PALAÑA NEGO CASES

PNB V. CA-
Material Alteration
256 SCRA 491

FACTS:

DECS  issued  a  check  in  favor  of  Abante  Marketing  containing  a  specific serial number, drawn
against PNB.  The check was deposited by Abante in its  account  with  Capitol  and  the  latter 
consequently  deposited  the  same with  its  account  with  PBCOM  which  later  deposited  it  with 
petitioner  for
clearing. 

The check was thereafter cleared.  However, on a relevant date, petitioner  PNB  returned  the  check  on 
account  that  there  had  been  a material alteration on it.  Subsequent debits were made but Capitol cannot
debit the account of Abante any longer for the latter had withdrawn all
the money already from the account.   

This  prompted  Capitol  to  seek reclarification  from  PBCOM  and  demanded  the  recrediting  of  its 
account.  PBCOM followed suit by doing the same against PNB.  Demands unheeded, it filed an action
against PBCOM and the latter filed a third-party complaint against petitioner.   

HELD:

An alteration is said to be material if it alters the effect of the instrument.  It means an unauthorized change
in the 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 
the  party.    In  other  words,  a  material  alteration  is  one which changes the items which are required to
be stated under Section 1 of the NIL.   

In this case, the alleged material alteration was the alteration of the serial number  of  the  check  in  issue—
which  is  not  an  essential  element  of  a negotiable instrument under Section 1. 

PNB alleges that the alteration was material  since  it  is  an  accepted  concept  that  a  TCAA  check  by  its 
very nature  is  the  medium  of  exchange  of  governments,  instrumentalities  and agencies.   

As  a  safety  measure,  every  government  office  or  agency  is assigned checks bearing different serial
numbers.   

But this contention has to fail.  The check’s serial number is not the sole indicia of its origin.  The name of
the government agency issuing the check is clearly stated therein.  Thus, the check’s drawer is sufficiently
identified, rendering redundant the referral to its serial number.  

Therefore, there being no material alteration in the check committed, PNB could not return the check to
PBCOM.  It should pay the same.
 International Corporate Bank, Inc. v. CA
G. R. No. 129910
501 SCRA 20
September 5, 2006

FACTS:
The Ministry of Education and Culture issued 15 checks drawn against PNB which International Corp. Bank
accepted for deposit on various dates. After 24 hours from submission of the checks to International Corp.
Bank for clearing, it paid the value of the checks and allowed the withdrawals of the deposits. However, on
October 14, 1981, PNB returned all the checks to International Corp. Bank without clearing them on the
ground that they were materially altered which led to the institution of an action for collection of sums of
money against PNB to recover the value of the checks. RTC dismissed the case but was reversed by the
Court of Appeals which applied Section 4(c) of Central Bank Circular No. 580, series of 1977. The Court of
Appeals held that checks that have been materially altered shall be returned within 24 hours after discovery
of the alteration.
ISSUE:
Whether or not the alteration is material.

HELD:
The alterations in the checks were made on their serial numbers, thus, it is not material.
Section 125 of Act No. 2031, otherwise known as the Negotiable Instruments Law, provides: 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; xxxx

The question on whether an alteration of the serial number of a check is a material alteration under the
Negotiable Instruments Law is already a settled matter.
In Philippine National Bank v. Court of Appeals, this Court ruled that the alteration on the serial number of
a check is not a material alteration. A material alteration is one which changes the items which are required
to be stated under Section 1 of the Negotiable Instrument[s] Law. Section 1 of the Negotiable Instruments
Law provides: ― Form of negotiable instruments. An instrument to be negotiable must conform to the
following requirements:
(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.

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 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.
 Associated Bank vs Court of Appeals on March 5, 2012 Negotiable Instruments Law – Liabilities of
Parties – 252 SCRA 620 – Forgery –
Collecting Bank vs Drawee Bank The Province of Tarlac was disbursing funds to Concepcion Emergency
Hospital via checks drawn against its account with the Philippine National Bank (PNB). These checks were
drawn payable to the order of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of
Concepcion Emergency Hospital in Tarlac until his retirement in 1978. He used to handle checks issued by
the provincial government of Tarlac to the said hospital. However, after his retirement, the provincial
government still delivered checks to him until its discovery of this irregularity in 1981. By forging the
signature of the chief payee of the hospital (Dr. Adena Canlas), Pangilinan was able to deposit 30 checks
amounting to P203k to his account with the Associated Bank. When the province of Tarlac discovered this
irregularity, it demanded PNB to reimburse the said amount. PNB in turn demanded Associated Bank to
reimburse said amount. PNB averred that Associated Bank is liable to reimburse because of its indorsement
borne on the face of the checks: “All prior endorsements guaranteed ASSOCIATED BANK.”
ISSUE: What are the liabilities of each party?
HELD: The checks involved in this case are order instruments. Liability of Associated Bank Where the
instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its
rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the
holder’s indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against
all parties subsequent thereto. A collecting bank (in this case Associated Bank) where a check is deposited
and which indorses the check upon presentment with the drawee bank (PNB), is such an indorser. So even if
the indorsement on the check deposited by the banks’s client is forged, Associated Bank is bound by its
warranties as an indorser and cannot set up the defense of forgery as against the PNB. EXCEPTION: If it
can be shown that the drawee bank (PNB) unreasonably delayed in notifying the collecting bank (Associated
Bank) of the fact of the forgery so much so that the latter can no longer collect reimbursement from the
depositor-forger. Liability of PNB The bank on which a check is drawn, known as the drawee bank (PNB),
is under strict liability to pay the check to the order of the payee (Provincial Government of Tarlac).
Payment under a forged indorsement is not to the drawer’s order. When the drawee bank pays a person other
than the payee, it does not comply with the terms of the check and violates its duty to charge its customer’s
(the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other
person entitled to receive payment, it has no right to reimbursement from the drawer. The general rule then
is that the drawee bank may not debit the drawer’s account and is not entitled to indemnification from the
drawer. The risk of loss must perforce fall on the drawee bank.
EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/drawer (Tarlac Province) to
exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is
precluded from asserting the forgery.
In sum, by reason of Associated Bank’s indorsement and warranties of prior indorsements as a party after
the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can ask reimbursement from
PNB because the Province is a party prior to the forgery. Hence, the instrument is inoperative. HOWEVER,
it has been proven that the Provincial Government of Tarlac has been negligent in issuing the checks
especially when it continued to deliver the checks to Pangilinan even when he already retired. Due to this
contributory negligence, PNB is only ordered to pay 50% of the amount or half of P203 K. BUT THEN
AGAIN, since PNB can pass its loss to Associated Bank (by reason of Associated Bank’s warranties), PNB
can ask the 50% reimbursement from Associated Bank. Associated Bank can ask reimbursement from
Pangilinan but unfortunately in this case, the court did not acquire jurisdiction over him.