G.R. No. 176697, 10 September 2014, 734 SCRA 588


Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank deposits with respondent Express Savings Bank’s Biñan branch. They were engaged in the business of “buy and sell” of brand new and second-hand motor vehicles. They received an order from a certain Gerry Mambuay for the purchase of a second-hand Mitsubishi Pajero and a brand-new Honda CRV.

The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to different payees and drawn against the Philippine Veterans Bank (drawee), each valued at Two Hundred Thousand Pesos (₱200,000.00) for a total of One Million Eight Hundred Thousand Pesos (₱1,800,000.00).

Petitioners deposited the said checks in their savings account with Express Savings Bank which, in turn, deposited the checks with its depositary bank, Equitable-PCI Bank. Equitable-PCI Bank presented the checks to the drawee, the Philippine Veterans Bank, which honored the checks. Petitioners were informed that the checks they deposited with Express Savings were honored. The entire amount of ₱1,800,000.00 was credited to petitioners’ savings account. Petitioners then released the two cars to the buyer.

Two months later, the subject checks were returned by PVAO to the drawee on the ground that the amount on the face of the checks was altered from the original amount of ₱4,000.00 to ₱200,000.00. The drawee returned the checks to Equitable-PCI Bank by way of Special Clearing Receipts. Equitable-PCI Bank, in turn, debited the deposit account of Express Savings in the amount of ₱1,800,000.00.

Express Savings then closed the Special Savings Account of the petitioners with a balance of ₱1,179,659.69 and transferred said amount to their savings account. Express Savings then withdrew the amount of ₱1,800,000.00 representing the returned checks from petitioners’ savings account.


Whether Express Savings had the right to debit the amount of ₱1,800,000.00 from the petitioners’ accounts and whether the bank’s act of debiting was done without the petitioners’ knowledge.


Section 63 of Act No. 2031 or the Negotiable Instruments Law provides that the acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance. The acceptor is a drawee who accepts the bill.

In case the negotiable instrument is altered before acceptance, is the drawee liable for the original or the altered tenor of acceptance? The acceptor/drawee despite the tenor of his acceptance is liable only to the extent of the bill prior to alteration. This view appears to be in consonance with Section 124 of the Negotiable Instruments Law which states that a material alteration avoids an instrument except as against an assenting party and subsequent indorsers, but a holder in due course may enforce payment according to its original tenor. Thus, 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. If the drawee 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. The drawee, however, still has recourse to recover its loss. It may pass the liability back to the collecting bank which is what the drawee bank exactly did in this case. It debited the account of Equitable-PCI Bank for the altered amount of the checks.

When petitioners deposited the check with Express Savings Bank, they were designating the latter as the collecting bank. A collecting bank is defined as any bank handling an item for collection except the bank on which the check is drawn. After receiving the deposit, under its own rules, Express Savings shall credit the amount in petitioners’ account or infuse value thereon only after the drawee bank shall have paid the amount of the check or the check has been cleared for deposit.

Express Savings and Equitable-PCI Bank are both depositary and collecting banks. A depositary/collecting bank where a check is deposited, and which endorses the check upon presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants “that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting.” It has been repeatedly held that in check transactions, the depositary/collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements.

If any of the warranties made by the depositary/collecting bank turns out to be false, then the drawee bank may recover from it up to the amount of the check.

The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct. As collecting banks, Express Savings and Equitable-PCI Bank are both liable for the amount of the materially altered checks. Since Equitable-PCI Bank is not a party to this case and Express Savings allowed its account with Equitable PCI Bank to be debited, it has the option to seek recourse against the latter in another forum.

*Case digest by Legine S. Ramayla, JD-IV, Andres Bonifacio Law School, SY 2019-2020