CASE DIGEST: NEGOTIABLE INSTRUMENTS LAW 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 On the other hand, Capitol could not in turn, debit Abante Marketing's account since the latter had already withdrawn the amount of the check.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 recrediting 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.

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 payees endorsement was genuine before cashing the check. As a general rule, a bank or corporation who has obtained possession of a check with an unauthorized or forged indorsement of the payees 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 CUTplaintiff 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 Tamlincos 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. EQUITABLE PCI vs. ONG G.R. No. 156207 September 15, 2006 Lessons Applicable: Promissory Notes and Checks FACTS: Warliza Sarande deposited in her account at Philippine Commercial International (PCI) Bank a PCI Bank TCBT Check of P225K. December 5 1991: Upon inquiry by Serande at PCI Bank on whether the TCBT Check had been cleared, she received an affirmative answer. Relying on this assurance, she issued 2 checks drawn against the proceeds of TCBT Check. o PCI Bank Check No. 073661 dated 5 December 1991 for P132K which Sarande issued to respondent Rowena Ong owing to a business transaction. On the same day, Ong presented to PCI Bank requesting PCI Bank to convert the proceeds into a manager's check, which the PCI Bank obliged. December 6 1991: Ong deposited PCI Bank Manager's Check in her account with Equitable Banking Corporation December 9 1991: she received a check return-slip informing her that PCI Bank had stopped the payment of the check on the ground of irregular issuance.

Despite several demands made, it was refused Ong was constrained to file a Complaint for sum of money, damages and attorney's fees against PCI Bank CA affirmed RTC: favored Ong o o

ISSUE: W/N Ong can hold PCI liable HELD: YES. Petition is DENIED. CA affirmed. By admitting it committed an error, clearing the check of Sarande and issuing in favor of Ong not just any check but a manager's check for that matter, PCI Bank's liability is fixed certification = acceptance, o Equitable PCI as drawee bank is bound on the instrument upon certification and it is immaterial to such liability in favor of Ong who is a holder in due course whether the drawer (Warliza Sarande) had funds or not with the Equitable PCI Bank No unjust enrichment

SECTION 52. What constitutes a holder in due course. A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. The same law provides further: Sec. 24. Presumption of consideration. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value. Sec. 26. What constitutes holder for value. Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time. Sec. 28. Effect of want of consideration. Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise. manager's check o an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity and honor behind its issuance o regarded substantially to be as good as the money it represents o same footing as a certified check The object of certifying a check, as regards both parties, is to enable the holder to use it as money. check operates as an assignment of a part of the funds to the creditors

Sec. 187. Certification of check; effect of. Where a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance Section 63 of the Central Bank Act to the effect "that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account Sec. 62. Liability of acceptor. The acceptor by accepting the instruments engages that he will pay it according to the tenor of his acceptance; and admits

(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and (b) The existence of the payee and his then capacity to indorse.

Read more: http://incessantlylearn.blogspot.com/2011/08/negotiable-instruments-casedigest_08.html#ixzz1jpGShqDC MAULINI V. SERRANO 28 PHIL 640 FACTS: This is an appeal from a judgment of the Court of First Instance of the city of Manila in favor of the plaintiff for the sum of P3,000, with interest thereon at the rate of 112 per cent month from September 5, 1912, together with the costs. The action was brought by the plaintiff upon the contract of indorsement alleged to have been made in his favor by the defendant upon the following promissory note: 3,000. Due 5th of September, 1912. We jointly and severally agree to pay to the order of Don Antonio G. Serrano on or before the 5th day of September, 1912, the sum of three thousand pesos (P3,000) for value received for commercial operations. Notice and protest renounced. If the sum herein mentioned is not completely paid on the 5th day of September, 1912, this instrument will draw interest at the rate of 112 per cent per month from the date when due until the date of its complete payment. The makers hereof agree to pay the additional sum of P500 as attorney's fees in case of failure to pay the note. Manila, June 5, 1912. (Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose Padern, by F. Moreno. Angel Gimenez. The note was indorsed on the back as follows: Pay note to the order of Don Fernando Maulini, value received. Manila, June 5, 1912. (Sgd.) A.G. Serrano. HELD: 1. The accommodation to which reference is made in Section 29 is not one to the person who takes the note but one to the maker or indorser of the note. It is true, that in the case at bar, it was an accommodation to the plaintiff, in the popular sense, to have the defendant indorse the note; but it wasn't the accommodation described in the law but rather a mere favor to him and one which in no way bound Serrano. In cases of accommodation indorsement, the indorser makes the indorsement for the accommodation of the maker. Such an indorsement is generally for the purpose of better securing the payment of the notethat is, he lends his name to the maker and not the holder. 2. Parol evidence is admissible for the purposes named. The prohibiton against parol evidence is to prevent alteration, change, modification, or contradiction of the term of a written instrument, admittedly existing, by the use of some parol evidence except in cases specifically named in the action. The case at bar is not one where the evidence offered varies, alters, modifies, or contradicts the terms of the

indorsement admittedly existing. The evidence was not offered for that purpose. The purpose was to show that the contract of indorsement ever existed; that the minds of the parties never met on the terms of such contract; that they never mutually agreed to enter into such contract; and that there never existed a consideration upon which such an agreement could be founded.

G.R. No. L-16477 November 22, 1921R. N. CLARK, plaintiff-appellant, vs. GEORGE C. SELLNER, defendant-appellee. FACTS: Defendant, in conjunction with two other persons, signed a note in favour of plaintiff:P12,000.00 MANILA, July 1, 1914 .Six months after date, for value received, we jointly and severally promise to pay to the order of R.N. Clark at his office in the city of Manila, the sum of twelve thousand pesos, Philippine currency, withinterest thereon in like currency from date until paid at the rate of ten per cent per annum, payablequarterly.If suit is necessary to collect this note, we hereby agree to pay as attorney's fees ten per centum of the amount found due.(Sgd.) W. H. CLARKE,[INTERNAL REVENUE JOHN MAYE.[STAMP.] By W. H. CLARKE, his attorney .GEO. C. SELLNER."The note matured, but its amount was not paid.Counsel for the defendant allege that the latter did not receive in that transaction either the whole or anypart of the amount of the debt; that the instrument was not presented to the defendant for payment; and that thedefendant, being an accommodation party, is not liable unless the note is negotiated, which was not done, asshown by the evidence. ISSUES: 1. Whether or not defendant may be held liable for the note although he did not received either the whole or any part of the amount of the debt; 2. Whether or not the instrument should be presented to defendant to held him liable thereof; and 3. Whether or not defendant, an accommodation party, is not liable unless the note is negotiated, which wasnot done in this case? HELD: 1. The liability of the defendant, as one of the signers of the note, is not dependent on whether he has,or has not, received any part of the amount of the debt. The defendant is really and expressly one of the joint and several debtors on the note, and as such he is liable under the provisions of section 60of Act No. 2031, entitled The Negotiable Instruments Law, which provisions should be applied in thiscase in view of the character of the instrument.2. As to presentment for payment, such action is not necessary in order to charge the person primarilyliable, as is the defendant. (Sec. 70, Act No. 2031.) 3. As to whether or not the defendant is an accommodation party, it should be taken into account that byputting his signature to the note, he lent his name, not to the creditor, but to those who signed withhim placing himself with respect to the creditor in the same position and with the same liability as thesaid signers. It should be noted that the phrase "without receiving value therefor," as used in section29 of the NIL means "without receiving value by virtue of the instrument" and not, as it apparently issupposed to mean, "without receiving payment for lending his name." If, as in the instant case, a sumof money was received by virtue of the note, it is immaterial, so far as the creditor is concerned,whether one of the singers has, or has not, received anything in payment of the use of his name. Inreality the legal situation of the defendant in this case may properly be regarded as that of a jointsurety rather than that of an accommodation party. The defendant, as a joint surety, may, upon thematurity of the note, pay the debt, demand the collateral security and dispose of it to his benefit; butthere is no proof whatever that this was done. As to the plaintiff, he is the "holder for value," under thephrase of said section 29, NIL, for he had paid the money to the signers at the time the

note wasexecuted and delivered to him. As such holder (Plaintiff), he has the right to demand payment of thedebt from the signer of the note, even though he knows that said person is merely an accommodationparty (section 29 above cited), assuming the defendant to be such, which, as has been stated, is notthe case.The judgment appealed from is reversed . Ordering that the plaintiff recover from the defendant the sum of twelvethousand pesos (P12,000), as principal debt, plus one thousand two hundred pesos (P1,200), the sum agreedupon as attorney's fees, and 10 per cent interest on the principal debt from July 1, 1914, until it is fully paid,deducting therefrom the sum of three hundred pesos (P300) already paid on account, as stated in the complaint