INTERNATIONAL

CORPORATE
BANK,
INC., v. CA
GR. No. 129910. September 5, 2006
PONENTE: CARPIO, J.
DOCTRINE:
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. In other words, a
material alteration is one which changes the
items which are required to be stated under
Section 1 of the Negotiable Instruments Law.
FACTS:
The Ministry of Education and Culture
issued 15 checks drawn against respondent
Philippine National Bank which petitioner
International Corporate Bank accepted for
deposit on various dates.
After 24 hours from submission of the
checks to respondent for clearing, petitioner
paid the value of the checks and allowed the
withdrawals of the deposits. However,
respondent returned all the checks to
petitioner without clearing them on the
ground that they were materially altered.
Thus, petitioner instituted an action for
collection of sums of money against
respondent to recover the value of the
checks.
RTC ruling: Respondent cannot be faulted
for the delay in clearing the checks
considering the ingenuity in which the
alterations were effected. The trial court
observed that there was no attempt from
petitioner to verify the status of the checks
before petitioner paid the value of the checks
or allowed withdrawal of the deposits.
Petitioner, as collecting bank, could have
inquired by telephone from respondent, as
drawee bank, about the status of the checks

before paying their value. Petitioner is then

not entitled to recover.
CA ruling: The Court of Appeals rejected the
trial courts opinion that petitioner could
have verified the status of the checks by
telephone call since such imposition is not
required under Central Bank rules. CA held
that checks that have been materially
altered shall be returned within 24 hours
after discovery of the alteration pursuant to
Central Bank Circular No. 580. However, the
Court of Appeals ruled that even if the
drawee bank returns a check with material
alterations after discovery of the alteration,
the return would not relieve the drawee bank
from any liability for its failure to return the
checks within the 24-hour clearing period.
Petitioner is entitled to recover.
ISSUES:
(1) w/n there was material alteration
(2) w/n respondent was negligent in failing to
recognize within a reasonable period the
altered checks and in not returning the
checks within the period
HELD:
(1) NO. Sections 124 and 125 of the NIL
provide:
SEC. 124. Alteration of instrument; effect of.
Where a negotiable instrument is
materially altered without the assent of all
parties liable thereon, it is avoided, except
as against a party who has himself made,
authorized, or assented to the alteration and
subsequent indorsers.
But when an instrument has been materially
altered and is in the hands of a holder in due
course, not a party to the alteration, he may
enforce payment thereof according to its
original tenor.
SEC. 125. What constitutes a material
alteration. Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or
interest;

(c) The time or place of payment;

(d) The number or the relations of the
parties;
(e) The medium or currency in which
payment is to be made;
(f) or which adds a place of payment where
no place of payment is specified, or any
other change or addition which alters the
effect of the instrument in any respect, is a
material alteration.
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. In other words, a
material alteration is one which changes the
items which are required to be stated under
Section 1 of the Negotiable Instruments Law.
In his book entitled "Pandect of Commercial
Law and Jurisprudence," Justice Jose C. Vitug
opines
that
"an
innocent
alteration
(generally, changes on items other than
those required to be stated under Sec. 1,
N.I.L.) and spoliation (alterations done by a
stranger) will not avoid the instrument, but
the holder may enforce it only according to
its original tenor.
The case at the bench is unique in the sense
that 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 NIL. 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.
The checks serial number is not the sole
indication of its origin. As succinctly found by
the Court of Appeals, the name of the
government agency which issued the subject
check was prominently printed therein. The
checks issuer was therefore sufficiently
identified, rendering the referral to the serial
number redundant and inconsequential.

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.
(2) YES. The Court will not rule on the proper
application of Central Bank Circular No. 580.
Since there were no material alterations on
the checks, respondent as drawee bank has
no right to dishonor them and return them to
petitioner, the collecting bank. Thus,
respondent is liable to petitioner for the
value of the checks, with legal interest.

ALVIAR v. RIZAL COMMERCIAL BANKING

CORPORATION
G.R. No. 156294. November 29, 2006
PONENTE: GARCIA, J.
DOCTRINE:
Section 66 of the NIL cannot be used
by the party which introduced a defect on
the instrument, such as respondent RCBC in
this case, which qualifiedly endorsed the
same, to hold prior endorsers liable on the
instrument because it results in the absurd
situation whereby a subsequent party may
render an instrument useless and inutile and
let innocent parties bear the loss while he
himself gets away scot-free.

FACTS:
Petitioner
Melva
Theresa
Alviar
Gonzales was an employee of RCBC as New
Accounts Clerk in the Retail Banking
Department at its Head Office.
A foreign check in the amount of
$7,500 was drawn by Dr. Don Zapanta of the
Ade Medical Group against the drawee bank
Wilshire Center Bank and payable to
Gonzales mother, Eva Alviar (Alviar). Alviar
then endorsed this check.
Since
RCBC
gives
special
accommodations to its employees to receive
the checks value without awaiting the
clearing period, Gonzales presented the
foreign check to Olivia Gomez, the RCBCs
Head of Retail Banking. After examining this,
Olivia Gomez requested Gonzales to endorse
it which she did. Olivia Gomez then
acquiesced to the early encashment of the
check and signed the check but indicated
thereon her authority of up to P17,500.00
only. Afterwards, Olivia Gomez directed
Gonzales to present the check to RCBC
employee Carlos Ramos and procure his
signature. After inspecting the check, Carlos
Ramos also signed it with an ok annotation.
After getting the said signatures Gonzales
presented the check to Rolando Zornosa,
Supervisor of the Remittance section of the
Foreign Department of the RCBC Head Office,
who after scrutinizing the entries and
signatures
therein
authorized
its
encashment. Gonzales then received its peso
equivalent of P155,270.85.
RCBC then tried to collect the amount
of the check with the drawee bank by the
latter through its correspondent bank, the
First Interstate Bank of California, on two
occasions dishonored the check because of
END. IRREG or irregular indorsement.
Insisting, RCBC again sent the check to the
drawee bank, but this time the check was
returned due to account closed. Unable to
collect, RCBC demanded from Gonzales the
payment of the peso equivalent of the check
that she received. Gonzales settled the
matter by agreeing that payment be made
thru salary deduction.

RCBC filed a complaint for a sum of

money against Eva Alviar, Melva Theresa
Alviar-Gonzales and the latters husband Gino
Gonzales.
ISSUE:
w/n Gonzales and Alviar should be
held liable for the check
HELD:
NO. While the foreign drawee bank did
not specifically state which among the four
signatures found on the dorsal portion of the
check made the check irregularly endorsed,
it is absolutely undeniable that only the
signature of Olivia Gomez, an RCBC
employee, was a qualified endorsement
because of the phrase up to P17,500.00 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 P17,500.00 only
accompanying it. This Court definitely agrees
with the petitioner that the foreign drawee
bank would not have dishonored the check
had it not been for this signature of Gomez
with the same phrase written by her.
The foreign drawee bank, Wilshire
Center Bank N.A., 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. There is no doubt in the mind of
the Court that a subsequent party which
caused the defect in the instrument cannot
have any recourse against any of the prior
endorsers in good faith.
Under Section 66, the warranties for
which Alviar and Gonzales are liable as
general endorsers in favor of subsequent
endorsers extend only to the state of the
instrument
at
the
time
of
their
endorsements,
specifically,
that
the
instrument is genuine and in all respects
what it purports to be; that they have good

title thereto; that all prior parties had

capacity
to
contract;
and
that
the
instrument,
at
the
time
of
their
endorsements, is valid and subsisting. This
provision, however, cannot be used by the
party which introduced a defect on the
instrument, such as respondent RCBC in this
case, which qualifiedly endorsed the same,
to hold prior endorsers liable on the
instrument because it results in the absurd
situation whereby a subsequent party may
render an instrument useless and inutile and
let innocent parties bear the loss while he
himself gets away scot-free.
Section 66 must be read in the light of
the rule in equity requiring that those who
come to court should come with clean hands.
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.
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.

METROPOLITAN
BANK
AND
TRUST
COMPANY v. RENATO D. CABILZO
G.R. No. 154469. December 6, 2006
CHICO-NAZARIO, J.
DOCTRINE:
Banks are expected to exercise the
highest degree of diligence in the selection
and supervision of their employees. In
addition, the bank on which the check is
drawn, known as the drawee bank, is under
strict liability to pay to the order of the payee
in accordance with the drawers instructions
as reflected on the face and by the terms of
the check. Payment made under materially
altered instrument is not payment done in
accordance with the instruction of the
drawer.
When the drawee bank pays a
materially altered check, it violates the terms
of the check, as well as its duty to charge its
clients account only for bona fide
disbursements he had made.
FACTS:
Renato Cabilzo (Cabilzo) was one of
Metrobanks clients who maintained a
current account with Metrobank Pasong Tamo
Branch. He issued a Metrobank Check
payable to "CASH" and postdated on 24
November 1994 in the amount of P1,000.
The check was drawn against Cabilzos
Account with Metrobank and was paid by
Cabilzo to a certain Mr. Marquez, as his sales
commission.
Subsequently,
the
check
was
presented to Westmont Bank for payment.

Westmont Bank, in turn, indorsed the check

to Metrobank for appropriate clearing. After
the entries thereon were examined, including
the availability of funds and the authenticity
of the signature of the drawer, Metrobank
cleared the check for encashment.
On 16 November 1994, Cabilzos
representative was at Metrobank Pasong
Tamo Branch to make some transaction when
he was asked by a bank personnel if Cabilzo
had issued a check in the amount of P91,000
to which the former replied in the negative.
Cabilzo called Metrobank to reiterate that he
did not issue a check in the amount of
P91,000 and requested that the questioned
check be returned to him for verification, to
which Metrobank complied.
Upon receipt of the check, Cabilzo
discovered the amount of P1,000 was altered
to P91,000 and the date 24 November 1994
was changed to 14 November 1994.
Cabilzo demanded that Metrobank re-credit
the amount of P91,000 to his account.
Metrobank,
however
despite
repeated
demands.
Anent thereto, Metrobank claimed that
as a collecting bank and the last indorser,
Westmont Bank should be held liable for the
value of the check. Westmont Bank indorsed
the check as the an unqualified indorser, by
virtue of which it assumed the liability of a
general indorser, and thus, among others,
warranted that the instrument is genuine
and in all respect what it purports to be. In
addition, Metrobank claimed that Cabilzo was
partly responsible in leaving spaces on the
check, which, made the fraudulent insertion
of the amount and figures thereon, possible.
ISSUE:
w/n Metrobank is liable
alterations made on the check

for

the

HELD:
YES. An alteration is said to be
material if it changes the effect of the
instrument. It means that 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. In other words, a material alteration is
one which changes the items which are
required to be stated under Section 1 of the
Negotiable Instruments Law.
Apparently, since the entries altered
were among those enumerated under
Section 1 and 125, namely, the sum of
money payable and the date of the check,
the instant controversy therefore squarely
falls within the purview of material alteration.
Indubitably, Cabilzo was not the one
who made nor authorized the alteration.
Neither did he assent to the alteration by his
express or implied acts. There is no showing
that he failed to exercise such reasonable
degree of diligence required of a prudent
man which could have otherwise prevented
the loss. As correctly ruled by the appellate
court, Cabilzo was never remiss in the
preparation and issuance of the check.
Indeed, Cabilzo placed asterisks before and
after the amount in words and figures in
order to forewarn the subsequent holders
that nothing follows before and after the
amount indicated other than the one
specified between the asterisks.
It is obvious that Metrobank was
remiss in that duty and violated that
relationship. As observed by the Court of
Appeals, there are material alterations on the
check that are visible to the naked eye. The
number "1" in the date is clearly imposed on
a white figure in the shape of the number
"2". In addition, the 4 asterisks before the
words "ONE THOUSAND PESOS ONLY" have
noticeably
been
erased
with
typing
correction paper, leaving white marks, over
which the word "NINETY" was superimposed.
Surprisingly,
however,
Metrobank
failed to detect the above alterations which
could not escape the attention of even an
ordinary person. This negligence was
exacerbated by the fact that, as found by the
trial court, the check in question was
examined by the cash custodian whose
functions do not include the examinations of
checks indorsed for payment against
drawers accounts. Obviously, the employee
allowed by Metrobank to examine the check
was not verse and competent to handle such
duty.

Beyond question, Metrobank failed to

comply with the degree required by the
nature of its business as provided by law and
jurisprudence. If indeed it was not remiss in
its obligation, then it would be inconceivable
for it not to detect an evident alteration
considering its vast knowledge and technical
expertise in the intricacies of the banking
business.
This Court is not completely unaware
of banks practices of employing devices and
techniques in order to detect forgeries,
insertions, intercalations, superimpositions
and alterations in checks and other
negotiable instruments so as to safeguard
their
authenticity
and
negotiability.
Metrobank cannot now feign ignorance nor
claim diligence; neither can it point its finger
at the collecting bank, in order to evade
liability.

MACALALAG
v.
PEOPLE
OF
THE
PHILIPPINES
G.R. No. 164358. December 20, 2006
CHICO-NAZARIO, J.

DOCTRINE:
Only a full payment of the face value
of the second check at the time of its
presentment or during the five-day grace
period could have exonerated her from
criminal liability. A contrary interpretation
would defeat the purpose of BP 22, that of
safeguarding the interest of the banking
system and the legitimate public checking
account user, as the drawer could very well
have himself exonerated by the mere
expediency of paying a minimal fraction of
the face value of the check.
FACTS:
On two separate occasions (30 July
1995 and 16 October 1995) petitioner
Theresa Macalalag obtained loans from
Grace Estrella (Estrella), each in the amount
of P100,000.00, each bearing an interest of
10% per month. Macalalag consistently paid
the interests starting 30 August 1995.
Finding the interest rates so burdensome,
Macalalag requested Estrella for a reduction
of the same to which the latter agreed.
On 16 April 1996 and 1 May 1996,
Macalalag
executed
Acknowledgment/Affirmation
Receipts
promising to pay Estrella the face value of
the loans in the total amount of P200,000.00
within two months from the date of its
execution plus 6% interest per month for
each loan.
Thus, the 2 loans of P100,000.00 each
were demandable only on June 16, 1996 and
July 1, 1996, respectively.
As security for the payment of the
aforesaid loans, Macalalag issued 2 PNB
Checks each in the amount of P100,000.00,
in favor of Estrella. However, when Estrella
presented said checks for payment with the
drawee bank, the same were dishonored for
the reason that the account against which
the same was drawn was already closed.
Estrella sent a notice of dishonor and
demand to make good the said checks to
Macalalag, but the latter failed to do so.
Hence, Estrella filed two criminal complaints
for Violation of BP 22.
It has been established that Macalalag
made a total payment of P355,837.98. The
P156,000 thereof was paid on June 15, 1996

while the remaining P199,837.98 was paid to

complainant sometime in 1997 during the
pendency of the case.
Hence,
the
total
amount
of
P156,000.00 already paid by Macalalag to
Estrella could very well be applied to the face
value of the first loan which fell due on June
16, 1996, including the 1% interest rate per
month on the two (2) loans or a total of 2%
per month. Thus, Macalalag could no longer
be held liable for violation of B.P. Blg. 22
insofar as the first check is concerned since
the same was already paid prior to its
presentment for payment.
Petitioner Macalalag claims that,
considering that she had already paid
P156,000.00 at the time the subject checks
were presented for payment, the amount of
P100,000.00
should
be
applied
for
redemption of the first check and the
remaining amount of P56,000.00 should be
treated as partial redemption of the second
check. Petitioner Macalalag posits that said
partial redemption exempts her from criminal
liability because it was made before the
check was presented for payment.
ISSUE: w/n Macalalag could be held liable
for the violation of BP 22 despite partial
redemption
HELD:
YES. Only a full payment of the face
value of the second check at the time of its
presentment or during the five-day grace
period15 could have exonerated her from
criminal liability. A contrary interpretation
would defeat the purpose of Batas Pambansa
Blg. 22, that of safeguarding the interest of
the banking system and the legitimate public
checking account user, as the drawer could
very well have himself exonerated by the
mere expediency of paying a minimal
fraction of the face value of the check.
Neither could petitioner Macalalag's
subsequent payment of P199,837.98 during
the pendency of the cases against her result
in freeing her from criminal liability because
the same had already attached after the
check was dishonored.
It is well to note that the gravamen of
BP 22 is the issuance of a check, not the

nonpayment of an obligation.The law has

made the act of issuing a bum check a
malum prohibitum. The accused will be
convicted for violation thereof as long as the
following elements are proven:
1. The accused makes, draws or issues any
check to apply to account or for value;
2. The accused knows at the time of the
issuance that he or she does not have
sufficient funds in, or credit with, the drawee
bank for the payment of the check in full
upon its presentment; and
3. The check is subsequently dishonored by
the drawee bank for insufficiency of funds or
credit, or it would have been dishonored for
the same reason had not the drawer, without
any valid reason, ordered the bank to stop
payment.
BANK OF THE PHILIPPINE ISLANDS v. CA
G.R. No. 136202. January 25, 2007
AZCUNA, J.
DOCTRINE:
The weight of authority is that the
mere possession of a negotiable instrument
does not in itself conclusively establish either
the right of the possessor to receive
payment, or of the right of one who has
made payment to be discharged from
liability. Thus, something more than mere
possession by persons who are not payees or
indorsers of the instrument is necessary to
authorize payment to them in the absence of
any other facts from which the authority to
receive payment may be inferred.
FACTS:
A.A.
Salazar
Construction
and
Engineering Services filed an action for a
sum of money P267,707.70 with damages
against herein petitioner BPI. BPI, in its
answer, alleged that Julio Templonuevo,
third-party defendant and herein also a
private respondent, demanded from the
former
payment
of
the
P267,692.50
representing the value of 3 checks, which
were allegedly payable to him, but which
were deposited with the petitioner bank to
private respondent Salazars account without
his
knowledge
and
corresponding
endorsement. Templonuevo only protested

the purportedly unauthorized encashment of

the checks after the lapse of one year from
the date of the last check.
Accepting that Templonuevos claim
was a valid one, BPI froze the account of A.A.
Salazar.
Salazar was advised to settle the
matter with Templonuevo but they did not
arrive at any settlement. As it appeared that
private respondent Salazar was not entitled
to the funds represented by the checks
which were deposited and accepted for
deposit, BPI decided to debit the amount of
P267,707.70 from her and the sum of
P267,692.50 was paid to Templonuevo by
means of a cashiers check. The difference
between
the
value
of
the
checks
(P267,692.50) and the amount actually
debited from her account (P267,707.70)
represented bank charges in connection with
the issuance of a cashiers check to
Templonuevo.
The RTC and CA both ruled held that
Salazar was entitled to the proceeds of the 3
checks
notwithstanding
the
lack
of
endorsement thereon by the payee. The CA
concluded that Salazar and Templonuevo had
previously agreed that the checks payable to
JRT Construction and Trading actually
belonged to Salazar and would be deposited
to her account, with petitioner acquiescing to
the arrangement.
It was quite apparent that the three
checks which Salazar deposited were not
indorsed. Three times she deposited them to
her account and three times the amounts
borne by these checks were credited to the
same. And in those separate occasions, the
bank did not return the checks to her so that
she could have them indorsed. Neither did
the bank question her as to why she was
depositing the checks to her account
considering that she was not the payee
thereof, thus allowing us to come to the
conclusion that BPI was fully aware that the
proceeds of the three checks belong to
Salazar.
For if the bank was not privy to the
agreement
between
Salazar
and
Templonuevo, it is most unlikely that
appellant BPI (or any bank for that matter)

would have accepted the checks for deposit

on three separate times nary any question.

of holders since they are neither payees nor

indorsees of such instruments.

If there was indeed no arrangement

between Templonuevo and the plaintiff over
the three questioned checks, it baffles us
why it was more than a year after the third
and last check was deposited that he
demanded for the refund of the total amount
of P267,692.50.

To the Courts mind, however, such

period of delay is not of such unreasonable
length as to estop Templonuevo from
asserting ownership over the checks
especially considering that it was readily
apparent on the face of the instruments that
these were crossed checks.

ISSUE:
w/n Salazar was entitled to the value
of the 3 checks

In State Investment House v. IAC, the

Court enumerated the effects of crossing a
check, thus:
(1) that the check may not be encashed but
only deposited in the bank;
(2) that the check may be negotiated only
once - to one who has an account with a
bank; and (3) that the act of crossing the
check serves as a warning to the holder that
the check has been issued for a definite
purpose so that such holder must inquire if
the check has been received pursuant to
that purpose.

HELD:
NO.
Section
49
of
the
NIL
contemplates a situation whereby the payee
or indorsee delivers a negotiable instrument
for value without indorsing it, thus:
Transfer without indorsement; effect
of- Where the holder of an instrument
payable to his order transfers it for value
without indorsing it, the transfer vests in the
transferee such title as the transferor had
therein, and the transferee acquires in
addition, the right to have the indorsement
of the transferor. But for the purpose of
determining whether the transferee is a
holder in due course, the negotiation takes
effect as of the time when the indorsement
is actually made.
It bears stressing that the above
transaction is an equitable assignment and
the transferee acquires the instrument
subject to defenses and equities available
among prior parties.
Transferees in this situation do not
enjoy the presumption of ownership in favor

Thus, even if the delay in the demand

for reimbursement is taken in conjunction
with Salazars possession of the checks, it
cannot be said that the presumption of
ownership in Templonuevos favor as the
designated payee therein was sufficiently
overcome. This is consistent with the
principle that if instruments payable to
named payees or to their order have not
been indorsed in blank, only such payees or
their indorsees can be holders and entitled to
receive payment in their own right.
Not being a payee or indorsee of the
checks, private respondent Salazar could not
be a holder thereof.