A. Alfred issued a check for ₱1,000.00 to Benjamin, his friend, as payment for an electronic gadget. The check was drawn against Alfred’s account with Good Bank. Benjamin then indorsed the check specially in favor of Cesar. However, Cesar misplaced the check. Dexter, a dormmate of Cesar, found the check, altered its amount to ₱91,000.00, and forged Cesar’s indorsement by way of a blank indorsement in favor of Felix, a known jeweler. Felix then caused the deposit of the check in his account with Solar Bank. As collecting bank, Solar Bank stamped “all previous indorsements guaranteed” on the check. Seeing such stamp of the collecting bank, Good Bank paid the amount of ₱91,000.00 on the check.
May Good Bank claim reimbursement from Alfred? Explain your answer. (4%)
B. In 2006, Donald, an American temporarily residing in Cebu City, issued to Rhodora a check for $50,000.00 drawn against Wells Fargo Bank with offices in San Francisco, California. Rhodora negotiated the check and delivered it to Yaasmin, a Filipina socialite who frequently travelled locally and internationally. Because of her frequent travels, Yaasmin misplaced the check. It was only 11 years later on, in 2017, when she found the check inside a diary kept in her vault in her Hollywood, California house.
Discuss and explain the rights of Yaasmin on the check. (4%)
Suggested answer only. Not an official answer and not legal advice.
For Question A, Good Bank may claim reimbursement from Alfred only for P1,000.00. For Question B, Yaasmin cannot enforce the check against Donald or Rhodora, but may request a new check. Under the Negotiable Instruments Law, a drawee
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Quick check
Under Section 124 of the Negotiable Instruments Law, to what extent may a drawee bank debit a drawer's account for a materially altered check?
Under Section 124, a materially altered check can only be enforced or debited according to its original tenor.
What is the legal effect when a collecting bank stamps 'all previous indorsements guaranteed' on an altered check?
The collecting bank's guarantee stamp warrants prior indorsements and assumes liability for prior alterations.
Under Philippine banking practice and Section 186 of Act Number 2031, when does a check become stale?
A check is considered stale if not presented for payment within six months from its issue date.
Why is Yaasmin barred from enforcing the $50,000.00 check against Donald and Rhodora after holding it for eleven years?
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Which statutes primary govern negotiable instruments, material alteration, check presentment, and prescription in the Philippines?
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Learn more about these topics
1. Material Alteration Liability
Under Section 124 of the Negotiable Instruments Law (Act Number 2031), 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, or assented to the alteration and subsequent indorsers. However, when an altered instrument is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor. Consequently, a drawee bank that pays an altered check can debit the drawer's account only for the original amount.
2. Collecting Bank Guarantee
Under established commercial banking jurisprudence and clearing regulations, a collecting bank that places its clearing stamp on a check declaring all prior indorsements guaranteed becomes liable for any forgery or material alteration preceding its endorsement. By guaranteeing all prior indorsements, the collecting bank warrants the genuineness of the instrument and assumes responsibility to the drawee bank for any fraudulent alteration or forged indorsement. If the drawee bank pays the altered amount, it may recover the excess amount paid from the collecting bank based on this express clearing guarantee.
3. Stale Check Prescription
Under Section 186 of Act Number 2031, a check must be presented for payment within a reasonable time after its issue, or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. In Philippine banking practice, a check not presented within six months from its date becomes stale. Furthermore, under Article 1144 of the Civil Code of the Philippines (Republic Act Number 386), an action upon a written contract prescribes ten years from the time the cause of action accrues, discharging prior endorsers from liability.