that purports to modify in any respect
the obligation of a party or an unauthorized addition of words or numbers or other
change to an incomplete instrument relating to the obligation of a party. The alteration of
the serial number of a check did not change the relations between the parties nor the
effect of the instrument. Hence, the alteration on the serial number of a check is not a
material alteration. (International Corporate Bank vs. CA, G.R. No. 141968, Feb. 12,
2001)

II. EFFECT OF MATERIAL ALTERATION

What is the effect of material alteration which is not apparent?

4. Avoids the instrument except against:

d. A party who has made the alteration;
e. A party who authorized or assented to the alteration; or
f. The indorsers who indorsed subsequent to the alteration (because of their
warranties)
5. If negotiated to a HIDC, he may enforce the payment thereof according to its
original tenor against the party prior to the alteration. He may also enforce
payment thereof against the party responsible for the alteration for the altered
amount.
6. If negotiated to a NHIDC, he cannot enforce payment against the party prior to
the alteration. He may however enforce payment according to the altered tenor
from the person who caused the alteration and from the indorsers. (Sec. 124)

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Is there material alteration when the serial number of a check had been altered?

No. An alteration is said to be material if it alters the effect of the instrument. It

means an unauthorized change in an instrument that purports to modify in any respect
the obligation of a party or an unauthorized addition of words or numbers or other
change to an incomplete instrument relating to the obligation of a party. The alteration of
the serial number of a check did not change the relations between the parties nor the
effect of the instrument. Hence, the alteration on the serial number of a check is not a
material alteration. (International Corporate Bank vs. CA, G.R. No. 141968, Feb. 12,
2001)

III. ACCEPTANCE

DEFINITON

What is acceptance of a bill?

A signification by the drawee of his assent to the order of the drawer (Sec. 132).

What is the effect of acceptance?

Upon acceptance, the bill, in effect becomes a note. The drawee who thereby
becomes an acceptor assumes the liability of the maker (which is primary liability) and
the drawer, that of the first indorser.
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IV. MANNER

What are the requisites for acceptance?

1. In writing, except constructive acceptance and to a foreign bill payable in another

state (unless the other state requires for written acceptance)
2. Signed by the drawee (without it, he is not liable)
3. Must express a promise to pay money (not goods)
4. Delivered to the holder (before delivery or notification, acceptor may revoke or
cancel his acceptance).

What are the kinds of acceptance?

1. General – Assents without qualification to the order of the drawer (Sec. 139).
 Note: A holder may refuse to accept a qualified acceptance and if he does not
obtain an unqualified acceptance, he may treat the bill as dishonored by non‐
acceptance.
2. Qualified – An acceptance which in express terms varies the effect of the bill as
drawn (Sec. 139).
a. Conditional – makes payment by the acceptor dependent on the fulfillment of a
condition therein stated.
b. Partial – an acceptance to pay part only of the amount for which the bill is drawn.
c. Local – an acceptance to pay only at a particular place.
d. Qualified as to time
e. The acceptance of some one or more of the drawees but not of all. (Sec. 141)
3. Constructive/implied
a. Drawee to whom the bill is delivered for acceptance destroys it; or
b. Drawee refuses, within 24 hours after such delivery, or within such time as is
given him, to return the bill accepted or non‐accepted
4. Extrinsic – the acceptance is written on paper other than the bill itself. To be
binding upon the acceptor:

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a. Acceptance must be shown to the person to whom the instrument is negotiated;

and
b. Such person must take the bill for value on the faith of such acceptance (Sec.
134).
a. Virtual – conditions:
b. Unconditional promise in writing to accept a bill
c. Promise made before it is drawn
d. Any person who, upon faith thereof, received the bill for value. (Sec. 135)

V. TIME FOR ACCEPTANCE

What is the time allowed for the drawee to make the acceptance?

The drawer has 24 hours after presentment to decide whether or not he will
accept the bill. The acceptance, if given, dates as of the day of presentation. (Sec. 136)

Note: Drawee bank is not entitled to 24 hours to decide whether or not to pay a
check since a check is presented for payment, not acceptance.

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To know more information about CHAPTER 8-MATERIAL ALTERATION

PLEASE CLICK THE LINK: https://www.youtube.com/watch?v=RowRPuISO20

To know more information about Chapter 8-Acceptance

PLEASE CLICK THE LINK: https://www.youtube.com/watch?v=_ELH7_1lZOU

REFERENCE:

Law on Negotiable Instruments

Author: Hector S. De Leon
Hector S. De Leon, Jr.

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