39 Metrobank v.

Cabilzo
Material Alteration
Section 124 and Section 125 (I pasted the provisions below sa ruling)

Petitioner: Metrobank, Pasong Tamo Branch

Respondent: Renato Cabilzo, who has a current account with Metrobank

Facts: Respondent (Cabilzo) was one of petitioner Metrobank’s clients who has a current account
with Metrobank, Pasong Tamo Branch

 On 12 November 1994, Cabilzo issued a Metrobank Check, payable to “CASH” and

postdated on 24 November 1994 in the amount of One Thousand Pesos (P1,000.00). The
check was drawn against Cabilzo’s Account with Metrobank Pasong Tamo Branch under
his Current Account.

 The check was presented to Westmont Bank for payment. Westmont Bank, in turn,
indorsed the check to Metrobank for appropriate clearing. After the entries thereon were
examined, including the availability of funds and the authenticity of the signature of the
drawer, Metrobank cleared the check for encashment.

 The problem started when a bank personnel from Metrobank Pasong Tamo asked
Cabilzo’s representative if Cabilzo issued a check in the amount of P91,000.00.
Cabilzo’s representative replied NO. Cabilzo himself confirmed with Metrobank that he
did not issue the check worth P91,000.00. Cabilzo then requested that the questioned check
be returned to him for verification, which was done by Metrobank.

 Upon receipt of the check, Cabilzo discovered that the Metrobank Check he issued on
12 November 1994 in the amount of P1,000.00 was altered to P91,000.00 and the date
24 November 1994 was changed to 14 November 1994.

 Cabilzo demanded that Metrobank should “re-credit” the P90,000 to his account
(Since the P90,000 from Cabilzo’s current account was paid to the altered check, stating
it in Filipino: pinagbayad si Cabilzo on something na di niya dapat babayaran kasi
altered lang naman yung check. Dapat P1,000 but the check was altered to P91,000.
Sobra ng P90,000 so yun yung gusto niya i-re-credit.)

 Metrobank refused to re-credit the amount despite repeated demands, even with a demand
letter. This is when Cabilzo filed an action for the recovery of the P90,000.
  Metrobank countered that it verified and examined the check for its authenticity and
genuineness and further noted that there are no alterations. Metrobank further claimed that
Westmont Bank should be held liable because Westmont indorsed the check as an
unqualified indorser, by virtue of which it assumed the liability of a general indorser, and
thus, among others, warranted that the instrument is “genuine and in all respect what it
purports to be”.

Issue: Whether herein petitioner Metrobank should be held liable for the amount of the check
Held: Yes.

Ruling: First, it is important to specify what are these Material Alterations, as prpvided by Section
125 of the NIL:
“Section 125. What constitutes material alteration.—Any alteration which changes:
(1) The date;
(2) The sum payable, either for principal or interest;
(3) The time or place of payment;
(4) The number or the relation of the parties;
(5) The medium or currency in which payment is to be made; 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.”

In the case at bar, the check was altered so that the amount was increased from P1,000.00 to
P91,000.00 and the date was changed from 24 November 1994 to 14 November 1994.
Apparently, since the entries altered were among those enumerated under Section 1 and 125,
namely, the sum of money payable and the date of the check, evidently there is material alteration.

Next, we need to determine the effects of these alterations as emphasized by Section 124 which
provides: “Alteration of instrument; effect of.—Where a negotiable instrument is materially altered
without the assent of all parties liable thereon, it is avoided, except as against a party who has
himself made, authorized, and assented to the alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the hands of a holder in due
course not a party to the alteration, he may enforce the payment thereof according to its original
tenor.”

Cabilzo was not the one who made nor authorized the alteration. Neither did he assent
to the alteration by his express or implied acts.

As a business affected with public interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship. The appropriate degree of diligence required of
a bank must be a high degree of diligence, if not the utmost diligence.
In the present case, it is obvious that Metrobank was remiss in that duty and violated
that relationship.
Metrobank failed to detect the above alterations which could not escape the attention of
even an ordinary person. This negligence was exacerbated by the fact that, as found by the trial
court, the check in question was examined by the cash custodian whose functions do not
include the examinations of checks indorsed for payment against drawer’s accounts.
Obviously, the employee allowed by Metrobank to examine the check was not versed and
competent to handle such duty.
The Supreme Court emphasized that by the very nature of their work the degree of
responsibility, care and trustworthiness expected of their employees and officials is far better than
those of ordinary clerks and employees. Banks are expected to exercise the highest degree of
diligence in the selection and supervision of their employees.
In addition, the bank on which the check is drawn, known as the drawee bank, is under
strict liability to pay to the order of the payee in accordance with the drawer’s instructions as
reflected on the face and by the terms of the check. Payment made under materially altered
instrument is not payment done in accordance with the instruction of the drawer.
When the drawee bank pays a materially altered check, it violates the terms of the
check, as well as its duty to charge its client’s account only for bona fide disbursements he
had made. Since the drawee bank, in the instant case, did not pay according to the original
tenor of the instrument, as directed by the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right to deduct the erroneous payment it
made from the drawer’s account which it was expected to treat with utmost fidelity.

Note: The case discussed the meaning of “The doctrine Equitable Estoppel” – which states
that when one of the two innocent persons, each guiltless of any intentional or moral wrong,
must suffer a loss, it must be borne by the one whose erroneous conduct, either by omission or
commission, was the cause of injury.

Metrobank alleged that Cabilzo has no cause of action for there was “equitable estoppel” on
his part, because he was negligent in the issuance of the check. The Court did not consider
this averment by Metrobank because Cabilzo the duty of utmost diligence when it comes to
ascertaining the validity of the instrument and the checking if there are material alterations
belongs to Metrobank.

Cabilzo even placed asterisks before and after the amount in words and figures in order to
forewarn the subsequent holders that nothing follows before and after the amount indicated other
than the one specified between the asterisks.