Sesbreno vs.

Court of Appeals [GR 89252,

24 May 1993]
Facts: On 9 February 1981, Raul Sesbreo made
a money market placement in the amount of
P300,000.00 with the Philippine Underwriters
Finance Corporation (Philfinance), Cebu Branch;
the placement, with a term of 32 days, would
mature on 13 March 1981. Philfinance, also on 9
February 1981, issued the following documents to
Sesbreno: (a) the Certificate of Confirmation of
Sale, "without recourse," 20496 of 1 Delta Motors
Corporation Promissory Note (DMC PN) 2731 for a
term of 32 days at 17.0 % per annum; (b) the
Certificate of Securities Delivery Receipt 16587
indicating the sale of DMC PN 2731 to Sesbreno,
with the notation that the said security was in
custodianship
of
Pilipinas
Bank,
as
per
Denominated Custodian Receipt (DCR) 10805
dated 9 February 1981; and (c) post-dated checks
payable on 13 March 1981 (i.e., the maturity date
of Sesbreno's investment), with Sesbreno as
payee, Philfinance as drawer, and Insular Bank of
Asia and America as drawee, in the total amount
of P304,533.33. On 13 March 1981, Sesbreno
sought to encash the post-dated checks issued by
Philfinance. However, the checks were dishonored
for having been drawn against insufficient funds.
On 26 March 1981, Philfinance delivered to
Sesbreno the DCR 10805 issued by Pilipinas Bank
(Pilipinas). On 2 April 1981, Sesbreno approached
Ms. Elizabeth de Villa of Pilipinas, Makati Branch,
and handed to her a demand letter informing the
bank that his placement with Philfinance in the
amount reflected in the DCR 10805 had remained
unpaid and outstanding, and that he in effect was
asking for the physical delivery of the underlying
promissory note. Sesbreno then examined the
original of the DMC PN
2731 and found: that the security had been
issued on 10 April 1980; that it would mature on
6 April 1981; that it had a face value of
P2,300,833.33, with Philfinance as "payee" and
Delta Motors Corporation (Delta) as "maker;" and
that on face of the promissory note was stamped
"NON-NEGOTIABLE." Pilipinas did not deliver the
Note, nor any certificate of participation in
respect thereof, to Sesbreno. Sesbreno later
made similar demand letters, dated 3 July 1981
and 3 August 1981, again asking Pilipinas for
physical delivery of the original of DMC PN 2731.
Pilipinas allegedly referred all of Sesbreno's
demand letters to Philfinance for written
instructions, as had been supposedly agreed
upon in a "Securities Custodianship Agreement"
between Pilipinas and Philfinance. Philfinance
never did provide the appropriate instructions;
Pilipinas never released DMC PN 2731, nor any
other instrument in respect thereof, to petitioner.
Sesbreno also made a written demand on 14 July
1981 upon Delta for the partial satisfaction of
DMC PN 2731, explaining that Philfinance, as

payee thereof, had assigned to him said Note to

the extent of P307,933.33. Delta, however,
denied any to Sesbreno on the promissory note,
and explained in turn that it had previously
agreed with Philfinance to offset its DMC PN 2731
(along with DMC PN 2730) against Philfinance PN
143-A issued in favor of Delta. In the meantime,
Philfinance, on 18 June 1981, was placed under
the joint management of the Securities and
Exchange Commission (SEC) and the Central
Bank. Pilipinas delivered to the SEC DMC PN
2731, which to date apparently remains in the
custody of the SEC. As Sesbreno had failed to
collect his investment and interest thereon, he
filed on 28 September 1982 an action for
damages with the Regional Trial Court (RTC) of
Cebu City, Branch 21, against Delta and Pilipinas.
The trial court, in a decision dated 5 August 1987,
dismissed the complaint and counterclaims for
lack of merit and for lack of cause of action, with
costs against Sesbreno. Sesbreno appealed to the
Court of Appeals (CA GR CV 15195). In a
Decisiondated 21 March 1989, the Court of
Appeals denied the appeal. Sesbreno moved for
reconsideration of the above Decision, without
success. Sesbreno filed the Petition for Review on
Certiorari.
Issue: Whether the marking non-negotiable in
DMC PN 2731 prohibited Philfinance from
assigning or transferring the same to Sesbreno.
Held: The negotiation of a negotiable instrument
must be distinguished from the assignment or
transfer of an instrument whether that be
negotiable or non-negotiable. Only an instrument
qualifying as a negotiable instrument under the
relevant statute may be negotiated either by
indorsement thereof coupled with delivery, or by
delivery alone where the negotiable instrument is
in bearer form. A negotiable instrument may,
however, instead of being negotiated, also be
assigned or transferred. The legal consequences
of negotiation as distinguished from assignment
of a negotiable instrument are, of course,
different. A non-negotiable
instrument may,
obviously, not be negotiated; but it may be
assigned or transferred, absent an express
prohibition against assignment or transfer written
in the face of the instrument: "The words 'not
negotiable,' stamped on the face of the bill of
lading, did not destroy its assignability, but the
sole effect was to exempt the bill from the
statutory provisions relative thereto, and a bill,
though not negotiable, may be transferred by
assignment; the assignee taking subject to the
equities between the original parties." Herein,
DMC PN No. 2731, while marked "nonnegotiable," was not at the same time stamped
"non-transferrable"
or
"nonassignable."
It
contained no stipulation which prohibited
Philfinance from assigning or transferring, in
whole or in part, that Note. Further, there is

nothing in the letter of agreement dated 10 April

1980 between Delta and Philfinance which can be
reasonably construed as a prohibition upon
Philfinance assigning or transferring all or part of
DMC PN 2731, before the maturity thereof. It is
scarcely necessary to add that, even had this
"Letter of Agreement" set forth an explicit
prohibition of transfer upon Philfinance, such a
prohibition cannot be invoked against an
assignee or transferee of the Note who parted
with valuable consideration in good faith and
without notice of such prohibition. It is not
disputed that Sesbreno was such an assignee or
transferee. [The issue whether Delta is liable for
the value of the promissory to Sesbreno was
resolved through Articles 1279 and 1636 of the
New Civil Code as to compensation, and Article
1285 of the same as to the assignment of
creditor's rights. The Court held that since
Sesbreno failed to notify Delta of the assignment
of the creditor's (Philfinance) rights at any time
before the maturity date of DMC PN 2731, and
because the record.
is bare of any indication that Philfinance had itself
notified Delta of the assignment to Sesbreno, the
Court was compelled to uphold the defense of
compensation raised by Delta. The Court,
however, held that Philfinance remained liable to
Sesbreno under the terms of the assignment
made by Philfinance to Sesbreno. As to the issue
of Pilipinas liability to Sesbreno, on the other
hand, the Court held that Pilipinas must respond
to Sesbreno for damages sustained by him arising
out of its breach of duty. By failing to deliver the
Note to Sesbreno as depositor-beneficiary of the
thing deposited -- when Pilipinas purported to
require and await the instructions of Philfinance,
in obvious contravention of its undertaking under
the DCR to effectphysical delivery of the Note
upon receipt of "written instructions" from
Sesbreo --Pilipinas effectively and
unlawfully deprived Sesbreno of the Note
deposited with it. Civil Law II issues, MVG.]
Sesbreno vs CA
RAUL SESBREO vs HON. COURT OF APPEALS,
DELTA MOTORS CORPORATION AND PILIPINAS
BANK
G.R. No. 89252 May 24, 1993
FACTS: Raul Sesbreno made a money market
placement in the amount of P300,000 with
PhilFinance, with a term of 32 days. PhilFinance
issued to Sesbreno the Certificate of Confirmation
of Sale of a Delta Motor Corporation Promissory
Note (DMC PN No. 2731), the Certificate of
Securities Delivery Receipt indicating the sale of
the Note with notation that said security was in
the custody of Pilipinas Bank, and postdated
checks drawn against the Insular Bank of Asia

and America for P304,533.33 payable on 13

March 1981. The checks were dishonored for
having been drawn against insufficient funds.
Philfinance delivered to petitioner Denominated
Custodian Receipt (DCR).
Petitioner approached Ms. Elizabeth de Villa of
private respondent Pilipinas, and handed her a
demand letter informing the bank that his
placement with Philfinance in the amount
reflected in the DCR had remained unpaid and
outstanding, and that he in effect was asking for
the physical delivery of the underlying promissory
note. Petitioner then examined the original of the
DMC PN No. 2731 and found: that the security
had been issued on 10 April 1980; that it would
mature on 6 April 1981; that it had a face value of
P2,300,833.33, with the Philfinance as payee
and private respondent Delta Motors Corporation
(Delta) as maker; and that on face of the
promissory
note
was
stamped
NON
NEGOTIABLE. Pilipinas did not deliver the Note,
nor any certificate of participation in respect
thereof, to petitioner.
Petitioner later made similar demand letters
again asking private respondent Pilipinas for
physical delivery of the original of DMC PN No.
2731.
Petitioner also made a written demand upon
private respondent Delta for the partial
satisfaction of DMC PN No. 2731, explaining that
Philfinance, as payee thereof, had assigned to
him said Note to the extent of P307,933.33.
Delta, however, denied any liability to petitioner
on the promissory note.
As petitioner had failed to collect his investment
and interest thereon, he filed an action for
damages against private respondents Delta and
Pilipinas.
ISSUE: WON DMC PN No. 2731 marked as nonnegotiable may be assigned?
HELD: YES. Only an instrument qualifying as a
negotiable instrument under the relevant statute
may be negotiated either by indorsement thereof
coupled with delivery, or by delivery alone where
the negotiable instrument is in bearer form. A
negotiable instrument may, however, instead of
being negotiated, also be assigned or transferred.
The legal consequences of negotiation as
distinguished from assignment of a negotiable
instrument are, of course, different. A nonnegotiable instrument may, obviously, not be
negotiated; but it may be assigned or transferred,
absent an express prohibition against assignment
or transfer written in the face of the instrument:

The words not negotiable, stamped on the face

of the bill of lading, did not destroy its
assignability, but the sole effect was to exempt
the bill from the statutory provisions relative
thereto, and a bill, though not negotiable, may be
transferred by assignment; the assignee taking
subject to the equities between the original
parties. 12 (Emphasis added)
DMC PN No. 2731, while marked nonnegotiable, was not at the same time stamped
non-transferable
or
non-assignable.
It
contained no stipulation which prohibited
Philfinance from assigning or transferring, in
whole or in part, that Note.
Nelia Ponce vs Court of Appeals
In 1969, Jesusa Afable and two others procured a
loan from Nelia Ponce in the amount of
$194,016.29. In June 1969, Afable and her codebtors executed a promissory note in favor of
Ponce in the peso equivalent of the loan amount
which was P814,868.42. The promissory note
went due and was left unpaid despite demands
from Ponce. This prompted Ponce to sue Afable et
al. The trial court ruled in favor of Ponce. The
Court of Appeals initially affirmed the trial court
but it later reversed its decisions as it ruled that
the promissory note under consideration was
payable in US dollars, and, therefore pursuant to
Republic Act 529, the transaction was illegal with
neither party entitled to recover under the in pari
delicto rule.
ISSUE: Whether or not Ponce may recover.
HELD: Yes. RA 529 provides that an agreement to
pay in dollars is null and void and of no effect
however what the law specifically prohibits is
payment in currency other than legal tender. It
does not defeat a creditors claim for payment, as
it specifically provides that every other domestic
obligation whether or not any such provision as
to payment is contained therein or made with
respect thereto, shall be discharged upon
payment in any coin or currency which at the
time of payment is legal tender for public and
private debts. A contrary rule would allow a
person to profit or enrich himself inequitably at
anothers expense.
On the face of the promissory note, it says that it
is payable in Philippine currency the equivalent
of the dollar amount loaned to Afable et al. It may
likewise be pointed out that the Promissory Note
contains no provision giving the obligee the right
to require payment in a particular kind of
currency other than Philippine currency, which
is what is specifically prohibited by RA No. 529. If
there is any agreement to pay an obligation in a
currency other than Philippine legal tender, the

same is null and void as contrary to public policy,

pursuant to Republic Act No. 529, and the most
that could be demanded is to pay said obligation
in Philippine currency.
NOTE: RA 529 has already been repealed by
Republic Act 8183 which provides that every
monetary obligation must be paid in Philippine
currency which is legal tender in the Philippines.
However, the parties may agree that the
obligation or transaction shall be settled in any
other currency at the time of payment. (The
Philippine Negotiable Instruments Law, De Leon
and De Leon Jr., p. 29)
Caltex (Philippines) Inc. vs. CA
GR 97753, 10 August 1992
Facts: On various dates, Security Bank and Trust
Co. (SEBTC), through its Sucat branch, issued 280
certificates of time deposit (CTD) in favor of one
Angel dela Cruz who deposited with the bank the
aggregate amount of P1.12 million. Anger de la
Cruz delivered the CTDs to Caltex in connection
with his purchase of fuel products from the latter.
Subsequently, dela Cruz informed the bank that
he lost all the CTDs, and thus executed an
affidavit of loss to facilitate the issuance of the
replacement CTDs. De la Cruz was able to obtain
a loan of P875,000 from the bank, and in turn, he
executed a notarized Deed of Assignment of Time
Deposit in favor of the bank. Thereafter, Caltex
presented for verification the CTDs (which were
declared lost by de la Cruz) with the bank. Caltex
formally informed the bank of its possession of
the CTDs and its decision to preterminate the
same. The bank rejected Caltex claim and
demand, after Caltex failed to furnish copy of the
requested documents evidencing the guarantee
agreement, etc. In 1983, de la Cruz loan matured
and the bank set-off and applied the time
deposits as payment for the loan. Caltex filed the
complaint, but which was dismissed. Issue [1]:
Whether the Certificates of Time Deposit (CTDs)
are negotiable instruments.
Held [1]: The CTDs in question meet the
requirements of the law for negotiability. Contrary
to the lower courts findings, the CTDs are
negotiable instruments (Section 1). Negotiability
or non-negotiability of an instrument is
determined from the writing, i.e. from the face of
the instrument itself. The documents provided
that the amounts deposited shall be repayable to
the depositor. The amounts are to be repayable
to the bearer of the documents, i.e. whosoever
may be the bearer at the time of presentment.
Issue [2]: Whether the CTDs negotiation require
delivery only.
Held [2]: Although the CTDs are bearer
instruments, a valid negotiation thereof for the
true purpose and agreement between it (Caltex)

and de la Cruz requires both delivery and

indorsement; as the CTDs were delivered to it as
security for dela Cruz purchases of its fuel
products, and not for payment. Herein, there was
no negotiation in the sense of a transfer of title,
or legal title, to the CTDs in which situation mere
delivery of the bearer CTDs would have sufficed.
The delivery thereof as security for the fuel
purchases at most constitutes Caltex as a holder
for value by reason of his lien. Accordingly, a
negotiation for such purpose cannot be effected
by mere delivery of the instrument since the
terms thereof and the subsequent disposition of
such security, in the event of non-payment of the
principal obligation, must be contractually
provided for.
Kalalo vs. Luz GR L-27782, 31 July 1970 En
Banc, Zaldivar (J) Facts: On 17 November
1959, Octavio Kalalo entered into an agreement
with Alfredo Luz where he was to render
engineering design services for a fee. On 11
December 1961, Kalalo sent Luz a statement of
account where the balance due for services
rendered was P59,505. On 18 May 1962, Luz sent
Kalalo a resume of fees due to the latter, and a
check for P10,861.08. Kalalo refused to accept
the check as full payment of the balance of the
fees due him. On 10 August 1962, Kalalo filed a
complaint containing 4 causes of action, i.e.
$28,000 (representing 20% of the amount paid to
Luz in the International Research Institute project)
and the balance of P30,881.25 as fees; P17,0000
as consequential and moral damages; P55,000 as
moral damages, attorneys fees and litigation
expenses; and P25,000 as actual damages,
attorneys fees and litigation expenses). The trial
court ruled in favor of Kalalo. Luz filed an appeal
directly with the Supreme Court raising only
questions of law.
Issue: Whether the rate of exchange of dollar to
peso are those at the time of the payment of the
judgment or at the time when the research
institute project became due and demandable.
Held: Luz obligation to pay Kalalo the sum of
US$28,000 accrued on 25 August 1961, or after
the enactment of RA 529 (16 June 1950). Thus,
the provision of the statute which requires
payment at the prevailing rate of exchange when
the obligation was incurred cannot be applied. RA
529 does not provide for the rate of exchange for
the payment of obligation incurred after the
enactment of the Act, and thus the rate of
exchange should be that prevailing at the time of
payment. The view finds support in the ruling of
the Court in Engel vs. Velasco & Co. The trial
court did not err in holding the rate of exchange
is that at the time of payment.

Dela Victoria vs. Burgos GR 111190, 27

June 1995
Facts: Raul Sesbreno filed a complaint for
damages against Assistant City Fiscal Bienvenido
Mabanto before the RTC of Cebu City. After trial,
judgment was rendered ordering Mabanto to pay
Sesbreno P11,000. The decision having become
final and executory, the trial court ordered its
execution upon Sesbrenos motion. The writ of
execution
was
issued
despite
Mabantos
objection. A notice of garnishment was served
upon Loreto de la Victoria as City Fiscal of
Mandaue City where Mabanto was then detailed.
De la Victoria moved to quash the notice of
garnishment claiming that he was not in
possession of any money, funds, etc. belonging to
Mabanto until delivered to him, and as such are
still public funds which could not be subject of
garnishment..
Issue:
Whether
the
checks
subject
of
garnishment belong to Mabanto or whether they
still belong to the government.
Held: Under Section 16 of the Negotiable
Instruments Law, every contract on a negotiable
instrument is incomplete and revocable until
delivery of the instrument for the purpose of
giving effect thereto. As ordinarily understood,
delivery means the transfer of the possession of
the instrument by the maker or drawer with the
intent to transfer title to the payee and recognize
him as the holder thereof. Herein, the salary
check of a government officer or employee does
not belong to him before it is physically delivered
to him. Inasmuch as said checks had not yet been
delivered to Mabanto, they did not belong to him
and still had the character of public funds. As a
necessary consequence of being public fund, the
checks may not be garnished to satisfy the
judgment.

Republic Bank vs Ebrada GR L-40796, 31

July 1975:
Facts. Mauricia Ebrada encashed a back pay
check for P1246.08 at Republic Bank (Escolta
Branch). The Bureau of Treasury, which issued the
check advised the bank that the alleged
indorsement of the check by one Martin
Lorenzo was a forgery as the latter has been
dead since 14 July 1952; and requested that it be
refunded he sum deducted from its account. The
bank refunded the amount to the Bureau and
demanded upon Ebrada the sum in question, who
refused. Hence, the present action.
Issue: Whether the bank can recover from the
last indorser.
Held: According to Section 23 of the Negotiable
Instruments Law, where the signature on a
negotiable instrument is forged, the negotiation

of the check is without force or effect. However,

following the ruling in Beam vs. Farrel (US case),
where a check has several indorsements on it,
only the negotiation based on the forged or
unauthorized signature which is inoperative. The
last indorser, Ebrada, was duty-bound to
ascertain whether the check was genuine before
presenting it to the bank for payment. Her failure
to do so makes her liable for the loss and the
Bank may recover from her the money she
received for the check. Had she performed her
duty, the forgery would have been detected and
fraud defeated. Even if she turned over the
amount
to
Dominguez
immediately
after
receiving the cash proceeds of the check, she is
liable as an accommodation party under Section
29 of the Negotiable Instruments Law.
Republic Planters Bank vs Court of Appeals
In 1979, World Garment Manufacturing, through its board
authorized Shozo Yamaguchi (president) and Fermin Canlas
(treasurer) to obtain credit facilities from Republic Planters
Bank (RPB). For this, 9 promissory notes were executed. Each
promissory note was uniformly written in the following
manner:

___________, after date, for value received, I/we,

jointly and severally promise to pay to the ORDER of
the REPUBLIC PLANTERS BANK, at its office in
Manila, Philippines, the sum of ___________
PESOS(.) Philippine Currency

ISSUE: Whether or not Canlas should be held

liable for the promissory notes.
HELD: Yes. The solidary liability of private
respondent Fermin Canlas is made clearer and
certain, without reason for ambiguity, by the
presence of the phrase joint and several as
describing the unconditional promise to pay to
the order of Republic Planters Bank. Where an
instrument containing the words I promise to
pay is signed by two or more persons, they are
deemed to be jointly and severally liable thereon.
Canlas is solidarily liable on each of the
promissory notes bearing his signature for the
following reasons:
The promissory notes are negotiable instruments
and must be governed by the Negotiable
Instruments Law.
Under the Negotiable lnstruments Law, persons
who write their names on the face of promissory
notes are makers and are liable as such. By
signing the notes, the maker promises to pay to
the order of the payee or any holder according to
the tenor thereof.

Please credit proceeds of this note to:

________
Account

Savings

Account

______XX Current

No. 1372-00257-6 of WORLDWIDE GARMENT

MFG. CORP.
Sgd. Shozo Yamaguchi
Sgd. Fermin Canlas
The note became due and no payment was
made. RPB eventually sued Yamaguchi and
Canlas. Canlas, in his defense, averred that he
should not be held personally liable for such
authorized corporate acts that he performed
inasmuch as he signed the promissory notes in
his capacity as officer of the defunct Worldwide
Garment Manufacturing.

Associated Bank vs. CA GR 89802, 7 May 1992

Facts: Melissas RTWs customers issued cross
checks payable to Melissas RTW, which its
proprietor Merle Reyes did not receive. It was
learned that the checks had been deposited with
the Associated Bank by one Rafael Sayson.
Sayson was not authorized by Reyes to deposit
and encash said checks. Reyes filed an action for
the recovery of the total value of the checks plus
damages.
Issue: Whether the bank was negligent for the
loss. Held: Crossing a check means that the
drawee bank should not encash the check but
merely accept it for deposit, that the check may
be negotiated only once by one who has an
account in a bank, and that the check serves as
warning that it was issued for a definite purpose

so that he must inquire if he has received the

check pursuant to that purpose. The effect, thus,
relate to the mode of its presentment for
payment, in accordance with Section 72 of the
Negotiable Instruments Law. The bank paid the
checks notwithstanding that title had not passed
to the indorser, as the checks had been crossed
and issued for payees account only. It does did
so in its own peril and became liable to the payee
for the value of the checks. The failure of the
bank to make an inquiry as to Saysons authority
was a breach of its duty. The bank is negligent
and is thus liable to Reyes.

Associated Bank vs. CA GR 107382

Facts: The Province of Tarlac maintains a current
account with the Philippine National Bank (PNB
Tarlac Branch) where the provincial funds are
deposited. Portions of the funds were allocated to
the Concepcion Emergency Hospital. Checks were
issued to it and were received by the hospitals
administrative officer and cashier (Fausto
Pangilinan). Pangilinan, through the help of
Associated Bank but after forging the signature of
the hospitals chief (Adena Canlas), was able to
deposit the checks in his personal account. All the
checks bore the stamp All prior endorsement
guaranteed Associated Bank. Through postaudit, the province discovered that the hospital
did not receive several allotted checks, and
sought the restoration of the debited amounts
from PNB. In turn, PNB demanded reimbursement
from Associated Bank. Both banks resisted
payment. Hence, the present action. Issue: Who
shall bear the loss resulting from the forged
checks.
Held: PNB is not negligent as it is not required to
return the check to the collecting bank within 24
hours as the banks involved are covered by
Central Bank Circular 580 and not the rules of the
Philippine Clearing House. Associated Bank, and
not PNB, is the one duty-bound to warrant the
instrument as genuine, valid and subsisting at the
time of indorsement pursuant to Section 66 of the
Negotiable
Instruments
Law.
The
stamp
guaranteeing prior indorsement is not an empty
rubric; the collecting bank is held accountable for
checks deposited by its customers. However, due
to the fact that the Province of Tarlac is equally
negligent in permitting Pangilinan to collect the
checks when he was no longer connected with

the hospital, it shares the burden of loss from the

checks bearing a forged indorsement. Therefore,
the Province can only recover 50% of the amount
from the drawee bank (PNB), and the collecting
bank (Associated Bank) is liable to PNB for 50% of
the same amount.

PNB V. CA- Material Alteration, 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 thirdparty 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.

Prudencio vs. CA GR L-34539, 14

Facts: Eulalio and Elisa Prudencio are the
registered owners of a parcel of land located in
Sampaloc, Manila. The property was mortgaged
to PNB to guarantee a loan of P1,000 extended to
one Domingo Prudencio. Sometime in 1955,
Concepcion & Tamayo Construction Co., through
Jose Toribio (Prudencios relative), persuaded the
Prudencios to mortgage their property to secure
the loan of P10,000 which the company was
negotiating with the PNB. The Prudencios signed
the Amendment of Real Estate Mortgage. The
promissory note covering the P10,000 loan was
signed by Toribio. The Prudencios also signed the
portion of the note indicating that they are
requesting the PNB to issue the check covering
the loan to the Company. Jose Toribio executed
the Deed of Assignment assigning all payments
made by the Bureau to the company on account
of the Puerto Princesa building project in favor of
PNB. The Bureau, however, conditioned that the
payment should be for labor and materials. The
Prudencios wrote PNB that since PNB authorized
payments to the Company where there were
changes in the conditions of the contract without

their knowledge, they seek to cancel the

mortgage contract. Failing to cancel the
mortgage, they filed suit to cancel the same.
Issue: Whether the Prudencios were solidary codebtors or sureties as a result of being
accommodation makers.
Held: In lending his name to the accommodated
party, the accommodation party is in effect a
surety. However, unlike in a contract of
suretyship, the liability of the accommodation
party remains not only primary but also
unconditional to a holder for value such that even
if the accommodated party receives an extension
of the period of payment without the consent of
the accommodation party, the latter is still liable
for the whole obligation and such extension does
not release him because as far as the holder for
value is concerned, he is a solidary co-debtor.
Consequently, the Prudencios cannot claim to
have been released from their obligation simply
because the time of payment of such obligation
was temporarily deferred by PNB without their
knowledge and consent. To be freed of obligation,
it is thus necessary to determine if PNB, the
payee of the promissory note, is a holder in due
course. Herein, PNB was an immediate party or in
privy to the note, besides that it dealt directly
with the Prudencios knowing fully well that they
are accommodation makers. The general rule that
a payee may be considered a holder in due
course does not apply to PNB.