Title
Philippine National Bank vs. Court of Appeals
Case
G.R. No. 107508
Decision Date
Apr 25, 1996
A check issued by MEC was altered in its serial number, leading to disputes among banks over liability. The Supreme Court ruled the alteration immaterial, upheld the 24-hour clearing rule, and denied attorney’s fees.
alteration of check
negotiability
material alteration

Case Summary (G.R. No. 107508)

Factual Background

A check numbered SN 7-3666-223-3 dated August 7, 1981 in the amount of P97,650.00 was issued by the Ministry of Education and Culture payable to F. Abante Marketing and drawn on PHILIPPINE NATIONAL BANK. On August 11, 1981, F. Abante Marketing, a client of CAPITOL CITY DEVELOPMENT BANK, deposited the check in its savings account with CAPITOL. CAPITOL sent the check through PHILIPPINE BANK OF COMMUNICATIONS for clearing. PHILIPPINE NATIONAL BANK initially cleared the check and PBCom credited CAPITOL. On October 19, 1981, PNB returned the check to PBCom and debited PBCom on the ground of a "material alteration" of the serial number. PBCom debited CAPITOL and attempted to recover from F. Abante Marketing, but F. Abante Marketing had withdrawn the funds on October 15, 1981.

Procedural History

Unable to obtain re-credit, CAPITOL sued PBCom before the Regional Trial Court of Manila. PBCom filed a third-party complaint against PNB for indemnity, and PNB filed a fourth-party complaint against F. Abante Marketing. On October 3, 1989 the trial court ordered PBCom to re-credit CAPITOL P97,650.00 plus 12 percent interest from October 19, 1981; ordered PNB to reimburse PBCom for whatever PBCom paid CAPITOL; ordered F. Abante Marketing to reimburse PNB for whatever PNB paid PBCom; and awarded attorneys fees in the sum of Ten Thousand (P 10,000.00) pesos against PBCom, subject to indemnity rights. PBCom and PNB appealed to the Court of Appeals, which on April 29, 1992 modified the judgment by exempting PBCom from liability for attorneys fees, ordering PNB to honor the check for P97,650.00 with interest as declared by the trial court, and ordering PNB to pay CAPITOL attorneys fees of P10,000.00; after PNB honored the check PBCom was to re-credit CAPITOL. A motion for reconsideration was denied on September 16, 1992, and PNB filed the present petition.

Issues Presented

The petition raised four principal questions: whether alteration of a check's serial number constituted a material alteration under Section 125 of the Negotiable Instruments Law; whether the certification issued by the Ministry of Education and Culture could be given evidentiary weight; whether a drawee bank that failed to return a check within the twenty-four hour clearing period could recover the value of the check from the collecting bank where the check was tampered; and whether PNB could be held liable for attorneys fees in the absence of malice or ill will.

Petitioner’s Contentions

PNB argued that altering the serial number was a material alteration under Section 125(f) because any change that alters the effect of an instrument is material. PNB asserted that serial numbers identify issuing government offices and thus that alteration could make a check appear issued by another agency. PNB further relied on a certification of Minrado C. Batonghinog, Cashier III of the MEC, which certified that the check serial number was not requisitioned by that office. PNB also contended that a drawee disposing of a check after the twenty-four hour clearing period could recover from the collecting bank if the check had been tampered with, and that attorneys fees could not be imposed on PNB absent malice.

Court’s Analysis on Material Alteration

The Court affirmed the established rule that an alteration is material only if it affects the instrument in ways required by Section 1 of the Negotiable Instruments Law, that is, items necessary for negotiability such as the amount, payee, signatures, drawee, or terms of payment. The Court cited doctrinal authorities distinguishing material from immaterial alterations and reproduced representative examples. The Court observed that a serial number is not among the requisites enumerated in Section 1. In the present case the alteration of the serial number did not change the parties, the amount, the payee, the drawee, or the signatures. The name of the issuing agency, Ministry of Education and Culture, was plainly printed on the face of the check and was not shown to be falsely intercalated. The Court of Appeals therefore correctly found that the serial-number alteration did not alter the liability of the drawer and was immaterial to negotiability; accordingly PNB had no ground to dishonor the check on that basis.

On the MEC Certification

The Court addressed the certification of Minrado C. Batonghinog and held that the certification lacked the necessary proof of due execution and authenticity. The author of the certification was not produced at trial to identify or authenticate the document and was not subjected to cross-examination. Absent testimony establishing that the document was prepared and signed by the cashier, the certification could not displace the evidentiary weight of the check itself. Given the Court's conclusion that the serial-number change was immaterial, the certification did not establish a right to refuse payment.

On Recovery from the Collecting Bank and Attorneys' Fees

Because the check was held negotiable, the Court held that PNB could not lawfully return or debit the collecting bank on the ground of material alteration. The Court reviewed the award of attorneys fees and found that neither the trial court nor the Court of Appeals stated factual, legal, or equitable bases for the award as required when imposing attorneys fees under Article 2208 of the Civil Code. The Court reiterated that the exercise of judicial discretion to award attorneys fees is exceptional and must rest upon findings that justify the exception, citing Consolidated Bank & Trust Corporation (Solidbank) v. Court of Appeals, Toyota Shaw, Inc. v. CA, Universal Shipping Lines Inc. v. Intermediate Appellate Court, and Refractories Corporation of the Philippines v. Intermediate Appellate Court as illustra

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