NEGOTIABLE INSTRUMENTS CASE DIGESTS FOR NOVEMBER 8, 2016

1 PNB VS CA, 259 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 w/ Capitol and the latter consequently deposited the same with its account
with PBCOM wc later deposited it w/ petitioner for cleating. The check was thereafter cleared. However, on a relevant date,
petitioner PNB returned the check on the 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but Capitol cannot debit the account of Abante any longer for the latter had withdrawn all the money already from the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.
Issue: WON Alteration is material
Held:
No. 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.

2 MONTINOLA VS PNB, 88 PHIL. 178

Facts:
On May 2, 1942, Laya in his capacity as Provincial Treasurer of Misamis Oriental as drawer, issued a check to Ramos in the
sum of P100,000, on the Philippines National Bank as drawee. R sold P30,000 of the check to m for P90,000 Japanese
Military notes, of which only P45,000 was paid by M. The writing made by R at the back of the check was to the effect that
he was assigning only P30,000 of the value of the document with an instruction to the bank to pay P30,000 to m and to
deposit the balance to R's credit. This writing was, however, mysteriously obliterated and in its place, a supposed indorsement
appearing on the back of the check was made. At the time of the transfer of this check to M about the last days of December,
1944 or the first days of January, 1845, the check was long overdue by about 2-1/2 years. In August, 1947, M instituted an
action against the Philippine National Bank 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 in parenthesis "Agent, Phil.
National Bank" under the signature of L purportedly showing that L issued the check as agent of the Philippine National
Bank|||
Issue:
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 L to R. The check was issued by only as Provincial Treasure 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 R to M. 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.
3 STATE INVESTMENT HOUSE VS CA, 217 SCRA 32
Facts: New Sikatuna Wood Industries Inc. (NSWI) requested for a loan from Harris Chua, who issued 3 crossed checks.
Subsequently, NSWI entered in an agreement with State Investment House Inc. (SIHI) where the former discounted several

checks including the crossed checks. When the crossed checks were deposited by SIHI, the checks were dishonoured by
reason of insufficient funds and account closed. SIHI made demands upon Chua to make good said checks by Chua failed.
Issue: Whether SIHI is a holder in due course so as to recover the amounts in the checks from Chua.
Held: No, the act of crossing a check serves as a warning to the holder that the check has been issued for a definite purpose so
that he must inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course. His
failure to inquire from the holder the purpose prevents him from being considered in good faith. SIHI, is subject to personal
defenses for such as the lack of consideration between the NSWI and Chua
4

BATAAN CIGAR/CIGARETTE FACTORY VS CA, 230 SCRA 643

Facts: Petitioner engaged one of its suppliers King Tim Pua George to deliver bales of tobacco leaf. In consideration thereof,
petitioner issued a crossed check. Relying on the supplier's representation, petitioner agreed to purchase additional bales of
tobacco leaves, despite the supplier's failure to deliver in accordance with their earlier agreement upon which he issued post
dated crossed checks. However, the supplier sold the said check at a discount to private respondent State Investment House
Inc.(SIHI). Upon failure to deliver said bales of tobacco leaf, petitioner issued a stop order payment on all checks. SIHI then
instituted this action, upon dishonor of the check, on the ground that the same is a holder in due course and would be able to
collect from petitioner.
Issue: Whether or not SIHI, a holder of a crossed check, is a holder in due course and would be able to collect from petitioner.
Held: No. It is a settled ruled that crossing of checks should put the holder on inquiry and upon him devolves the duty to
ascertain the indorsers title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of
gross negligence amounting to legal absence of good faith and is to the effect that the holder of the check is not a holder in
due course. There being failure of consideration which is a personal defense, cannot be obliged to pay the checks to SIHI
who is not a holder in due course.
5 CITY TRUST BANKING CORP. VS CA, 232 SCRA 559
Facts: The case emanated from a complaint filed by respondent Emme for damages against petitioner. Respondent deposited
with petitioner several cash in order to amply cover the post dated checks she issued. When presented for encashment upon
maturity, all checks were dishonored due to insufficiency of funds. Petitioner in its answer averred that it was respondents
fault that her checks were dishonored because the account no. Reflected in the deposit slip which is 2900823 was not her
correct no. Which is 29000823.
Issue: Whether of not petitioner is liable for damages on the dishonored checks.
Held: The depositor expects the bank to treat his account with utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. The bank is engaged in business impressed with public interest and it is its duty to protect in
return its many clients and depositors who transact business with it. It is under obligation to treat the accounts of its
depositors with meticulous care having in mind the fiduciary nature of their relationship. Hence, nominal damages may be
awarded in order that a right of the plaintiff, which have been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.
It is wrong to award, along with nominal damages, temperate or moderate damages. The two awards are incompatible and
cannot be granted concurrently. Nominal damages are given in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him (Art. 2221, New Civil Code; Manila Banking Corp. vs. Intermediate Appellate Court, 131 SCRA 271).
Temperate or moderate damages, which are more than nominal but less than compensatory damages, on the other hand, may
be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the
case, be proved with reasonable certainty (Art. 2224, New Civil Code). In the instant case, we also find need for vindicating
the wrong done on private respondent, and we accordingly agree with the Court of Appeals in granting to her nominal
damages but not in similarly awarding temperate or moderate damages.||| (Citytrust Banking Corp. v. Intermediate Appellate
Court, G.R. No. 84281, [May 27, 1994])
6 TAN VS CA, 239 SCRA 310
Facts: Ramon tan secured a cashiers from Philippine Commercial Industrial Bank (PCIB) payable to his order. He deposited
his check in his account with Rizal Commercial Banking Corporation (RCBC) Binondo. On the same day, RCBC
erroneously sent the same cashiers check for clearing to the Central Bank which was returned for having been missent or
misrouted. The next day, RCBC debited the amount covered by the same cashiers check from the account of the petitioner.
Respondent bank at this time had not informed the petitioner of its action.
Relying that said checks were honored, petitioner issued two personal check which was dishonored due to insufficiency of
funds. Petitioner alleging to have suffered humiliation and loss of face in the business sector due to the bounced check filed a
complaint against RCBC.

Issue: Whether or not RCBC may be held liable for damages upon erroneous debit covered by the cashiers check.
Held: A bank cannot exculpate itself from liability for the consequences of the use of wrong deposit slip resulting in the
misrouting of a regional check to the Central Bank for clearing. The bank is not expected to be infallible but it must bear the
blame for not discovering the mistake of its teller despite the established procedure requiring the papers and bank books to
pass through a battery of bank personnel whose duty it is to check and countercheck them for possible errors. As the result of
the negligence of the bank, the depositor has the right to recover moral damages even if the banks negligence may not have
been attended with malice and bad faith if the former suffered mental anguish, serious anxiety, embarrassment and
humiliation
7 PAPA VS A.U. VALENCIA AND CO., INC., 284 SCRA 643
Facts: On 1992, a complaint was against Petitioner Myron C. Papa as attornery-in-fact of Angela M. Butte sold to respondent
Penaroyo through respondent Valencia a parcel of land on 1973. Petitioner appealed decision, alleging among others that the
sale was never consummated as he did not encash the check given by respondents Valencia and Pearroyo in payment of
the full purchase price of the subject lot. He maintained that what said respondents had actually paid was only the amount of
P5,000.00 (in cash) as earnest money.
Issue: Whether or not the check did not amount to payment.
Held: While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art.
1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditors unreasonable delay in presentment.
The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is
received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for
which it was given.
It has, likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury
unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment by
way of check or other negotiable instrument is conditioned on its being cashed, except when through the fault of the creditor,
the instrument is impaired. The payee of a check would be a creditor under this provision and if its non-payment is caused by
his negligence, payment will be deemed effected and the obligation for which the check was given as conditional payment
will be discharged. Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the impairment
of the check through his unreasonable and unexplained delay
8 PIO BARRETTO REALTY VS CA., GR 132363 JUNE 28, 2001
360 SCRA 127 Mercantile Law Negotiable Instruments Law Check Payments Due Diligence in Presenting Checks
for Payment
Honor Moslares and Pio Barretto Realty Development Corporation are disputing over the estate of Nicolai Drepin,
represented by Atty. Tomas Trinidad. To settle the dispute, and while the case was in court, they entered into a Compromise
Agreement by which they agreed to have the estate in dispute be sold; that in case Moslares was able to buy the property first,
he should pay P3,000,000.00 to Barretto Realty (representing the amount of investments by Barretto Realty in the estate);
that should Barretto Realty buy the property first, it should pay P1,000,000.00 to Moslares (representing interest). The
compromise agreement was approved by the judge (Judge Perfecto Laguio).
Barretto Realty was able to buy the property first hence it delivered a managers check worth P1,000,000.00 to Moslares but
the latter refused to accept the same. Barretto Realty filed a petition before the trial court to direct Moslares to comply with
the Compromise Agreement. Barretto Realty also consigned the check payment with the court. The judge issued a writ of
execution against Moslares and the sheriff also delivered the check to Moslares which the latter accepted. However, three
years later, Moslares filed a motion for reconsideration alleging that the check payment did not amount to legal tender and
that he never even encashed the check. The judge agreed with Moslares.
ISSUE: Whether or not the judge was correct.
HELD: No. There was already a final and executory order issued by the same judge three years prior. The same may no
longer be amended regardless of any claim or error or incorrectness (save for clerical errors only). It is true that a check is not
a legal tender and while delivery of a check produces the effect of payment only when it is encashed, the rule is otherwise if
the debtor (Barretto Realty) was prejudiced by the creditors (Moslares) unreasonable delay in presentment. Acceptance of a
check implies an undertaking of due diligence in presenting it for payment. If no such presentment was made, the drawer
cannot be held liable irrespective of loss or injury sustained by the payee. Payment will be deemed effected and the obligation
for which the check was given as conditional payment will be discharged.