Philippine National Bank vs.

CA
April 25, 1996, G.R. No. 107508

FACTS:

A check (Serial No. 7-3666-223-3) dated August 7, 1981 in the amount P97, 650 was issued by the
Ministry of Education and Culture (now DECS) payable to F. Abante Marketing (Abante). The check was drawn
against the Philippine National Bank (PNB), herein petitioner.

On August 11, 1981, Abante, a client of Capitol City Development Bank (Capitol), deposited the check
in its savings account with the latter. Capitol in turn, deposited the same in its account with Philippine Bank of
Communications (PBCom). PBCom sent the check to petitioner for clearing. The check was cleared as good,
and petitioner credited Capitol’s account with the stated amount.

On October 19, 1981, petitioner returned the check to PBCom and debited PBCom’s account for
covered amount due to a “material alteration” of the check number. In turn, PBCom debited Capitol’s account
for the same amount and sent the check back to petitioner. Petitioner, however, sent the check back to
PBCom. Capitol could not debit Abante’s account for the covered amount since the latter had already
withdrawn the amount of the check on October 15. Capitol sought clarification from PBCom and demanded
the re-crediting of its account; PBCom requested the same from petitioner.

Since the demands were unheeded, Capitol filed a civil suit with the RTC against PBCom. PBCom, in
turn, filed a third-party complaint against petitioner for reimbursement and indemnity. Petitioner then filed a
fourth-party complaint against Abante. The RTC ordered PBCom to re-credit Capitol; PNB to re-credit PBcom;
and Abante to reimburse PNB. The CA affirmed with modifications.

ISSUE:

Whether or not an alteration of a serial number of a check constitutes a “material altercation” under
the Negotiable Instruments Law?

HELD:

No. An altercation is said to be material when it 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 change is one which changes the items which are
required to be stated under Section 1 of the Negotiable Instruments Law. A serial number is not one of the
requisites stated in the said provision.

Petitioner also argues that a TCAA check by its very nature is the medium of exchange between
governments, instrumentalities and agencies. As a safety measure, every government office or agency is
assigned checks bearing different serial numbers. The Supreme Court disagreed with the contention, declaring
that the name of the government agency or office is sufficient to satisfy the requirement that the DRAWER of
the check be identifiable.
 International Corporate Bank vs. CA
September 5, 2006, G.R. No. 129910

FACTS:

The Ministry of Education and Culture (MEC) issued 15 checks drawn against the Philippine National
Bank [PNB (respondent)] which International Corporate Bank (petitioner). Petitioner accepted the checks for
deposit on various dates for different accounts. After 24 hours from submission of the checks with respondent
for clearing, petitioner paid the value of the checks and allowed the withdrawal of deposits.

On October 14, 1981, respondent returned all the checks to petitioner without clearing them on the
ground that they were materially altered (altered serial numbers). Petitioner instituted an action against
respondent. The RTC rule in favor or respondent, saying that it was expected to use reasonable business
practice in accepting and paying the checks presented to it. Thus, it cannot be faulted for the delay in clearing
the checks. Petitioner, on the other, did not even attempt to verify the status of the checks with respondent
before paying the value of the checks and allowing withdrawals.

The CA reversed the decision, stating that under Section 4(C) of the Central Bank Circular No.580,
series of 1977, checks that have been materially altered shall be returned within 24 hours after discovery of
the alteration. To escape from liability, however, the return should be within the 24-hour clearing period.

ISSUE:

Whether or not a change in serial numbers is a material alteration?

HELD:

No. The Supreme Court stated that an alteration is only material if alters the effect of the instrument. It
is 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 changes the items required to be stated under
Section 1 of the Negotiable Instruments Law.

The Supreme Court did not rule on the CA’s 24 –hour clearing time decision because there were in fact,
no material alterations in the checks concerned.