Evidence Digest: FRANCISCO BUNAG VS. COURT OF APPEALS (1988)

Topic: Authentication and Proof of Documents 

FRANCISCO BUNAG VS. COURT OF APPEALS
[G.R. No. L-39013,February 29,1988]

Facts:

This case is about the due execution and authenticity of a thumb-marked, non-notarized and non-witnessed deed of sale of a parcel of unregistered land. The trial court found that private respondents have failed to prove the due execution and authenticity of the deed of sale. 

The Court of Appeals, however, overturned the trial court's finding, relying on the testimony of Brigida Bautista, a sister of private respondents. In her testimony however, Brigida Bautista did not furnish any details surrounding the execution of the document.

Issue:

Was the unnotarized deed of sale, a private writing, can be received in evidence without proving its due execution and authenticity?

Held:

NO. Proof of the due execution and authenticity of private writings is required under Section 21, Rule 132 of the Revised Rules of Court, to wit:

Sec. 21. Private writing, its execution and authenticity, how proved. — Before any private writing may be received in evidence, its due execution and authenticity must be proved either:

(a) By anyone who saw the writing executed;

(b) By evidence of the genuineness of the handwriting of the maker; or

(c) By a subscribing witness.


It should be noted that (Exhibit "1") was written in English. Since it appears that said document was merely thumb-marked, it could reasonably be inferred that Apolonio Bunag, the supposed vendor, was illiterate. Under the stances, the minimum proof necessary to establish due authenticity should, in the least, include evidence that the document was duly read, explained and translated to Apolonio Bunag. Unfortunately, no such evidence was presented. 


The probative value of the testimony of Brigida Bautista, it is not sufficient if he states in a general manner that such person made the writing. More so if the document was merely thumb-marked.

Another fact which compels this Court to proceed with caution is the fact that there are no instrumental witnesses in the document. The mischief that lurks behind accepting at face value a document that is merely thumb-marked. without any witnesses to it, and not acknowledged before a notary public could be one of the reasons behind the requirement of the rules on evidence that a private writing must be shown to be duly executed and authenticated.

The due execution and authenticity of the deed of sale, (Exhibit 1) not having been satisfactorily proven, such private document should be excluded. 

Evidence Digest: THE UNITED STATES, vs.VALENTIN TRONO, ET AL. (1904)

Topic: Opinion Rule (Rule 130, Sections 48-50)

THE UNITED STATES, vs.VALENTIN TRONO, ET AL.

[G.R. No. 1344, January 19, 1904]

Facts:

The defendants, charged with the murder of Benito Perez, were convicted by the trial court of the offense of lesiones menos graves. It appears that Benito Perez was arrested by police officers who allegedly illtreated Benito, causing the latter's death.

The defense contends that the death of Benito Perez was not due to the wounds inflicted, which were not serious, but to hepatic colic brought on by hypertrophic cirrhosis, from which the deceased had been suffering for a long time, basing such allegation on the certificate and testimony of the physician, Don Andres Icasiano, wherein such a statement is made.

There is nothing in the case to show that the deceased had ever suffered from hypertrophic cirrhosis. The ailment which the deceased had at the time referred to by the physician, Icasiano, was cholera, according to the mother of the deceased, Candelaria de los Santos, who testified, besides, referring to the time to which this case refers, that her son was of a robust constitution and sufferred no ailments whatever.

The medical certificate stated that the body of the deceased only showed two small bruises while three witnesses testified that the deceased had bruises and swellings on the superior part of the left hand, on the neck, on the ribs, and on the abdomen; The physician also affirmed that the deceased devoted himself on the night of the occurrence to his customary libations. Nothing is shown in the case to corroborate this illegal habit, and especially nobody testified to having seen the deceased drunk on the night of the occurrence. 

Also, after the physician, Icasiano, had examined the deceased, and while the latter was still alive, he told Raymunda Perez that the deceased was suffering from blows with a rifle.

When the death had taken place, the family of the deceased repeatedly requested the physician, Icasiano, to examine the body, which the latter flatly refused to do, and warned them, on the other hand, to bury him quickly, under the pretext that he had died of cholera. It likewise appears from the testimony of Raymunda Perez that said physician is an intimate friend of the accused, Maximo Angeles.

Issue:

Is the expert testimony of the physician admissible in evidence?

Held:

NO. The  physician's testimony cannot be given credit because the facts which would serve as a foundation to his conclusion are manifestly inexact. In the present case there are to be found sufficient data which show in a conclusive manner the seriousness of the wounds inflicted upon the deceased, which from the very first moment prevented him from keeping on his feet, and caused him continuous and sharp pains in the abdomen and retention of the urine — symptoms which constantly showed themselves until death came — which in the absence of satisfactory proof to the contrary may be attributed to these causes, which undoubtedly were sufficient in themselves to bring about the death of the deceased.

Expert testimony no doubt constitutes evidence worthy of meriting consideration, although not exclusive, on questions of a professional character. The courts of justice, however, are not bound to submit their findings necessarily to such testimony; they are free to weight them, and they can give or refuse to give them any value as proof, or they can even counterbalance such evidence with the other elements of conviction which may have been adduced during the trial. 

Evidence Digest: OHIO V. ROBERTS (1980)

Topic: Prior Testimony (Rule 130, Section 47)

OHIO V. ROBERTS
[448 U.S. 56, 100 S. Ct. 2531, 65 L. Ed. 2d 597, 1980 U.S.]

FACTS:

Defendant stayed at Anita Isaacs apartment for a few days. During his stay, he used the checks and credit cards under Bernard Isaacs’s name. At the preliminary hearing, Anita was called by the defendant’s counsel and was asked at length about granting permission to defendant which she denied. During the trial however, Anita was not available despite an extensive search by the prosecution and her family. Thus, the prosecution submitted her preliminary hearing testimony as evidence. Defendant objected but the trial judge allowed the evidence. Defendant was convicted, but the appellate court and The Supreme Court of Ohio sided with the defendant in not allowing the evidence.

ISSUE:

Whether the preliminary hearing testimony by an unavailable witness is admissible during the trial.

HELD:

YES. The rule for testimonies made by an unavailable witness correctly applies. The testimony was found reliable because the same includes the defendant's counsel cross-examining the witness during the preliminary hearing, as well as the inability of the prosecution to locate her despite the extensive search done. Thus, the preliminary hearing testimony was admissible in evidence.

Evidence Digest: CARMELITA TAN and RODOLFO TAN VS. COURT OF APPEALS (1967)

Topic: Prior Testimony (Rule 130, Section 47)

CARMELITA TAN and RODOLFO TAN VS. COURT OF APPEALS et al
[G.R. No. L-22793, May 16, 1967]

Facts:

At first, petitioners, thru their mother as guardian ad litem, sued respondent Tan for acknowledgment and support. The first civil case was dismissed on the ground that parties have already come to an amicable settlement.

1 year and eight months thereafter, petitioners, this time thru their maternal grandfather as guardian ad litem, commenced the present action before the Juvenile & Domestic Relations Court for acknowledgment and support, involving the same parties, cause of action and subject matter.The case was again dismissed by reason of res judicata and insufficiency of evidence.

On appeal, petitioners contends that the testimony of their witnesses, who were unable to testify in the 2nd trial must be admissible, applying Rule 130 Sec 41.

SEC. 41. Testimony at a former trial. — The testimony of a witness deceased or out of the Philippines, or unable to testify, given in a former case between the same parties, relating to the same matter, the adverse party having had an opportunity to cross-examine him, may be given in evidence.

Notably, the witnesses were subpoenaed by the Juvenile & Domestic Relations Court a number of times. But, they  did not appear to testify. These witnesses were neither dead nor outside of the Philippines.

Issue:

Are the witnesses' testimonies in the former trial within the coverage of the rule of admissibility intended for witnesses of the class unable to testify? 

Held:

NO. They cannot be categorized as witnesses of the class unable to testify. The witnesses in question were available. Only, they refused to testify. No other person that prevented them from testifying, is cited. Certainly, they do not come within the legal purview of those unable to testify.

To emphasize, subsequent failure or refusal to appear thereat [second trial] or hostility since testifying at the first trial does not amount to inability to testify. To be qualified, such inability should proceed from a grave cause, almost amounting to death, as when the witness is old and has lost the power of speech. 

Evidence Digest: PNOC SHIPPING AND TRANSPORT CORPORATION VS. COURT OF APPEALS et al. (1998)

Topic: Commercial Lists (Rule 130, Section 45)

PNOC SHIPPING AND TRANSPORT CORPORATION VS. COURT OF APPEALS and MARIA EFIGENIA FISHING CORPORATION
[G.R. No. 107518. October 8, 1998]

Facts:

This is a civil case for damages arising from a sea collision incident when plaintiff's tanker hit respondent's fishing boat, causing the boat to sink.

The lower court and CA ruled in favor of respondent on the basis of documentary exhibits presented, mainly the price quotations. These price quotations  were issued personally to Del Rosario who requested for them from dealers of equipment similar to the ones lost at the collision of the two vessels. However, these are not published in any list, register, periodical or other compilation nor containing data of everyday professional need and relied upon in the work of the occupation.T

Issue:

Are price quotations considered commercial list, thus can be admissible in evidence?

Held:

NO. Price quotations are not within the purview of commercial lists as these are not standard handbooks or periodicals, containing data of everyday professional need and relied upon in the work of the occupation.These are simply letters responding to the queries of Del Rosario. 

The price quotations are ordinary private writings which under the Revised Rules of Court should have been proffered along with the testimony of the authors thereof. Del Rosario could not have testified on the veracity of the contents of the writings even though he was the seasoned owner of a fishing fleet because he was not the one who issued the price quotations.

A document is a commercial list if: 
(1) it is a statement of matters of interest to persons engaged in an occupation; 
(2) such statement is contained in a list, register, periodical or other published compilation; (3) said compilation is published for the use of persons engaged in that occupation, and 
(4) it is generally used and relied upon by persons in the same occupation.

Evidence Digest: STATE OF NEW JERSEY VS. LAWRENCE LUNGSFORD (1979)

Topic: Commercial Lists (Rule 130, Section 45)

STATE OF NEW JERSEY VS. LAWRENCE LUNGSFORD
[167 N.J. Super. 296 (1979) 400 A.2d 843]

Facts:

Defendant was tried before a jury and found guilty of both counts of a two-count indictment charging him with knowing possession of a motor vehicle with an altered serial number.

The State alleged that the vehicle was stolen from one James Wilton of Edison but was unable to produce him at trial to identify the vehicle or testify that it was stolen. So, the State was required to rely on the NATB factory-trace information to establish that the car in defendant's possession when he was arrested was the car reported stolen by Wilton. The NATB is essentially an informational warehouse, a registry for the industry. But the record is devoid of any proof of the reliability of the NATB procedures and therefore of any proper evidential basis for admission of data derived therefrom.

Issue:

Is the NATB procedures for tracing the identification of motor vehicle admissible in evidence?

Held:

NO. The information concerning the NATB procedure was inadequate to permit admissibility. It failed to comply with the rule that Evidence of a statement of matters of interest to persons engaged in an occupation contained in a list, register, periodical, or other published compilation is admissible to prove the truth of any relevant matter so stated if the compilation is published for use by persons engaged in that occupation and is generally used and relied upon by them.

In addition, the judge was not convinced at  the hearing that the proffer was sufficiently trustworthy, based on the method of compilation and industry reliance. Thus,statements from the compilation are inadmissible to prove the truth of the relevant matter stated.

Evidence Digest: EPIFANIA DELA CRUZ VS. SPS. EDUARDO C. SISON (2005)

Topic: Official Records (Rule 130, Section 44)

EPIFANIA DELA CRUZ VS. SPS. EDUARDO C. SISON
[G.R. No. 163770. February 17, 2005]

Facts:
This is a civil case filed by the plaintiff, then deceased who was substituted by her niece in order to declare a notarized Deed of Sale null and void. The Deed was alleged to have been executed by the plaintiff fraudulently in favor of her nephew, the defendant.She denies knowledge of affixing her signature in said deed. Unfortunately, the notary public before whom the parties appeared already died prior to the filing of the case.

Issue:
If the deed of sale, acknowledge before a notary public is considered a public document which are admissible in evidence.

Held:
YES, documents acknowledged before notaries public are public documents which are admissible in evidence without necessity of preliminary proof as to their authenticity and due execution. They have in their favor the presumption of regularity, and to contradict the same, there must be evidence that is clear, convincing and more than merely preponderant. The burden of proof to overcome the\ presumption of due execution of a notarial document lies on the one contesting the same.

Petitioner failed to discharge this burden.

Reviewer: Agrarian Law (Part 1)

AGRARIAN LAW RA 6657

WHAT IS AGRARIAN REFORM? Sec. 3, RA 6657

Redistribution of lands

Regardless of crops or fruits produced,

To farmers and regular farmworkers

Irrespective of tenural arrangements,

Including a totality of factors and support services

Designed to lift the economic status of the beneficiaries,

And all other arrangements alternative to physical redistribution of lands,

Such as production, profit-sharing, labor administration and the distribution of shares of stocks,

Which will allow beneficiaries to receive

A just share of the fruits of the land they work.

WHAT IS LAND REFORM?

Under PD 27, land distribution restricting the scope of land reform to tenanted private agricultural lands primarily devoted to rice and corn lands operating under a system of share-crop or lease tenancy whether classified as landed estate or not. and set the retention limit at 7 hectares.

COVERAGE OF RA 6657 VS. PD 27

ALL agricultural lands vs. Private agricultural lands (primarily devoted to rice and corn)

Retention limits: 5 hectares vs. 7 hectares

WHAT ARE AGRICULTURAL LANDS?

All lands devoted to agricultural activity, and are not classified as mineral, forest, residential, commercial or industrial land.

WHAT ARE AGRARIAN DISPUTES?

Any controversy relating to tenurial arrangements (leasehold, tenancy, stewardship, or otherwise) over lands devoted to agriculture,

Including disputes concerning farmworkers, associations or representation of persons in

Negotiating, fixing, maintaining, changing or seeking to arrange the terms and conditions of such tenurial arrangements.

AO NO. 1 – NOTICE OF COVERAGE

Is Notice of Coverage mandatory?

NO. Only issued when there is landowner resistance, during acquisition of private agricultural lands. (invoking the ground of lack of notice or non-observance of due process)

-          MARO (as to execution)

AO NO. 2 – RETENTION RIGHTS

MAY THE LANDOWNER CHOOSE THE AREA TO BE RETAINED?

YES. The landowner may choose the area to be retained, provided it is compact and contiguous, and shall be the least prejudicial to the entire landholdings and the majority of farmers therein.

WHEN CAN HE EXERCISE HIS RIGHT TO RETAIN?

a.       Anytime before receipt of the notice of coverage

b.      Anytime before the landholding is subject to schedule of implementation under CARP coverage;

c.       If under the CA scheme, within 60 days from the receipt of notice of coverage;

d.      If under the VOS/VLT or DPS schemes, simultaneous with the offer to sell or transfer.

WHAT ACTS/OMMISIONS CONSTITUTES THE WAIVER OF THE EXERCISE OF RETENTION?

Under omission,

a.       Failure to manifest his intent within 60 calendar days from receipt of notice of coverage;

b.      Failure to manifest such intent to exercise his right of retention simultaneously upon application of the VLT/DPS schemes.

VLT – if tenant chooses to be a beneficiary of another landholding of the same owner with the same or similar comparable features.

Under acts,

c.       Execution of document expressly waiving the right of retention duly attested by MARO/PARO or Regional Director;

d.      Execution of a Landowner Tenant Production Agreement and Farmer’s Undertaking (LTPA-FU) and Application to  Purchase and Farmer’s undertaking (APFU) covering the subject property.

e.      Entering into a VLT/DPS or VOS but failure to manifest the intention to exercise his right retain such area upon filing of such applications.

f.        Execution and submission of any document indicating that he is consenting to the CARP coverage of his entire landholding.

g.       Performing any act constituting estoppel by laches which is failure or neglect for an unreasonable length of time to do which he may have done earlier by exercising due diligence, warranting a presumption that he abandoned his right or decline to assert it.

WHO MAY FILE FOR A CERTIFICATE OF RETENTION? (3)

a.       Any person, natural or juridical, who owns an agricultural land with an  aggregate of more than 5 hectares;

b.      A landowner who  owns 5 hectares or less, which are not yet subject to the schedule of implementation of CARP;

c.       The heirs of a deceased landowner, upon showing of proof that the landowner had manifested during his lifetime to exercise his right of retention over the landholding prior to 8/23/1990.

WHERE TO FILE?

 At any PARO/ office of the Regional Director, which applications shall be forwarded to the MARO who has jurisdiction over the landholding after assigning a docket number.

WHAT ARE THE OBLIGATIONS OF THE LANDOWNER OVER THE RETAINED LANDS? (5)

a.       To cultivate the land directly or thru labor administration

b.      To make it productive

c.       To respect the security of tenure of the farmers or farmworkers on the land prior to the approval of RA 6657

d.      To retain the actual tenant farmers in the landholdings

e.      To register within 3 months after 6/15/1988 all transactions such as sale,disposition,lease or transfer with the RD to be valid.

WHAT ARE THE CRITERIA FOR THE AWARDS OF RETENTION? (5)

a.       The land is a private agricultural land

b.      The area is compact and contiguous, and the least prejudicial to the entire landholding and the majority of farmers therein

c.       Landowner to execute an affidavit as to the aggregate area of his landholding in the entire Philippines

d.      Landowner to submit a list of his children which are at least 15 y.o. and above, who are actually cultivating the land or directly managing the farm since 6/15/1988 for identification of the preferred beneficiaries, as well as evidence thereof.

e.      Landowner to execute an affidavit stating the names of all farmers, agricultural lessees and share tenants, regular farmworkers, seasonal farmworkers, other farmworkers, actual tillers or occupants, and/or other persons directly working on the land; if there are no such persons, a sworn statement attesting to such fact.

WHO ARE THE BENEFICIARIES?

According to priority (ARSOACO)

Agricultural lessees and share tenants

Regular farmworkers

Seasonal farmworkers

Other farmworkers

Actual tillers and occupants

Cooperatives, xxx

Other persons directly working on the land

WHAT IS THE AREA THAT MAYBE RETAINED?

a)      LO covered by PD 27 – 7 hectares (subject to exceptions)

b)      LO covered by PD 6657 – 5 hectares

c)       If with children (at least 15 y.o. who are actually cultivating or directly managing the farm) – 3 hec. each

-          Up to the filing of the retention

-          Up to the time of acquisition of the landholding under the CARP

d)      Original homestead grantees/ direct compulsory heirs  who still own the original homestead at the time of approval of PD 6657 – to retain the same area so long as they continue to cultivate the same.

e)      Spouses who married under the NCC (1950)

-          If conjugal property (w/o judicial separation of property agreements) – 5 hectares (total)

-          If each or both has (capital and/or paraphernal property) – 5 hectares each but exceeding 10 hectares

f)       Spouses who married under FC (8/3/1988)

-          If without judicial separation of property agreements – 5 hectares only

-          If with judicial separation of property agreements – 5 hectares each

WHAT ARE THE OPTIONS OF THE TENANT IN CASE HE OCCUPIES THE LAND RETAINED?

-          To be a lessee

-          Or to be a beneficiary of the same or another agricultural land with similar or comparable features

(choosing 1 shall lose the other)= alternative condition?

WHEN IS DISTURBANCE COMPENSATION (DC) PAID by the landowner TO THE TENANT?

a.       If tenant declined to enter into a leasehold

b.      No available land to transfer

c.       Tenant refuses the land for his transfer

HOW MUCH IS THE DISTURBANCE COMPENSATION?

Depends on the agreement of the parties, taking into consideration the improvements made on the land.

The amount shall be at least 5x the average gross harvest on their landholding during the last 5 years preceding the calendar years pursuant to RA 3844 as amended by RA 6389.

IN WHAT FORMS MAY THE DC BE PAID?

(AO NO. 4)

-          Cash or

-          Kind (some or all mixtures of housing, homelots, employment and/or other benefits) or

-          Combination of cash and kind

MAY THE TENANT BE EJECTED FROM THE LANDHOLDING IF NO DC WERE AGREED UPON?

NO. Any tenant may not be ejected without payment of a DC, and proof of payment submitted to MARO. In case of disagreement, either party may file a petition for fixing a DC to the appropriate PARAD.

WHEN SHOULD THE TENANT EXERCISE HIS OPTIONS?

Within 1 year, from:

a.       The time the LO manifests his choice of area of retention; or

b.      MARO chose the area; OR

c.       The time an order is issued granting the retention.

WHO MAY HANDLE DC FIXING DISPUTES?

a.       PARAD

b.      RARAD

c.       DARAB

FILING FOR EXEMPTION FROM CARP COVERAGE

WHEN SHOULD THE APPLICATION ON EXEMPTION BE FILED?

Within 60 days from receipt of notice of coverage, if applicable.

WHAT ARE THE REQUIREMENTS FOR FILING OF EXEMPTION CLEARANCE?

a.       SPA if applicant is not the registered owner nor one of the co-owners of the property

b.      Notarized Sec. Cert. of the corp. or cooperative, authorizing the applicant’s representative to file the Sworn Application for CARP Exemption + latest notarized GIS

c.       True copy of the original COT or TCT of the subject land, certified by the RD not earlier than 30 days prior to the application filing date.

In case of untitled land,

a.       Certification from DENC Cenro – classified as A&D

b.      Certification from DENC Centro – for admin. Confirmation of title or Clerk of Court (for judicial confirmation of title) that the titling process has commenced and there are no adverse claimants;

c.       Land Classification certification either from HLURB, DENR Mines and Geosciences Bureau, LGU, NIA, as the case may be.

d.      Certification from MARO re public notice requirement compliance

e.      Photographs of the subject land

f.        Proof of receipt of payment of DC, or valid agreement to pay or waive payment of the same

g.       Affidavit/Undertaking in a single document stating:

-          The number and names of qualified beneficiaries, or

-          The applicant has erected a billboard required

-          That he has not committed any forum shopping

-          That when there is a dispute on the DC, the applicant shall abide with the decision of the adjudicating authority

WHO ARE THE APPROVING AUTHORITIES FOR EXEMPTION?

Regional Director (RCLUPPI recommendation) – for properties with area less or equal to 5 hectares

Secretary (CLUPPI-2 recommendation) – for properties with area larger than 5 hectares

MAY A CONDITIONAL EXEMPTION ORDER BE GRANTED?

YES, subject to the applicant’s/landowner’s posting of bond, as determined by the Adjudicator.

Provided, the property applied for exemption shall not be developed for non-agricultural purposes until the finality of the exemption order.

MAY A PROTEST OF EXEMPTION BE FILED?

YES, any person may file a written protest against the application within 30 days from posting of the requisite billboard or within 15 days from conduct of ocular inspection, whichever is later.

WHERE SHOULD PROTEST BE FILED?

Office of PARO or CLUPPI-2 as the case may be, having jurisdiction over the property.

WHAT ARE THE GROUNDS FOR PROTEST?

a.       Landholding is classified as within the agricultural zone based on the zoning ordinance or comprehensive land use plan of the LGU approved by HLURB

b.      Subject property has been covered by Operation Land Transfer under PD 27.

WHAT IS AGRICULTURAL LEASEHOLD CONTRACT? (PD 3844 – Land Reform Code)

A formal tenurial agreement reduced into writing between a lessor-landholder and lessee-farmer where the former consents to the latter’s personal cultivation in consideration from a fixed rental either in money or produce or both.

WHO IS AN AGRICULTURAL LESSEE?

One who by himself and with the aid available from within his immediate farm household, cultivates the land belonging to or possessed by another, with the latter’s consent, for purposes of production, for a price certain in money or in produce or both.

WHEN IS THERE AN AGRICULTURAL LEASEHOLD RELATION?

By operation of law

WHO MAYBE CONSIDERED AS THE LESSOR?

The person who furnishes the landholding, either as an owner, civil law lessee, usufructuary or legal possessor

WHAT IS THE EFFECT OF AN AGRICULTURAL LEASEHOLD CONTRACT?

Provides security of tenure to a leasehold lessee on his landholding and cannot be ejected therefrom unless authorized by Court for causes provided under RA 3844.

WHEN MAY THE LEASEHOLD CONTRACT BE EXTINGUISHED?

A.      Abandonment of the landholding without knowledge of the ALessor

B.      Voluntary surrender of the landholding by the Alessee, written notice at least 3 months in advance

C.      Absence of persons to succeed to the lessee, in case of death or permanent incapacity

WHAT IS THE RIGHT OF PRE-EMPTION?

In case the ALessor decides to sell the landholding, the ALessee shall have the preferential right to buy the same under reasonable terms and conditions, provided that:

-          The entire landholding must be pre-empted by the Land Authority if the landowner so desires;

-          When there are 2 or more ALessees

Negotiable Instruments: Notes on Material Alteration (Sec 125, NIL)

CONCEPT OF MATERIAL ALTERATION:

1.   Define material alteration of instrument.

Under Sec. 125 of the Negotiable Instruments Law (NIL), material alteration is 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; 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 other words, it refers to any change in the instrument which affects or changes the liability of the parties in any way.

2.   Give examples of material alteration in an instrument:

-         Unauthorized change in an instrument that purports to modify in any respect the obligation of a party;

-         Unauthorized addition of words or numbers;

-         Other change to an incomplete instrument relating to the obligations of a party;

-         Substitution of the words: “or bearer” for “or order” (Builders Lime & Cement Co. v. Weymer, 151 N.W. 100);

-         Writing the words “protest waived” above a blank indorsement (Sawyer State Bank v. Sutherland, 162 N.W. 966); and

-         Erasure of the words “without recourse” above the signature of the indorser (Waltham State Bank v. Tuttle, 199 N.W. 970)

-         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 (Montinola v. PNB, GR No. L-2861, February 26, 1951) 

-         One which changes the items which are required to be stated under Sec. 1 of NIL (PNB v. CA, 256 SCRA 491).

3.   Provide examples when alteration is NOT material to the instrument.

-         Adding words implied by law or making marginal figures to make them correspond to the sum written in words (Smith v. Smith, 1 R.I. 398.)

-         A serial number is an item which is not an essential requisite for negotiability under Sec. 1 of NIL, and which does not affect the rights of the parties, hence its alteration is not material. (PNB vs. CA, 256 SCRA 491)

-         An extension of time given by the holder of a note to the principal maker without the consent of a surety co-maker, because alteration refers to physical alteration.

4.   Section 125 provides for material alterations in the instrument sufficient to avoid the instrument as against those who did not consent thereto. Is the list exclusive?

NO. The enumerated instances are not exclusive in view of the last part of the above section which reads “any other change or addition which alters the effect of the instrument in any respect.”

5.   Is material alteration a personal defense or a real defense?

Material alteration is a personal defense when it is used to deny liability according to the original tenor of the instrument. It can also be a real defense when relied on to deny liability according to altered terms.

EFFECTS OF MATERIAL ALTERATION:

6.   Generally, what is the effect of any material alteration in the instrument?

(A)         When alteration is made by a party, it avoids the instrument except as against the party who made, authorized or assented to the alteration, and subsequent indorsers.

-         In other words, the effect of a material alteration by the holder is to discharge the instrument and all prior parties thereto who did not give their consent to such alteration. Since no distinction is made, it does not matter whether it is favorable or unfavorable to the party making the alteration (Franklin Ins. Co. v. Courtney, 60 Ind. 134) or the interests of prior parties (Keller v. State Bank, 24 N.E. 94), or whether it is innocently or fraudulently made. (First Nat. Bank of Sparta v. Yowell, 294 S.W. 1101). So that where the instrument has been altered although innocently, it is discharged but the innocent party can sue upon the original debt for which it has been given. (First Nat. Bank of Sparta v. Yowell, 294 S.W. 1101).

What is the exception to the above general rule?

When the altered instrument is in the hands of a holder in due course (HDC), not a party to the alteration, he may enforce payment thereof according to its original tenor (Section 124, NIL).

EXAMPLE 1:

         M makes a promissory note for P3,000 payable to P or order. P negotiates the note to A who, with the consent of P, raises the amount to P8,000 and thereafter indorses it to B, B to C, and C to D, under circumstances which make D not a holder in due course.

         The note is discharged as against M; hence, D cannot enforce it against M even for the original tenor. A, however, would be liable to D for P8,000 as he is the party who himself made the alteration although D is not a holder in due course. Moreover, as indorser, A warrants that the instrument is genuine and in all respects what it purports to be (Secs. 65 and 66, NIL).

         P would also be liable to D for P8,000 as he authorized or assented to the alteration. Likewise, B and C would be liable to D for P8,000 as they are subsequent indorsers.

EXAMPLE 2:

         Where a promissory note made for P5,000, payable to P was altered in the amount by P or subsequent holder to P9,000, the instrument is null and void because of the material alteration, unless it reaches the hands of a HDC who can enforce it according to the tenor of the instrument before it was altered (for P5,000 only instead of P9,000).

(B) When alteration was made by a stranger (spoliation), the effect is the same as where the alteration is made by a party which a HDC can recover on the original tenor of the instrument. (Sec. 124, NIL)

BAR QUESTION 1 (1977, 1972 Bar)

Pedro writes out a check for P1,000 in favor of Jose or order against his current account with Bank of America. Juan steals the checks, erases the name of Jose and superimproses his own name. Juan deposits the check at Citibank and after clearing; Juan withdraws the amount and absconds. Upon discovery by Pedro of the material alteration, he lodged a complaint at the Bank of America, who credited the amount to Pedro. Bank of America demands reimbursement from Citibank which refuses on the ground that it only acted as an agent for collection.

Who bears the loss? Why?

 ANSWER: Between Bank of America, the drawee bank and Citibank, the bank which received for deposit the materially altered check (collecting bank), the latter will have to bear the loss.

            Under the NIL, where a negotiable instrument is materially altered without the assent of the parties liable thereon (Pedro, the drawer in the problem), it is avoided, except as against a party who has himself made, authorized or assented to the alteration and subsequent indorsers.

            In banking practice the collecting bank (Citibank in the problem) “guarantees all prior indorsements”. By virtue of said indorsement, the collecting bank becomes liable to the drawee bank under the said indorsement, and therefore will have to reimburse the drawee bank the amount of the materially altered check.

            It is true that Citibank acted only as collecting agent for its depositor, but since the check was materially altered after it left the drawer’s hands, the collecting bank had no right at all to pay the sum stated therein to the person responsible for the material alteration or anyone else deriving his right from the materially altered instrument.

            Citibank which previously had been paid by Bank of America the amount of the materially altered check has to reimburse Bank of America the said amount, without prejudice to Citibank running after Juan, the person who materially altered the check and who deposited the check with it (Citibank).

BAR QUESTION 2 (1993 bar)

Larry issued a negotiable promissory note to Evelyn and authorized the latter to fill up the amount in blank with his loan account in the sum of P1,000. However, Evelyn inserted P5,000 in violation of the instruction. She negotiated the note to Julie who had knowledge of the infirmity. Julie in turn negotiated said note to Devi for value and who had no knowledge of the infirmity.

a.    Can Devi enforce the note against Larry, and if she can, for how much? Explain.

Yes. Devi can enforce the note against Larry for P5,000.00 because she is a HDC hence fee from any defect of tile of prior parties and from defenses available to prior parties among themselves, and may enforce the instrument for the full amount (see Section 57, NIL).

b.    Supposing Devi endorses the note to Baby for value but who has knowledge of the infirmity, can the latter enforce the note against Larry?

Yes, Baby can enforce the note against Larry. Even if she is not a HDC because she has knowledge of the infirmity of the note, she has all the rights of a HDC because she derived her title from Devi, a HDC, and was not a party to the fraud or illegality of the instrument (see section 58, NIL).

BAR QUESTION 3 (1971 bar)

A executed a bill of exchange for P500 in favor of B, who altered the amount to P5,000 and presented the bill to the drawee for acceptance. The drawee, not knowing the alteration which was neatly done, accepted the bill. Thereafter, B negotiated the bill to C, who now seeks to hold the drawee liable for P5,000. The drawee contends that under the rule on alteration, he can only be liable up to P500.

a.    Is the drawee’s contention tenable? Reason.

Yes, the drawee’s contention is tenable. Even if C is a HDC, he can enforce payment only according to the original tenor of the instrument. As the instrument was originally drawn for P500, C can enforce the instrument for P500 only; its original tenor.

b.    Can the drawee debit the account of A and, if so, to what extent? Reason.

Yes, the drawee can debit A’s account but only up to P500, because the bill binds A also up to that amount only.

BAR QUESTION 4

In consideration of some goods he bought, A issued to B a personal check in the amount of P280. Without the knowledge of A, B raised the amount of P2,800. The alteration is not apparent to the naked eye. B then deposited the altered check in his account with the PNB, which released it for clearing. BPI, which is the drawee bank did not notice the alteration and the check was therefore cleared.

B was able to withdraw the P2,800 after which he closed his account. When A received his bank statements and cancelled checks for that month, he noticed the discrepancy in the amount when he compared the altered check with his check stub. He immediately notified BPI and demanded a re-credit. The BPI in turn demanded re-credit from the PNB, which cannot now locate B. Discuss the rights and liabilities of the parties under the circumstances.

ANSWER: This is a case of an altered check. Under the NIL, when an altered check reaches the hands of a HDCA, the latter may endorse the instrument according to its tenor before it was altered.
Applied to the case at bar, PNB would have the status of a HDC and can enforce payment of the check against the drawer bank, BPI for P280.00, the original unaltered tenor of the check, but it cannot collect the difference (P2,520) from BPI. BPI in turn will have to re-credit A’s account with P2,520, the increase in the amount consequent to the alteration.

As BPI cleared the check, in effect paying PNB the amount of the altered check, PNB will have to re-credit BPI with the P2,520 difference. PNB’s recourse for P2,520 is against B if he can be found.

BAR QUESTION 5 (1996 bar)

William issued to Albert a check for P10,000 drawn on XM Bank. Albert altered the amount of the check to P210,000 and deposited the check to his account with ND Bank. When ND Bank presented the check for payment through the Clearing House, XM Bank honored it. Thereafter, Albert withdrew the P210,000 and closed his account.

            When the check was returned to him after a month, William discovered the alteration. XM Bank re-credited P210,000 to William’s current account, and sought reimbursement from ND Bank. ND Bank refused, claiming that XM Bank failed to return the altered check to it within 24-hour clearing period. Who, as between, XM Bank and ND Bank, should bear the loss? Explain.

SUGGESTED ANSWER: 

            ND Bank should bear the loss if XM Bank returned the altered check to ND Bank within 24 hours after its discovery of the alteration. Under the given facts, William discovered the alteration when the altered check was returned to him after a month. It may safely be assumed that William immediately advised XM Bank of such fact and that the latter promptly notified ND Bank thereafter. Central Bank Circular No.9, as amended, on which the decisions of the Supreme Court in Hongkong and Shanghai Banking Corp v. People’s Bank & Trust Co and Republic vs CA were based was expressly cancelled and superseded by CB. No. 317 dated Dec 23, 1970. The latter was in turn amended by CB Circular No.580, dated Sept. 19, 1977. As to altered checks, the new rules provide that the drawee bank can still return them even after 4:00pm of the next day provided it does so within 24 hours from discovery of the alteration but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank against the bank sending the same. Assuming that the relationship between the drawee bank and the collecting bank is evidenced by some written document, the prescriptive period would be 10 years. (Campos, NIL 5^th ed 454-455)

(C)         If negotiated to a NHIDC, he cannot enforce payment against the party prior to the alteration. He may however enforce payment according to the altered tenor from the person who caused the alteration and from the indorsers. (Sec. 124, NIL)

7. Give the liability of the acceptor.

The acceptor by accepting the instrument engages that he will pay it according to the tenor of his acceptance, and admits:

(a)  The existence of the drawer, the genuiness of his signature, and his capacity and authority to draw the instrument; and

(b)  The existence of the payee and his then capacity to indorse.

QUESTION 1:

M makes a promissory note for P10,000 payable to the order of P. After the issuance to him of the note, P altered the amount to US$10,000. P then indorsed the note to A, A to B, and B to H. Only P knew of the alteration.

            The parties and their possible liabilities are:

            1.         M, P10,000

            2.         M, US $10,000

            3.         M, nothing

            4.         A and B, P10,000.00

            5.         A and B, US $10,000.00

            6.         A and B, nothing

If H is a holder in due course, the parties from where he may collect and the amount of the said parties’ liability are:

            a. 1 and 4

            b. 2 and 5

            c. 1 and 5

            d. 3 and 4

QUESTION 2:

M delivers a promissory note payable to the order of P for P10,000. P alters the amount to P 40,000 and thereafter indorses the note to A who had no knowledge of the alteration; then A to H, HDC. Which of the following is incorrect?

            a. H can recover P10,000 from M.

            b. H can recover P40,000 from P.

            c. H can recover P40,000 from A.

d. H cannot recover any amount from M because M is a party before the alteration. H cannot also recover from A because A was not aware of the alteration.

QUESTION 3:

M made a promissory note in favor of P or order. The note, which was payable after 60 days from date of issue, amounts to P100,000 and bears interest at 10% per annum. After the delivery of the note to him, P altered the interest rate to 18% per annum without the knowledge of M and indorsed it to A who knew nothing of the alteration. Thereafter, A indorsed the note to H, a HDC.

a. H may not collect any amount, whether of the principal or of the interest, from M.

            b. H may collect P100,000 and interest at 10% per annum from M.

            c. H may collect P100,000 and interest at 18% per annum from M.

d. H may collect any amount, whether of the principal or of the interest,    from A, since A was not aware of the alteration.   .

References:

De Leon, Hector. The Law on Negotiable Instruments. (2004 Edition).

Soriano, Fedelito. Notes in Business Law (2011 Edition).

Miravite, Jorge. Bar Review Materials in Commercial Law. 2007 (14^th Edition).

Pointers in Business Law of CPA Reviewees., Volume 2 (2008 Edition).

San Beda College of Law Red Notes, 2010 Centralized Bar Operations

University of Santo Tomas, Mercantile Law, 2014 Golden Notes

University of the Philippines Bar Reviewer. 2006 Bar Operations Committee