88 Phil. 178 (1951)


Laya was the provincial treasurer of Misamis and an ex officio agent of PNB. In his capacity as treasurer, he issued USAFFE P400,000 in emergency notes and a PNB Check for P100,000. The check was payable to Ramos, an assistant agent. Ramos later indorsed the check to Montinola before having been incarcerated as a prisoner of war.

Montinola claims that this was because at that time, Ramos needed foodstuff and medicine, Ramos claims that it was only up to the value of P30,000. PNB came into the picture as the photostatic copy had the word, “Agent, PNB” under Laya’s signature. Montinola sued PNB for the value of the check, 2 and a half years overdue.


Whether PNB would be liable to Montinola?


The insertion of the words “Agent, Phil. National Bank” which converts the bank from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration of the instrument without the consent of the parties liable thereon, and so discharges the instrument. (Section 124 of the Negotiable Instruments Law).

The check was not legally negotiated within the meaning of the Negotiable Instruments Law. Section 32 of the same law provides that “the indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable, . . . (as in this case) does not operate as a negotiation of the instrument.” Montinola may therefore not be regarded as an indorsee. At most he may be regarded as a mere assignee of the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos.

Neither can Montinola be considered as a holder in due course because section 52 of said law defines a holder in due course as a holder who has taken the instrument under certain conditions, one of which is that he became the holder before it was overdue. When Montinola received the check, it was long overdue. And, Montinola is not even a holder because section 191 of the same law defines holder as the payee or indorsee of a bill or note and Montinola is not a payee. Neither is he an indorsee for as already stated, at most he can be considered only as assignee.

Neither could it be said that he took it in good faith. As already stated, he has not paid the full amount of P90,000 for which Ramos sold him P30,000 of the value of the check. In the second place, as was stated by the trial court in its decision, Montinola speculated on the check and took a chance on its being paid after the war.

Montinola must have known that at the time the check was issued in May, 1942, the money circulating in Mindanao and the Visayas was only the emergency notes and that the check was intended to be payable in that currency.

Also, he should have known that a check for such a large amount of P100,000 could not have been issued to Ramos in his private capacity but rather in his capacity as disbursing officer of the USAFFE, and that at the time that Ramos sold a part of the check to him, Ramos was no longer connected with the USAFFE but already a civilian who needed the money only for himself and his family.

As already stated, as a mere assignee Montinola is subject to all the defenses available against assignor Ramos. And, Ramos had he retained the check may not now collect its value because it had been issued to him as disbursing officer.

As observed by the trial court, the check was issued to M. V. Ramos not as a person but M. V. Ramos as the disbursing officer of the USAFFE. Therefore, he had no right to indorse it personally to plaintiff. It was negotiated in breach of trust, hence he transferred nothing to the plaintiff.