FIRST DIVISION

[G.R. No. 107508. April 25, 1996.]

PHILIPPINE NATIONAL BANK , petitioner, vs . COURT OF APPEALS,

CAPITOL CITY DEVELOPMENT BANK, PHILIPPINE BANK OF
COMMUNICATIONS, and F. ABANTE MARKETING , respondents.

Monsod Tamargo Valencia & Associates for private respondent Capitol City
Development Bank.
Siguion Reyna Montecillo & Ongsiako for private respondent Philippine Bank of
Communications.

SYLLABUS

1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; MATERIAL ALTERATION,

DEFINED. — An alteration is said to be material if it alters the effect of the instrument. It
means 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 changes to
an incomplete instrument relating to the obligation of a party. In other words, a material
alteration is one which changes the items which are required to be stated under Section 1
of the Negotiable Instruments Law.
2. ID.; ID.; IMMATERIAL ALTERATION; EFFECT ON THE INSTRUMENT. — In his
book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug
opines that "an innocent alteration (generally, changes on items other than those required
to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger) will not
avoid the instrument, but the holder may enforce it only according to its original tenor.
3. ID.; ID.; ID.; PRESENT IN CASE AT BAR. — The case at bench is unique in the
sense that what was altered is the serial number of the check in question, an item which, it
can readily be observed, is not an essential requisite for negotiability under Section 1 of
the Negotiable Instruments Law. The aforementioned alteration did not change the
relations between the parties. The name of the drawer and the drawee were not altered.
The intended payee was the same. The sum of money due to the payee remained the
same. The check's serial number is not the sole indication of its origin. As succinctly found
by the Court of Appeals, the name of the government agency which issued the subject
check was prominently printed therein. The check's issuer was therefore su ciently
identi ed, rendering the referral to the serial number redundant and inconsequential.
Petitioner, thus cannot refuse to accept the check in question on the ground that the serial
number was altered, the same being an immaterial or innocent one.
4. CIVIL LAW; DAMAGES; ATTORNEY'S FEES; AWARD THEREOF DEMANDS
FACTUAL, LEGAL AND EQUITABLE JUSTIFICATION. — The award of attorney's fees lies
within the discretion of the court and depends upon the circumstances of each case.
However, the discretion of the court to award attorney's fees under Article 2208 of the Civil
Code of the Philippines demands factual, legal and equitable justi cation, without which
the award is a conclusion without a premise and improperly left to speculation and
conjecture. It becomes a violation of the proscription against the imposition of a penalty
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 on the right to litigate (Universal Shipping Lines, Inc. v. Intermediate Appellate Court , 188
SCRA 170 [1990]). The reason for the award must be stated in the text of the court's
decision. If it is stated only in the dispositive portion of the decision, the same shall be
disallowed. As to the award of attorney's fees being an exception rather than the rule, it is
necessary for the court to make ndings of fact and law that would bring the case within
the exception and justify the grant of the award (Refractories Corporation of the
Philippines v. Intermediate Appellate Court, 176 SCRA 539).

DECISION

KAPUNAN , J : p

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing
the decision dated April 29, 1992 of respondent Court of Appeals in CA-G.R. CV No. 24776
and its resolution dated September 16, 1992, denying petitioner Philippine National Bank's
motion for reconsideration of said decision.
The facts of the cases are as follows:
A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of
P97,650.00 was issued by the Ministry of Education and Culture (now Department of
Education, Culture and Sports [DECS]) payable to F. Abante Marketing. This check was
drawn against Philippine National Bank (herein petitioner).
On August 11, 1981, F. Abante Marketing, a client of Capitol City Development Bank
(Capitol), deposited the questioned check in its savings account with said bank. In turn,
Capitol deposited the same in its account with the Philippine Bank of Communications
(PBCom) which, in turn, sent the check to petitioner for clearing.
Petitioner cleared the check as good and, thereafter, PBCom credited Capitol's
account for the amount stated in the check. However, on October 19, 1981, petitioner
returned the check to PBCom and debited PBCom's account for the amount covered by
the check, the reason being that there was a "material alteration" of the check number.
PBCom, as collecting agent of Capitol, then proceeded to debit the latter's account
for the same amount, and subsequently, sent the check back to petitioner. Petitioner,
however, returned the check to PBCom.
On the other hand, Capitol could not, in turn, debit F. Abante Marketing's account
since the latter had already withdrawn the amount of the check as of October 15, 1981.
Capitol sought clari cation from PBCom and demanded the re-crediting of the amount.
PBCom followed suit by requesting an explanation and re-crediting from petitioner.
Since the demands of Capitol were not heeded, it led a civil suit with the Regional
Trial Court of Manila against PBCom which, in turn, led a third-party complaint against
petitioner for reimbursement/indemnity with respect to the claims of Capitol. Petitioner,
on its part, filed a fourth-party complaint against F. Abante Marketing.
On October 3, 1989; the Regional Trial Court rendered its decision the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
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 1.) On plaintiff's complaint, defendant Philippine Bank of
Communications is ordered to re-credit or reimburse plaintiff Capitol City
Development Bank the amount of P97,650.00, plus interest of 12 percent thereto
from October 19, 1981 until the amount is fully paid;
2.) On Philippine Bank of Communications third-party complaint, third-
party defendant PNB is ordered to reimburse and indemnify Philippine Bank of
Communications for whatever amount PBCom pays to plaintiff;
3.) On Philippine National Bank's fourth-party complaint, F. Abante
Marketing is ordered to reimburse and indemnify PNB for whatever amount PNB
pays to PBCom;
4.) On attorney's fees, Philippine Bank of Communications is ordered
to pay Capitol City Development Bank attorney's fees in the amount of Ten
Thousand (P10,000.00) Pesos; but PBCom is entitled to
reimbursement/indemnity from PNB; and Philippine National Bank to be, in turn,
reimbursed or indemnified by F. Abante Marketing for the same amount;
5.) The Counterclaims of PBCom and PNB are hereby dismissed;
6.) No pronouncement as to costs.
SO ORDERED. 1

An appeal was interposed before the respondent Court of Appeals which rendered
its decision on April 29, 1992, the decretal portion of which reads:
WHEREFORE, the judgment appealed from is modi ed by exempting
PBCom from liability to plaintiff-appellee for attorney's fees and ordering PNB to
honor the check for P97,650.00, with interest as declared by the trial court, and
pay plaintiff-appellee attorney's fees of P10,000.00. After the check shall have
been honored by PNB, PBCom shall re-credit plaintiff-appellee's account with it
with the amount. No pronouncement as to costs.

SO ORDERED. 2

A motion for reconsideration of the decision was denied by the respondent Court in
its resolution dated September 16, 1992 for lack of merit. 3
Hence, petitioner filed the instant petition which raises the following issues:
I

WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A

MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW.
II

WHETHER OR NOT A CERTIFICATION HEREIN ISSUED BY THE MINISTRY OF

EDUCATION CAN BE GIVEN WEIGHT IN EVIDENCE.

III
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.
IV

WHETHER OR NOT IN THE ABSENCE OF MALICE OR ILL WILL PETITIONER PNB

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 MAY BE HELD LIABLE FOR ATTORNEY'S FEES. 4

We find no merit in the petition.

We shall rst deal with the effect of the alteration of the serial number on the
negotiability of the check in question.
Petitioner anchors its position on Section 125 of the Negotiable Instrument Law
(ACT No. 2031) 5 which provides:
SECTION 125. What constitutes a material alteration. — Any alteration
which changes:

(a) The date;

(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is
specified, or any other change or addition which alters the effect of the instrument
in any respect, is a material alteration.

Petitioner alleges that there is no hard and fast rule in the interpretation of the
aforequoted provision of the Negotiable Instruments Law. It maintains that under Section
125(f), any change that alters the effect of the instrument is a material alteration. 6
We do not agree.
An alteration is said to be material if it alters the effect of the instrument. 7 It means
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 changes to
an incomplete instrument relating to the obligation of a party. 8 In other words, a material
alteration is one which changes the items which are required to be stated under Section 1
of the Negotiable Instruments Law.
Section 1 of the Negotiable Instruments Law provides:

SECTION 1. Form of negotiable instruments. — An instrument to be

negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;

(c) Must be payable on demand, or at a xed or determinable future

time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named

or otherwise indicated therein with reasonable certainty.

In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose
C. Vitug opines that "an innocent alteration (generally, changes on items other than those
required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger)
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 will not avoid the instrument, but the holder may enforce it only according to its original
tenor." 9
Reproduced hereunder are some examples of material and immaterial alterations:
A. Material Alterations:
(1) Substituting the words "or bearer" for "order."

(2) Writing "protest waived" above blank indorsements.

(3) A change in the date from which interest is to run.
(4) A check was originally drawn as follows: "Iron County Bank, Crystal
Falls, Mich. Aug. 5, 1901. Pay to G.L. or order $9 fty cents CTR." The insertion of
the figure 5 before the figure 9, the instrument being otherwise unchanged.
(5) Adding the words "with interest" with or without a fixed rate.
(6) An alteration in the maturity of a note, whether the time for
payment is thereby curtailed or extended.
(7) An instrument was payable "First Nat'l Bank" the plaintiff added the
word "Marion."
(8) Plaintiff, without consent of the defendant, struck out the name of
the defendant as payee and inserted the name of the maker of the original note.
(9) Striking out the name of the payee and substituting that of the
person who actually discounted the note.
(10) Substituting the address of the maker for the name of a co-maker.
10

B. Immaterial Alterations:
(1) Changing "I promise to pay" to "We promise to pay", where there are
two makers.
(2) Adding the word "annual" after the interest clause.
(3) Adding the date of maturity as a marginal notation.
(4) Filling in the date of the actual delivery where the makers of a note
gave it with the date in blank, "July . . ."
(5) An alteration of the marginal gures of a note where the sum
stated in words in the body remained unchanged.
(6) The insertion of the legal rate of interest where the note had a
provision for "interest at . . . per cent."

(7) A printed form of promissory note had on the margin the printed
words, "Extended to . . ." The holder on or after maturity wrote in the blank space
the words "May 1, 1913," as a reference memorandum of a promise made by him
to the principal maker at the time the words were written to extend the time of
payment.

(8) Where there was a blank for the place of payment, lling in the
blank with the place desired.

(9) Adding to an indorsee's name the abbreviation "Cash" when it had

been agreed that the draft should be discounted by the trust company of which
the indorsee was cashier.

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 (10) The indorsement of a note by a stranger after its delivery to the
payee at the time the note was negotiated to the plaintiff.

(11) An extension of time given by the holder of a note to the principal

maker, without the consent of the surety co-maker. 1 1

The case at the bench is unique in the sense that what was altered is the serial
number of the check in question, an item which, it can readily be observed, is not an
essential requisite for negotiability under Section 1 of the Negotiable Instruments Law.
The aforementioned alteration did not change the relations between the parties. The name
of the drawer and the drawee were not altered. The intended payee was the same. The
sum of money due to the payee remained the same. Despite these ndings, however,
petitioner insists, that:
xxx xxx xxx

It is an accepted concept, besides being a negotiable instrument itself, that

a TCAA check by its very nature is the medium of exchange of governments (sic)
instrumentalities or agencies. And as (a) safety measure, every government o ce
o(r) agency (is) assigned TCAA checks bearing different number series.
A concrete example is that of the disbursements of the Ministry of
Education and Culture. It is issued by the Bureau of Treasury sizeable bundles of
checks in booklet form with serial numbers different from other government
office or agency. Now, for fictitious payee to succeed in its malicious intentions to
defraud the government, all it needs to do is to get hold of a TCAA Check and
have the serial numbers of portion (sic) thereof changed or altered to make it
appear that the same was issued by the MEC.
Otherwise, stated, it is through the serial numbers that (a) TCAA Check is
determined to have been issued by a particular o ce or agency of the
government. 1 2
xxx xxx xxx

Petitioner's arguments fail to convince. The check's serial number is not the sole
indication of its origin. As succinctly found by the Court of Appeals, the name of the
government agency which issued the subject check was prominently printed therein. The
check's issuer was therefore insu ciently identi ed, rendering the referral to the serial
number redundant and inconsequential. Thus, we quote with favor the ndings of the
respondent court:
xxx xxx xxx

If the purpose of the serial number is merely to identify the issuing

government o ce or agency, its alteration in this case had no material effect
whatsoever on the integrity of the check. The identity of the issuing government
o ce or agency was not changed thereby and the amount of the check was not
charged against the account of another government o ce or agency which had
no liability under the check. The owner and issuer of the check is boldly and
clearly printed on its face, second line from the top: "MINISTRY OF EDUCATION
AND CULTURE," and below the name of the payee are the rubber-stamped words:
"Ministry of Educ. & Culture." These words are not alleged to have been falsely or
fraudulently intercalated into the check. The ownership of the check is
established without the necessity of recourse to the serial number. Neither is there
any proof that the amount of the check was erroneously charged against the
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 account of a government o ce or agency other than the Ministry of Education
and Culture. Hence, the alteration in the number of the check did not affect or
change the liability of the Ministry of Education and Culture under the check and,
therefore, is immaterial. The genuineness of the amount and the signatures
therein of then Deputy Minister of Education Hermenegildo C. Dumlao and of the
resident Auditor, Penomio C. Alvarez are not challenged. Neither is the authenticity
of the different codes appearing therein questioned . . . . 1 3 (Emphasis ours.)

Petitioner, thus cannot refuse to accept the check in question on the ground that the
serial number was altered, the same being an immaterial or innocent one.
We now go to the second issue. It is petitioner's submission that the certi cation
issued by Minrado C. Batonghinog, Cashier III of the MEC clearly shows that the check was
altered. Said certification reads:
July 22, 1985
TO WHOM IT MAY CONCERN:
This is to certify that according to the records of this O ce, TCAA PNB
Check No. SN7-3666223-3 dated August 7, 1981 drawn in favor of F. Abante
Marketing in the amount of NINETY (S)EVEN THOUSAND SIX HUNDRED FIFTY
PESOS ONLY (P97,650.00) was not issued by this O ce nor released to the
payee concerned. The series number of said check was not included among those
requisition by this Office from the Bureau of Treasury.
Very truly yours,
(SGD.) MINRADO C. BATONGHINOG
Cashier III. 1 4

Petitioner claims that even if the author of the certi cation issued by the Ministry of
Education and Culture (MEC) was not presented, still the best evidence of the material
alteration would be the disputed check itself and the serial number thereon. Petitioner thus
assails the refusal of respondent court to give weight to the certi cation because the
author thereof was not presented to identify it and to be cross-examined thereon. 1 5
We agree with the respondent court.
The one who signed the certi cation was not presented before the trial court to
prove that the said document was really the document he prepared and that the signature
below the said document is his own signature. Neither did petitioner present an
eyewitness to the execution of the questioned document who could possibly identify it. 1 6
Absent this proof, we cannot rule on the authenticity of the contents of the certi cation.
Moreover, as we previously emphasized, there was no material alteration on the check, the
change of its serial number not being substantial to its negotiability.
Anent the third issue — whether or not the drawee bank may still recover the value of
the check from the collecting bank even if it failed to return the check within the twenty-
four (24) hour clearing period because the check was tampered — su ce it to state that
since there is no material alteration in the check, petitioner has no right to dishonor it and
return it to PBCom, the same being in all respects negotiable.
However, the amount of P10,000.00 as attorney's fees is hereby deleted. In their
respective decisions, the trial court and the Court of Appeals failed to explicitly state the
rationale for the said award. The trial court merely ruled as follows:
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 With respect to Capitol's claim for damages consisting of alleged loss of
opportunity, this Court nds that Capitol failed to adequately substantiate its
claim. What Capitol had presented was a self-serving, unsubstantiated and
speculative computation of what it allegedly could have earned or realized were it
not for the debit made by PBCom which was triggered by the return and debit
made by PNB. However, this Court nds that it would be fair and reasonable to
impose interest at 12% per annum on the principal amount of the check
computed from October 19, 1981 (the date PBCom debited Capitol's account)
until the amount is fully paid and reasonable attorney's fees. 1 7 (Emphasis ours.)

And contrary to the Court of Appeal's resolution, petitioner unambiguously

questioned before it the award of attorney's fees, assigning the latter as one of the errors
committed by the trial court. 1 8
The foregoing is in conformity with the guiding principles laid down in a long line of
cases and reiterated recently in Consolidated Bank & Trust Corporation (Solidbank) v.
Court of Appeals: 1 9
The award of attorney's fees lies within the discretion of the court and
depends upon the circumstances of each case. However, the discretion of the
court to award attorney's fees under Article 2208 of the Civil Code of the
Philippines demands factual, legal and equitable justi cation, without which the
award is a conclusion without a premise and improperly left to speculation and
conjecture. It becomes a violation of the proscription against the imposition of a
penalty on the right to litigate (Universal Shipping Lines Inc. v. Intermediate
Appellate Court, 188 SCRA 170 [1990]). The reason for the award must be stated
in the text of the court's decision. If it is stated only in the dispositive portion of
the decision, the same shall be disallowed. As to the award of attorney's fees
being an exception rather than the rule, it is necessary for the court to make
ndings of fact and law that would bring the case within exception and justify the
grant of the award (Refractories Corporation of the Philippines v. Intermediate
Appellate Court, 176 SCRA 539).
WHEREFORE, premises considered, except for the deletion of the award of
attorney's fees, the decision of the Court of Appeals is hereby AFFIRMED.
SO ORDERED.
Padilla, Bellosillo, Vitug and Hermosisima, Jr., JJ., concur.

Footnotes
1.CA Rollo, p. 28.
2.Rollo, pp. 21-28.

3.Id., at 30-31.
4.Id., at 10-11.
5.The Negotiable Instruments Law of the Philippines was patterned after the draft approved by
the Commissioner on Uniform State Laws in the United States. (Agbayani Commentaries
and Jurisprudence on the COMMERCIAL LAWS OF THE PHILIPPINES , Vol. 1, p. 99-100).
6.Rollo, p. 11.
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 7.Agbayani, Commentaries and Jurisprudence on the COMMERCIAL LAWS OF THE
PHILIPPINES , Vol. 1, 1992 ed., p. 403.
8.Nickles, Negotiable Instruments and other related Commercial Paper, 1993 2nd ed., p. 168.
9.Vitug, Pandect of Commercial Law and Jurisprudence, 1990 ed., p. 55.
10.Agbayani, Commentaries & Jurisprudence on the COMMERCIAL LAWS OF THE
PHILIPPINES , Vol. 1, 1992 ed., pp. 403-404.
11.Id., at 404-405.
12.Rollo, p. 78.

13.Rollo, pp. 21-28.

14.Rollo, p. 26.
15.Ibid.
16.R.J. Francisco, Evidence, 1993 ed., p. 505.

The due execution of a document could be proved through the testimony of (1) the person who
executed it; (2) the person before whom its execution was acknowledged; or (3) any
person who was present and saw it executed and delivered, or who, after its execution
and delivery, saw it and recognized the signatures, or by a person to whom the parties to
the instrument had previously confessed the execution thereof . . .

17.CA Rollo, Decision of RTC, p. 5.

18.CA Rollo, Brief of Appellant PNB, pp. 15-16.
19.246 SCRA 193 (1995); See also, Toyota Shaw, Inc. v. CA, 244 SCRA 320 (1995).

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