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PHILIPPINE NATIONAL BANK v. CA

## FACTS:

The case involves a petition filed by the Philippine National Bank (PNB) against the Court of Appeals decision. A check was issued by the Ministry of Education and Culture to F. Abante Marketing and was deposited by F. Abante Marketing in their savings account with Capitol City Development Bank (Capitol). Capitol then deposited the check in their account with the Philippine Bank of Communications (PBCom), which sent the check to PNB for clearing. PNB initially cleared the check and credited Capitol's account, but later returned the check to PBCom, citing "material alteration" of the check number. PBCom debited Capitol's account and sent the check back to PNB. Capitol was unable to debit F. Abante Marketing's account as they had already withdrawn the funds. Capitol filed a civil suit against PBCom, who then filed a third-party complaint against PNB for reimbursement. PNB filed a fourth-party complaint against F. Abante Marketing. The regional trial court rendered a decision in favor of Capitol, ordering PBCom to reimburse Capitol, PNB to reimburse PBCom, and F. Abante Marketing to reimburse PNB. An appeal was filed and the Court of Appeals modified the decision, ordering PNB to honor the check and pay attorney's fees to Capitol. A motion for reconsideration was denied, leading to the filing of the petition for review.

ISSUES

  1. Whether or not an alteration of the serial number of a check is a material alteration under the Negotiable Instruments Law.

  2. Whether or not a certification issued by the Ministry of Education can be given weight in evidence.

  3. Whether or not a drawee bank who failed to return a check within the twenty-four (24) hour clearing period may recover the value of the check from the collecting bank.

  4. Whether or not in the absence of malice or ill will, petitioner PNB may be held liable for attorney's fees.

RULING

  1. The Supreme Court held that the alteration of the serial number on the check was not a material alteration because it did not alter any essential elements (date, sum payable, drawer, drawee, payee) that affect the negotiability of the instrument according to Section 1 of the Negotiable Instruments Law. Hence, the check maintained its integrity and negotiability.

  2. The Supreme Court agreed with the respondent court that the certification issued by the Ministry of Education lacked evidentiary weight primarily due to the non-presentation of the issuer for verification and cross-examination. Moreover, the court emphasized the absence of material alteration on the check, rendering the certification redundant.

  3. The court found that since there was no material alteration in the check, the petitioner had no right to dishonor it and return it to PBCom. Therefore, the drawee bank, petitioner PNB, may not recover the value of the check from the collecting bank, PBCom, because the check remained negotiable and should have been honored.

  4. The Supreme Court deleted the award of P10,000.00 as attorney's fees due to a lack of explicit rationale and justification both in the trial court’s and the appellate court's decisions. Such award needs factual, legal, and equitable basis which was not provided in this case.

PRINCIPLES

  1. Any alteration which changes the effect of the instrument in any way is considered a material alteration under Section 125 of the Negotiable Instruments Law.

  2. Alterations which do not change the essentials of a negotiable instrument (such as a serial number when not affecting the drawer, drawee, or the sum payable) are considered immaterial and do not void the instrument's negotiability.

  3. The requirement that the authenticity and evidentiary weight of a certification must be supported by the presentation of the issuer or competent witness for verification and subject to cross-examination.

  4. The non-negotiability of attorney's fees without explicit factual, legal, and equitable justifications as required under Article 2208 of the Civil Code and prevailing jurisprudence.

  5. A drawee bank must honor a negotiable instrument unless a valid reason under the law, such as a material alteration, is present that justifies dishonoring it.