State Investment House Inc. vs. CA State Investment House Inc. vs. CA GR No.

101163 January 11, 1993 Bellosillo, J.: Facts: Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on commission, two postdated checks in the amount of fifty thousand each. Thereafter, Victoriano negotiated the checks to State Investment House, Inc. When Moulic failed to sell the jewellry, she returned it to Victoriano before the maturity of the checks. However, the checks cannot be retrieved as they have been negotiated. Before the maturity date Moulic withdrew her funds from the bank contesting that she incurred no obligation on the checks because the jewellery was never sold and the checks are negotiated without her knowledge and consent. Upon presentment of for payment, the checks were dishonoured for insufficiency of funds. Issues: 1. Whether or not State Investment House inc. was a holder of the check in due course 2. Whether or not Moulic can set up against the petitioner the defense that there was failure or absence of consideration Held: Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence shows that: on the faces of the post dated checks were complete and regular; that State Investment House Inc. bought the checks from Victoriano before the due dates; that it was taken in good faith and for value; and there was no knowledge with regard that the checks were issued as security and not for value. A prima facie presumption exists that a holder of a negotiable instrument is a holder in due course. Moulic failed to prove the contrary. No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose for which they were issued and therefore is not a holder in due course. No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic failed to get back the possession of the checks as provided by paragraph c, intentional cancellation of instrument is impossible. As provided by paragraph d, the acts which will discharge a simple contract of payment of money will discharge the instrument. Correlating Article 1231 of the Civil Code which enumerates the modes of extinguishing obligation, none of those modes outlined therein is applicable in the instant case. Thus, Moulic may not unilaterally discharge herself from her liability by mere expediency of withdrawing her funds from the drawee bank. She is thus liable as she has no legal basis to excuse herself from liability on her check to a holder in due course. Moreover, the fact that the petitioner failed to give notice of dishonor is of no moment. The need for such notice is not absolute; there are exceptions provided by Sec 114 of NIL. ANAMER SALAZAR, vs. J.Y. BROTHERS MARKETING CORPORATION G.R. No. 171998, October 20, 2010 FACTS: Anamer Salazar a freelance sales agent, was approached by Isagani Calleja and Jess Kallos and asked if she knew a supplier of rice. Salazar then accompanied the two to J.Y. Brothers Marketing Corporation (J.Y. Bros.) a corporation known to be in the business of selling sugar and rice and other commodities. Calleja and Kallos with Salazar procured 300 cavans of rice worth 214,000. The payment was with a Prudential Bank check issued by Nena Timario and with the assurance of Salazar that it was as good as cash. J.Y. Bros. parted with 300 cavans of rice. However upon presentment, the chec k was dishonoured the reason was due to Closed Account. J.Y. Bros. then informed Salazar, Calleja and Kallos of the state of the check and they issued a replacement a cr oss Solid Bank Check in the same amount but it bounced due to Insufficient Funds Despite the demand letter issued by J.Y. Bros. Salazar could not settle the amount due. This prompted J.Y. Bros. to charge Salazar and Timario with the crime of estafa before the Regional Trial Court (RTC) of Legazpi City. The decision of RTC was to acquit Salazar of the crime she was charged but held her liable for the payment of the 300 bags of rice. Aggrieved she appealed to the Supreme Court which granted her prayer to reconsider the civil aspect of the case and allow her to present evidence. The RTC dismissed the civil aspect of Salazar. It found that the first check drawn by Timario was payable to the order of J.Y. Bros and that it was negotiable order instrument and that Salazar only endorsed and negotiated the check, so it must not produce the technical effect of an indorsement arising from negotiation. The Prudential Bank check was a negotiable check, and it bounced, so it was replaced by a non-negotiable crossed Solid Bank check. A that a negotiable check being replaced by a non-negotiable one has the effect of discharging from the obligation whoever may be the endorser of the negotiable check. The RTC adjudicated that there was Novation, and the ultimate effect of such substitution was to extinguish the obligation arising from the issuance of the Prudential Bank check.

J.Y. Bros. appealed to CA and it reversed RTCs decision. CA ordered Salazar to pay the amount. ISSUE: Whether or not the acceptance of the Solid Bank check by the J.Y. Bros amounted to novation? HELD: Petition Denied Novation is done by the substitution or change of the obligation by a subsequent one which extinguishes the first, either by changing the object or principal conditions or substituting the person of the debtor or by subrogating a third person in the rights of the creditor. It may either be Extinctive or Modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive Novation is never presumed, there must be an express intention to novate; if it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superceded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconcilable, the subsequent obligation would also extinguish the first. An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation, (2) an agreement of all parties concerned to a new contract, (3) the extinguishment of the old obligation, and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay; in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.) The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the old ones or the new contract merely supplements the old one. There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. First, novation must be explicitly stated and declared in unequivocal terms as novation is never presumed. Secondly, the old and the new obligations must be incompatible on every point. 1avvphi Novation speaks of two distinct obligations, this is inapplicable in this case. In this case, respondents acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check, did not result to novation as there was no express agreement to establish that petitioner was already discharged from his liability to pay respondent the amount of P214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed, there must be an express intention to novate. In fact, when the Solid Bank check was delivered to respondent, the same was also indorsed by petitioner which shows petitioners recognition of the existing obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank check. PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS GR. NO. 107508 April 25, 1996 1st Division Kapunan FACTS: Ministry of Education Culture issued a check payable to Abante Marketing and drawn against Philippine National Bank (PNB). Abante Marketing, deposited the questioned check in its savings account with Capitol City Development Bank (CAPITOL). In turn, Capitol deposited the same in its account with the Philippine Bank of Communications (PBCom) which, in turn, sent the check to PNB for clearing. PNB cleared the check as good and thereafter, PBCom credited Capitol's account for the amount stated in the check. However, PNB returned the check to PBCom and debited PBCom's account for the amount covered by the check, the reason being that there was a "material alteration" of the check number. PBCom, as collecting agent of Capitol, then proceeded to debit the latter's account for the same amount, and subsequently, sent the check back to petitioner. PNB, however, returned the check to PBCom. On the other hand, Capitol could not in turn, debit Abante Marketing's account since the latter had already withdrawn the amount of the check. Capitol sought clarification from PBCom and demanded the re-crediting of the amount. PBCom followed suit by requesting an explanation and re-crediting from PNB. Since the demands of Capitol were not heeded, it filed a civil suit against PBCom which in turn, filed a third-party complaint against PNB for reimbursement/indemnity with respect to the claims of Capitol. PNB, on its part, filed a fourth-party complaint against Abante Marketing. The Trial Court rendered its decision, ordering PBCom to re-credit or reimburse; PNB to reimburse and indemnify PBCom for whatever amount PBCom pays to Capitol; Abante Marketing to reimburse and indemnify PNB for whatever amount PNB pays to PBCom. The court dismissed the counterclaims of PBCom and PNB. The appellate court modified the appealed judgment by ordering PNB to honor the check. After the check shall have been honored by PNB, the court ordered PBCom to re-credit Capitol's account

with it the amount. PNB filed the petition for review on certiorari averring that under Section 125 of the NIL, any change that alters the effect of the instrument is a material alteration. ISSUE: WON an alteration of the serial number of a check is a material alteration under the NIL. HELD: NO, alteration of a serial number of a check is not a material alteration contemplated under Sec. 125 of the NIL. RATIO: 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 the present case what was altered is the serial number of the check in question, an item which 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. The check's serial number is not the sole indication of its origin. The name of the government agency which issued the subject check was prominently printed therein. The check's issuer was therefore insufficiently identified, rendering the referral to the serial number redundant and inconsequential. PNB V. CA 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 issuewhich 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 checks 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 checks 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. ATTY. MERCADOS QUESTION: HOW DO YOU RECONCILE THE OPINION OF VITUG WITH AGBAYANIS RE: MATERIAL ALTERATION? Vitug only refers to innocent alterations not affecting negotiability and those under Section 124 and 125 METROBANK V. CABLIZO 510 SCRA 259 FACTS: Cablizo maintained an account with petitioner. It drew a check payable to cash payable to a certain Marquez, for the latters sales commission. The check was subsequently deposited in Westmont bank and the latter submitted it with Metrobank for clearing. The check was cleared. Thereafter, the banks representative asked Cablizo if he issued a check for P91,000. The answer P90,000 but petitioner failed to recredit the amount prompting Cablizo to file an action against it.

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 Sec. 1 of the NIL. The check in issue was materially altered when its amount was increased from P1000 to P91000. Cablizo was not the one who authorized or made such increase. There is no showing that he was negligent in exercising what was due in a prudent man which could have otherwise prevented the loss. Cablizo was never remiss in the preparation and issuance of the check. The doctrine of equitable estoppel is inapplicable against Cablizo. This doctrine states that when one of the two innocent person, each guiltiness of an intentional or moral wrong, must suffer a loss, it must be borne by the one whose erroneous conduct, either by omission or commission, was the cause of the injury. Negligence is never presumed. Metrobank was actually the one remiss in its duties. The CA took into consideration that the alterations were actually visible in the eye and yet the bank allowed someone not acquainted with the examination of checks to do the same. Furthermore, it cannot rely on the indorsement of Westmont Bank of the check. It should have exercised meticulous care in handling the affairs of its clients especially if the clients money is involved. MONTINOLA V. PNB 88 PHIL 178 FACTS: Ramos, as a disbursing officer of an army division of the USAFE, made cash advancements w/ the Provincial Treasurer of Lanao. In exchange, the Provl Treasurer of Lanao gave him a P500,000 check. Thereafter, Ramos presented the check to Laya for encashment. Laya in his capacity as Provincial Treasurer of Misamis Oriental as drawer, issued a check to Ramos in the sum of P100000, on the Philippines National Bank as drawee; the P400000 value of the check was paid in military notes. Ramos was unable to encash the said check for he was captured by the Japanese. But after his release, he sold P30000 of the check to Montinola for P90000 Japanese Military notes, of which only P45000 was paid by the latter. The writing made by Ramos at the back of the check was to the effect that he was assigning only P30000 of the value of the document with an instruction to the bank to pay P30000 to Montinola and to deposit the balance to Ramos's credit. This writing was, however, mysteriously obliterated and in its place, a supposed indorsement appearing on the back of the check was made for the whole amount of the check. At the time of the transfer of this check to Montinola, the check was long overdue by about 2-1/2 years. Montinola instituted an action against the PNB and the Provincial Treasurer of Misamis Oriental to collect the sum of P100,000, the amount of the aforesaid check. There now appears on the face of said check the words inparenthesis "Agent, Phil. National Bank" under the signature of Laya purportedly showing that Laya issued the check as agent of the Philippine National Bank. HELD: The words "Agent, Phil. National Bank" now appearing on the face of the check were added or placed in the instrument after it was issued by the Provincial Treasurer Laya to Ramos. The check was issued by only as Provincial Treasurer and as an official of the Government, which was under obligation to provide the USAFE with advance funds, and not as agent of the bank, which had no such obligation. The addition of those words was made after the check had been transferred by Ramos to Montinola. 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