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June 27, 2014 NIL Digests

1. De Ocampo v. Gatchalian
Doctrine: Section 52 (c) provides that a holder in due course is one who takes the
instrument "in good faith and for value;" Section 59, "that every holder is deemed
prima facie to be a holder in due course;" and Section 52 (d), that in order that one
may be a holder in due course it is necessary that "at the time the instrument was
negotiated to him "he had no notice of any x x x defect in the title of the person
negotiating it;" and lastly Section 59, that every holder is deemed prima facieto be a
holder in due course.
Where a holder's title was defective or suspicious, it cannot be stated that the payee
acquired the check without knowledge of said defect in holder's title, and for this
reason the presumption that it is a holder in due course or that it acquired the
instrument in good faith does not exist.
Where the payee acquired the check under circumstances which should have put it to
inquiry, why the holder had the check and used it to pay his own personal account,
the duty devolved upon it to prove that it actually acquired said check in good faith.
The stipulation of facts contains no statement of such good faith.
Facts: Anita Gatchalian bought a car from Ocampo clinic, thru Manuel Gonzales,
whereby Anita Gatchalian issued a crossed-check before Manuel delivered it. Manuel
made assurance that the check was only for safekeeping until the delivery of the car.
Manuel failed to show up the next day, and Anita made a Stop Order Payment. De
Ocampo clinic has no prior arrangements or agreements with Manuel but the
hospitalization of his wife. The check was used by Manuel to pay for the
hospitalization fees of his wife. Upon acceptance of De Ocampo clinic of the check,
no further inquiry was made to the plaintiff. Plaintiff contends that Ocampos are not
holder in due course for the reason that there was no negotiation of check to
Ocampo, further that the check is for mere safekeeping purposes only. Plaintiff
asserts that the check was not personal check of Manuel therefore should have put
Ocampos under their guard and inquire about the check. The check is payable is
crossed which in practice means that check could only be deposited but may not be
converted into cash, and which should have been subjected to inquiries by the
Ocampos, because Gatchalian has no liabilities with the Ocampo clinic.
Issue: Whether Ocampos are holders in due course NO
Held: The stipulation of facts expressly states that plaintiff-appellee was not aware of
the circumstances under which the check was delivered to Manuel Gonzales, but we
agree with the defendants-appellants that the circumstances indicated by them in
their briefs, such as the fact that appellants had no obligation or liability to the
Ocampo Clinic; that the amount of the check did not correspond exactly with the
obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two
parallel lines in the upper left hand corner, which practice means that the check could
only be deposited but may not be converted into cash all these circumstances
should have put the plaintiff-appellee to inquiry as to the why and wherefore of the
possession of the check by Manuel Gonzales, and why he used it to pay Matilde's
account. It was payee's duty to ascertain from the holder Manuel Gonzales what the
nature of the latter's title to the check was or the nature of his possession. Having
failed in this respect, we must declare that plaintiff-appellee was guilty of gross
neglect in not finding out the nature of the title and possession of Manuel Gonzales,
amounting to legal absence of good faith, and it may not be considered as a holder
of the check in good faith. It is sufficient to show that the defendant had notice that
there was something wrong about his assignor's acquisition of title, although he did
not have notice of the particular wrong that was committed.
In the case at bar the rule that a possessor of the instrument is prima facie a holder
in due course does not apply because there was a defect in the title of the holder
(Manuel Gonzales), because the instrument is not payable to him or to bearer. On the
other hand, the stipulation of facts indicated by the appellants in their brief, like the
fact that the drawer had no account with the payee; that the holder did not show or
tell the payee why he had the check in his possession and why he was using it for the
payment of his own personal account show that holder's title was defective or
suspicious, to say the least. As holder's title was defective or suspicious, it cannot be
stated that the payee acquired the check without knowledge of said defect in holder's
title, and for this reason the presumption that it is a holder in due course or that it
acquired the instrument in good faith does not exist. And having presented no
evidence that it acquired the check in good faith, it (payee) cannot be considered as
a holder in due course. In other words, under the circumstances of the case, instead
of the presumption that payee was a holder in good faith, the fact is that it acquired
possession of the instrument under circumstances that should have put it to inquiry
as to the title of the holder who negotiated the check to it. The burden was,
therefore, placed upon it to show that notwithstanding the suspicious circumstances,
it acquired the check in actual good faith.

2. Green v. Lopez
Doctrine: Consideration An allegation that a negotiable note was indorsed by the
payee to the purchaser for value received is substantially equivalent to a formal
allegation that the indorsement was made for a valuable consideration
Rights of Purchaser - Where negotiable paper has been put in circulation, and there is
no infirmity or defense between the antecedent parties thereto, a purchaser of such
security is entitled to recover thereon, as against the maker, the whole amount,
irrespective of what he may have paid therefor. Where there is nothing on the face
of a negotiable note to put a purchaser from the payee on the notice of the existence
of an equitable defense as between the maker of the note and the payee, the
existence of such equitable defense can in no event defeat the right of the holder of
the note by indorsement and for valuable consideration until and unless knowledged
of the existence of such equitable defenses is brought home to them, or until it
appears that the holders had such knowledged of the existence of defects in the
instrument as to charge them with bad faith in acquiring it under all the attendant
circumstances.
Facts: This case is an appeal from the judgment in favor of the plaintiff
Green on the alleged PN. Plaintiff/Green purchased a note against the makes with
a declaration of the subsidiary liability of the payee, from whom the note was
purchased and by whom it was indorsed to the plaintiffs. The complaint alleged that
the note was indorsed by the payee to the plaintiffs "for value received, which was
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validly adduced by evidence at the trial. What has been said disposes of the various
contentions of appellants based upon the failure of the court below to sustain a
demurrer to the complaint because of the lack of an allegation setting forth
specifically the nature and amount of the consideration paid by the plaintiffs to the
payee of the note, by whom it was indorsed in their favor. The real defense relied
upon in the court below by the makers of the note was that the plaintiffs were not
bona fide holders of the note by indorsement, in that they had knowledge of the
existence of certain equitable defenses which the maker were entitled to set us
against the payee of the note, before they acquired it by indorsement from the
payee.
Issue: Whether Plaintiff Green are deemed holders in due course
Held: Yes, Section 59, Presumption that a Holder is a Holder in Due Course
But there was nothing on the face of the note to put the purchasers on notice of the
existence of such equitable defenses. It was entirely regular in form and came into
their possession in the usual course of business. Under these circumstances the
burden of proof was manifestly upon the makers of the note to establish the fact of
knowledge of these equitable defenses before they could be permitted to rely upon
such defenses as against the purchasers, and also, the only evidence based upon was
the testimony of Lopez, who represented to be employee of the Greens, inquiring
about the validity and genuineness of the note, stating that his principal desired this
information because he was contemplating its purchase. The court however, held
that the evidence sustains an affirmative finding that the plaintiffs had knowledge of
the alleged equitable defenses when they purchased the note. It is also said that
interviewing such purchasers of high caliber, one is broker and one is attorney,
strengthened the fact that they (the Plaintiffs) took precautions on purchasing the
said note.
3. Bataan Cigar v. CA
Doctrine: What constitutes a holder in due course- The Negotiable Instruments Law
states what constitutes a holder in due course, thus: Sec. 52 A holder in due
course is a holder who has taken the instrument under the following conditions: (a)
That it is complete and regular upon its face; (b) That he became the holder of it
before it was overdue, and without notice that it had been previously dishonored, if
such was the fact; (c) That he took it in good faith and for value; (d) That at the time
it was negotiated to him he had no notice of any infirmity in the instrument or defect
in the title of the person negotiating it.
Every holder is a deemed prima facie a holder in due course - Section 59 of the NIL
further states that every holder is deemed prima facie a holder in due course.
However, when it is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove that he or some
person under whom he claims, acquired the title as holder in due course.
The only disadvantage of a holder who is not a holder in due course is that the
instrument is subject to defenses as if it were non-negotiable - The foregoing does
not mean, however, that respondent could not recover from the checks. The only
disadvantage of a holder who is not a holder in due course is that the instrument is
subject to defenses as if it were non-negotiable. Hence, respondent can collect from
the immediate indorser, in this case, George King.
A check may be crossed specially or generally - A check is crossed specially when the
name of a particular banker or a company is written between the parallel lines drawn.
It is crossed generally when only the words "and company" are written or nothing is
written at all between the parallel lines. It may be issued so that the presentment can
be made only by a bank.
Effects of crossing of checks - In order to preserve the credit worthiness of checks,
jurisprudence has pronounced that crossing of a check should have the following
effects: (a) the check may not be encashed but only deposited in the bank; (b) the
check may be negotiated only once to one who has an account with a bank; (c)
and the act of crossing the check serves as warning to the holder that the check has
been issued for a definite purpose so that he must inquire if he has received the
check pursuant to that purpose, otherwise, he is not a holder in due course.
Crossing of checks puts the holder on inquiry and upon him devolves the duty to
ascertain the indorsers title to the check or nature of his possession - It is then
settled that crossing of checks should put the holder on inquiry and upon him
devolves the duty to ascertain the indorser's title to the check or the nature of his
possession. Failing in this respect, the holder is declared guilty of gross negligence
amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable
Instruments Law, and as such the consensus of authority is to the effect that the
holder of the check is not a holder in due course.
Facts: Bataan Cigar & Cigarette Factory, Inc. (BCCFI) bought 2,000 bales of tobacco
from George King and issued post-dated crossed checks at total amount of
Php1,100,000. George King sold the 2 checks at a discount to SIHI. George King
failed to deliver the tobacco which prompted BCCFI to stop payment order of the
checks including the check George King sold to SIHI. SIHI cannot from BCCFI, thus
instituted this case.
TC ruled SIHI has valid claim being a holder in due course
Issue: Whether SIHI, as second indorser, is a holder in due course.NO
Held: The negotiability of a check is not affected by its being crossed, whether
specially or generally. It may legally be negotiated from one person to another as
long as the one who encashes the check with the drawee bank is another bank, or if
it is specially crossed, by the bank mentioned between the parallel lines. In the
Philippine business setting, however, we used to be beset with bouncing checks,
forging of checks, and so forth that banks have become quite guarded in encashing
checks, particularly those which name a specific payee. Unless one is a valued client,
a bank will not even accept second indorsements on checks. In order to preserve the
credit worthiness of checks, jurisprudence has pronounced that crossing of a check
should have the following effects: (a) the check may not be encashed but only
deposited in the bank; (b) the check may be negotiated only once to one who has
an account with a bank; (c) and the act of crossing the check serves as warning to
the holder that the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose, otherwise, he is not a
holder in due course. It is then settled that crossing of checks should put the holder
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on inquiry and upon him devolves the duty to ascertain the indorser's title to the
check or the nature of his possession. Failing in this respect, the holder is declared
guilty of gross negligence amounting to legal absence of good faith, contrary to Sec.
52(c) of the Negotiable Instruments Law, and as such the consensus of authority is
to the effect that the holder of the check is not a holder in due course. In the
present case, BCCFI's defense in stopping payment is as good to SIHI as it is to
George King. Because, really, the checks were issued with the intention that George
King would supply BCCFI with the bales of tobacco leaf. There being failure of
consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be
obliged to pay the checks. The foregoing does not mean, however, that respondent
could not recover from the checks. The only disadvantage of a holder who is not a
holder in due course is that the instrument is subject to defenses as if it were non-
negotiable. Hence, respondent can collect from the immediate indorser, in this case,
George King.
4. Chan Wan v. Tan Kim
Doctrine: Crossed checks; absence of due presentment; liability of drawer - the
drawer in drawing the check engaged that "on due presentment, the check would be
paid, and that if it be dishonored x x x he will pay the amount thereof to the holder".
Wherefore, in the absence of due presentment, the drawer did not become liable.
Crossed check specially in favor of a certain bank, how collected; liability of drawee
for wrong payment Where a check is crossed specially in favor of a certain bank,
the check is generally deposited with the bank mentioned in the crossing, so that the
latter may take charge of the collection. If it is not presented by said Bank for
payment, the drawee is liable to the true owner, in case of payment to persons not
entitled thereto.
A Holder who is not a holder in due course can still recover on the check - The
Negotiable Instruments Law does not provide that a holder who is not a holder in due
course, may not in any case, recover on the instrument. The only disadvantage of
holder who is not a holder in due course is that the negotiable instrument is subject
to defense as if it were non- negotiable.
Facts: Tan Kim drawn from Equitable Banking Corporation (drawer bank) a check
payable to cash or bearer. Such checks were presented to drawee bank but they
were all dishonored because of insufficient funds and/or causes attributable to the
drawer. Tan Kim had indicated that the 2 checks dishonored were for Pinong or
Muy, which were mere intended as receipts. The lower court declined to order
payment for two principal reasons: (a) plaintiff failed to prove he was a holder in due
course, and (b) the checks being crossed checks should not have been deposited
instead with the bank mentioned in the crossing.
Issue: Whether defendants have the right to claim on the 11 commercial documents.
Yes, he has a right to collect even if not a holder in due course.
Held: It does not follow as a legal proposition, that simply because he was not a
holder in due course Chan Wan could not recover on the checks. The Negotiable
Instruments Law does not provide that a holder7 who is not a holder in due course,
may not in any case, recover on the instrument. The only disadvantage of holder
who is not a holder in due course is that the negotiable instrument is subject to
defense as if it were non- negotiable. Now what defense did the defendant Tan Kim
prove? The lower court's decision does not mention any; evidently His Honor had in
mind the defense pleaded in defendant's answer, but though it unnecessary to
specify, because the "crossing" and presentation incidents sufficed to bar recovery, in
his opinion. Needless to say, if it were true that the checks had been issued in
payment for shoes that were never made and delivered, Tan Kim would have a good
defense as against a holder who is not a holder in due course. REMANDED FOR
ADDITIONAL EVIDENCE BASED ON THE EVIDENCE THE SHOULD BE HEREIN
PROVIDED.
5. Consolidated Plywood v. IFC Leasing and Acceptance Corporation
Doctrine: Promissory Note must be payable to order or to bearer to be negotiable -
The instrument in order to be considered negotiable must contain the so-called
'words of negotiable, must be payable to 'order' or 'bearer'. These words serve as an
expression of consent that the instrument may be transferred. This consent is
indispensable since a maker assumes greater risk under a negotiable instrument than
under a non-negotiable one. ...
When instrument is payable to order SEC. 8. WHEN PAYABLE TO ORDER. The
instrument is payable to order where it is drawn payable to the order of a specified
person or to him or his order x x x These are the only two ways by which an
instrument may be made payable to order. There must always be a specified person
named in the instrument. It means that the bill or note is to be paid to the person
designated in the instrument or to any person to whom he has indorsed and
delivered the same. Without the words "or order" or"to the order of, "the instrument
is payable only to the person designated therein and is therefore non-negotiable. Any
subsequent purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instrument but will merely "step into the shoes" of the person designated
in the instrument and will thus be open to all defenses available against the latter."
Effect if promissory note is non-negotiable - Therefore, considering that the subject
promissory note is not a negotiable instrument, it follows that the respondent can
never be a holder in due course but remains a mere assignee of the note in question.
Thus, the petitioner may raise against the respondent all defenses available to it as
against the seller-assignor Industrial Products Marketing.
Facts: Consolidated Plywood Industries, Inc, (CPI) thru Wee and Vergara, bought
from bought from Atlantic Gulf and Pacific Company, through its sister company
Industrial Products Marketing Used Allis Crawler Tractors, paid 210K down
payment, executed a CHM and a PN. Also, CPI assigned thru Deed of Assignment
herein CHM. Simultaneously, the seller assigned the deed of sale with chattel
mortgage and promissory note to IFC Leasing, herein respondent. One Tractor broke
down in 14 days, the other one in 9 days. Buyer enforced the warranty provision of
their sales contract however Tractors are no longer serviceable therefore there was a
failure of consideration. Vergara advised Industrial Products Marketing, seller, that
due to the halting of road building and logging operations, delays payments of the
installments as listed in the promissory note would likewise be delayed until the
seller-assignor completely fulfills its obligation under its warranty. And since the
tractors were no longer serviceable, Wee asked that tractors be pulled-out,
reconditioned and offer for sale. The proceeds were to be given to the respondent
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and the excess, if any, to be divided between the seller-assignor and petitioner-
corporation which offered to bear one-half (1/2) of the reconditioning cost. The
request of Wee was not heeded by Industrial Products Marketing. Therefore,
institution of the recovery of amount in the PN. TC and CA granted.
Issue: (a)Whether the PN is a negotiable instrument NO. (b)Whether the holder,
i.e. IFC Leasing, is not a holder in due course. NO
Held: (a) The instrument in order to be considered negotiablility-i.e. must contain
the so-called 'words of negotiable, must be payable to 'order' or 'bearer'. In the case
at bar, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS
MARKETING contains no words of negotiability rendering it a non-negotiable
instrument. (b) Therefore, considering that the subject promissory note is not a
negotiable instrument, it follows that the respondent can never be a holder in due
course but remains a mere assignee of the note in question. Thus, the petitioner may
raise against the respondent all defenses available to it as against the seller-assignor
Industrial Products Marketing. The evidence presented in the instant case shows that
prior to the sale on installment of the tractors, there was an arrangement between
the seller-assignor, Industrial Products Marketing, and the respondent whereby the
latter would pay the seller-assignor the entire purchase price and the seller-assignor,
in turn, would assign its rights to the respondent which acquired the right to collect
the price from the buyer, herein petitioner Consolidated Plywood Industries, Inc.
The respondent had actual knowledge of the fact that the seller-assignor's right to
collect the purchase price was not unconditional, and that it was subject to the
condition that the tractors -sold were not defective. The respondent knew that when
the tractors turned out to be defective, it would be subject to the defense of failure of
consideration and cannot recover the purchase price from the petitioners. Even
assuming for the sake of argument that the promissory note is negotiable, the
respondent, which took the same with actual knowledge of the foregoing facts so
that its action in taking the instrument amounted to bad faith, is not a holder in due
course. As such, the respondent is subject to all defenses which the petitioners may
raise against the seller-assignor.
6. State Investment House v. IAC
Doctrine: Holder in due course; defined - Section 52(c) of the Negotiable
Instruments Law defines a holder in due course as one who takes the instrument "in
good faith and for value". On the other hand, Section 52(d) provides that in order
that one may be a holder in due course, it is necessary that "at the time the
instrument was negotiated to him he had no notice of any x x x defect in the title of
the person negotiating it." However, under Section 59 every holder is deemed prima
facie to be a holder in due course.
Duty of the payee to ascertain the holders title to the check or the nature of his
possession - Admittedly, the Negotiable Instruments Law regulating the issuance of
negotiable checks as well as the lights and liabilities arising therefrom, does not
mention "crossed checks". But this Court has taken cognizance of the practice that a
check with two parallel lines in the upper left hand corner means that it could only be
deposited and may not be converted into cash. Consequently, such circumstance
should put the payee on inquiry and upon him devolves the duty to ascertain the
holder's title to the check or the nature of his possession. Failing in this respect, the
payee is declared guilty of gross negligence amounting to legal absence of good faith
and as such the consensus of authority is to the effect that the holder of the check is
not a holder in good faith.
Effects of crossing a check - Relying on the ruling in Ocampo v. Gatchalian (supra),
the Intermediate Appellate Court (now Court of Appeals), correctly elucidated that
the effects of crossing a check are: the check may not be encashed but only
deposited in the bank; the check may be negotiated only once to one who has an
account with a bank; and the act of crossing the check serves as a warning to the
holder that the check has been issued for a definite purpose so that he must inquire
if he has received the check pursuant to that purpose, otherwise he is not a holder in
due course.
Drawee should not encash a crossed check but merely accept the for deposit - Under
usual practice, crossing a check is done by placing two parallel lines diagonally on the
left top portion of the check. The crossing may be special wherein between the two
parallel lines is written the name of a bank or a business institution, in which case the
drawee should pay only with the intervention of that bank or company, or crossing
may be general wherein between two parallel diagonal lines are written the words
"and Co." or none at all as in the case at bar, in which case the drawee should not
encash the same but merely accept the same for deposit.
Presentment for payment; No right of recourse is available to petitioner against the
drawer; Reasons; Case at bar - The three subject checks in the case at bar had been
crossed generally and issued payable to New Sikatuna Wood Industries, Inc. which
could only mean that the drawer had intended the same for deposit only by the
rightful person, i.e., the payee named therein. Apparently, it was not the payee who
presented the same for payment and therefore, there was no proper presentment,
and the liability did not attach to the drawer. Thus, in the absence of due
presentment, the drawer did not become liable. Consequently, no right of recourse is
available to petitioner against the drawer of the subject checks, private respondent
wife, considering that petitioner is not the proper party authorized to make
presentment of the checks in question.
Holder not in due course; Disadvantage of; Defense of; The Negotiable Instruments
Law, does not provide that a holder not in due course may not in any case recover on
the instrument; Reasons; Case at bar - Yet it does not follow as a legal proposition
that simply because petitioner was not a holder in due course as found by the
appellate court for having taken the instruments in question with notice that the
same is for deposit only to the account of payee named in the subject checks,
petitioner could not recover on the checks. The Negotiable Instruments Law does not
provide that a holder who is not a holder in due course may not in any case recover
on the instrument for in the case at bar, petitioner may recover from the New
Sikatuna Wood Industries, Inc. if the latter has no valid excuse for refusing payment.
The only disadvantage of a holder who is not in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable. That the subject
checks had been issued subject to the condition that private respondents on due date
would make the back-up deposit for said checks but which condition apparently was
not made, thus resulting in the non-consummation of the loan intended to be granted
by private respondents to New Sikatuna Wood Industries, Inc., constitutes a good
defense against petitioner who is not a holder in due course.
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Facts: Harris Chua (Loaned to) New Sikatuna (Discounted to) + Anita Penas 3
checks State Investment
New Sikatuna requested for a loan from Spouses Chua. Latter issued postdated
crossed checks in favor of former. Thereafter, Sikatuna sold checks to SIHI which
upon deposit, checks were dishonored. The trial court decided the case in favor of
SIHI.
Issue: (a) Whether SIHI is entitled to payment YES, from SIKATUNA, and whether
SIHI is a holder in due course YES.
Held:
(a) It does not follow as a legal proposition that simply because petitioner was not a
holder in due course as found by the appellate court for having taken the instruments
in question with notice that the same is for deposit only to the account of payee
named in the subject checks, petitioner could not recover on the checks. The
Negotiable Instruments Law does not provide that a holder who is not a holder in due
course may not in any case recover on the instrument for in the case at bar,
petitioner may recover from the New Sikatuna Wood Industries, Inc. if the latter has
no valid excuse for refusing payment. The only disadvantage of a holder who is not in
due course is that the negotiable instrument is subject to defenses as if it were non-
negotiable. That the subject checks had been issued subject to the condition that
private respondents on due date would make the back up deposit for said checks but
which condition apparently was not made, thus resulting in the non-consummation of
the loan intended to be granted by private respondents to New Sikatuna Wood
Industries, Inc., constitutes a good defense against petitioner who is not a holder in
due course.
(b) Jurisprudence provides the following effects of crossing a check:
1. The check may not be encashed but only deposited in the bank
2. The check may be negotiated only onceto one who has an
account with a bank
3. The act of crossing the check serves the warning to the holder that the check has
been issued for a definite purpose so that he must inquire if he has received the
check pursuant to that purpose, otherwise, he is not a holder in due course.
The checks in issue were crossed generally and issued payable to New Sikatuna
Wood which could only mean that the drawer has intended the same for deposit only
by the rightful person. Apparently, it was not the payee who presented the same for
payment and therefore, there was no proper presentment and the liability didn't
attach to the drawer. Thus, in the absence of due presentment, the drawer didn't
become liable. Consequently, no right of recourse is available to petitioner against the
drawer of the subject checks considering that the petitioner is the proper party
authorized to make presentment of the checks in question.



7. Spouses Violago v. BA Finance Corporation
Doctrine: The promissory note is clearly negotiable - The promissory note is clearly
negotiable. The appellate court was correct in finding all the requisites of a
negotiable instrument present. The NIL provides: Section 1. Form of Negotiable
Instruments. An instrument to be negotiable must conform to the following
requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must
contain an unconditional promise or order to pay a sum certain in money; (c) Must be
payable on demand, or at a fixed or determinable future time; (d) Must be payable to
order or to bearer; and (e) Where the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with reasonable certainty.
The law presumes that a holder of a negotiable instrument is a holder thereof in due
course - The law presumes that a holder of a negotiable instrument is a holder
thereof in due course. In this case, the CA is correct in finding that BA Finance meets
all the foregoing requisites: In the present recourse, on its face, (a) the Promissory
Note, Exhibit A, is complete and regular; (b) the Promissory Note was endorsed
by the VMSC in favor of the Appellee; (c) the Appellee, when it accepted the Note,
acted in good faith and for value; (d) the Appellee was never informed, before and at
the time the Promissory Note was endorsed to the Appellee, that the vehicle sold to
the Defendants-Appellants was not delivered to the latter and that VMSC had already
previously sold the vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged
the vehicle to Generoso Lopez, who assigned his rights to the BA Finance Corporation
(Cebu Branch), the same occurred only on May 8, 1987, much later than August 4,
1983, when VMSC assigned its rights over the Chattel Mortgage by the Defendants-
Appellants to the Appellee. Hence, Appellee was a holder in due course.
The Negotiable Instruments Law considers every negotiable instrument prima facie to
have been issued for a valuable consideration - In the hands of one other than a
holder in due course, a negotiable instrument is subject to the same defenses as if it
were non-negotiable. A holder in due course, however, holds the instrument free
from any defect of title of prior parties and from defenses available to prior parties
among themselves, and may enforce payment of the instrument for the full amount
thereof. Since BA Finance is a holder in due course, petitioners cannot raise the
defense of non-delivery of the object and nullity of the sale against the corporation.
The NIL considers every negotiable instrument prima facie to have been issued for a
valuable consideration. In Salas, we held that a party holding an instrument may
enforce payment of the instrument for the full amount thereof. As such, the maker
cannot set up the defense of nullity of the contract of sale. Thus, petitioners are
liable to respondent corporation for the payment of the amount stated in the
instrument.
Facts: Avelino Violago, President of Violago Motor Sales Corporation (VMSC), sold a
car to his cousin Pedro and his spouse Florencia (Sps. Violago) with a term of DP 60K
and balance financed by BA Finance. Spouses Violago signed PN to pay jointly and
severally to the order of VMSC, 36 monthly installments. Avelino failed to transfer
the ownership of the car to Spouses Violago because it was sold to Esmeraldo,
therefore there was no delivery of the vehicle. Since VmSC failed to deliver the car,
Pedro did not pay any monthly amortization to BA Finance. Therefore BA Finance
instituted a replevin or payment of the PN thereof. Sps. Violago alleged that since
they have not received the consideration and that BA Finance is not a holder in due
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course by Section 59, the recourse of BA Finance is to VMSC, and they impleaded
Avelino, not VMSC. RTC ordered Sps. Violago to deliver the car or pay the PN,
consequently Avelino was ordered to deliver the car or pay the PN also to the Sps.
Violago. CA held same except the claim of Sps. Violago should be with VMSC not
Avelino.
Issue: Whether the PN is a Negotiable instrument YES and as such BA Finance could
be a holder in due course YES, as it complies with Section 52.
Held: In addressing the threshold issue of whether BA Finance is a holder in due
course of the promissory note, we must determine whether the note is a negotiable
instrument and, hence, covered by the NIL. It is in writing; signed by the Violago
spouses; has an unconditional promise to pay a certain amount, i.e., PhP 209,601, on
specific dates in the future which could be determined from the terms of the note;
made payable to the order of VMSC; and names the drawees with certainty. The
indorsement by VMSC to BA Finance appears likewise to be valid and regular.
Appellee was never informed, before and at the time the Promissory Note was
endorsed to the Appellee, that the vehicle sold to the Defendants-Appellants was not
delivered to the latter and that VMSC had already previously sold the vehicle to
Esmeraldo Violago. Since BA Finance is a holder in due course, petitioners cannot
raise the defense of non-delivery of the object and nullity of the sale against the
corporation. The NIL considers every negotiable instrument prima facie to have been
issued for a valuable consideration. As such, the maker cannot set up the defense
of nullity of the contract of sale. Thus, petitioners are liable to respondent
corporation for the payment of the amount stated in the instrument. Therefore, SC
reinstated the RTC ruling.
8. Dino v. Judal-Loot
Doctrine: The act of crossing a check serves as a warning to the holder that the
check has been issued for a definite purpose so that the holder thereof must inquire
if he has received the check pursuant to that purpose, otherwise, he is not a holder in
due course- The act of crossing a check serves as a warning to the holder that the
check has been issued for a definite purpose so that the holder thereof must inquire
if he has received the check pursuant to that purpose; otherwise, he is not a holder
in due course. Contrary to respondents view, petitioner never changed his theory,
that respondents are not holders in due course of the subject check, as would violate
fundamental rules of justice, fair play, and due process. Besides, the subject check
was presented and admitted as evidence during the trial and respondents did not and
in fact cannot deny that it is a crossed check.
Holder in due course defined - Section 52 of the Negotiable Instruments Law defines
a holder in due course, thus: A holder in due course is a holder who has taken the
instrument under the following conditions: (a) That it is complete and regular upon
its face; (b) That he became the holder of it before it was overdue, and without
notice that it has been previously dishonored, if such was the fact; (c) That he took it
in good faith and for value; (d) That at the time it was negotiated to him, he had no
notice of any infirmity in the instrument or defect in the title of the person
negotiating it.
Principles that must be considered in the treatment of crossed checks - In the case of
a crossed check, as in this case, the following principles must additionally be
considered: A crossed check (a) may not be encashed but only deposited in the bank;
(b) may be negotiated only once to one who has an account with a bank; and (c)
warns the holder that it has been issued for a definite purpose so that the holder
thereof must inquire if he has received the check pursuant to that purpose;
otherwise, he is not a holder in due course.
Crossing a check is done by placing two parallel lines diagonally on the left top
portion of the check - Under usual practice, crossing a check is done by placing two
parallel lines diagonally on the left top portion of the check. The crossing may be
special wherein between the two parallel lines is written the name of a bank or a
business institution, in which case the drawee should pay only with the intervention
of that bank or company, or crossing may be general wherein between two parallel
diagonal lines are written the words and Co. or none at all as in the case at bar, in
which case the drawee should not encash the same but merely accept the same for
deposit. The effect therefore of crossing a check relates to the mode of its
presentment for payment. Under Section 72 of the Negotiable Instruments Law,
presentment for payment to be sufficient must be made (a) by the holder, or by
some person authorized to receive payment on his behalf x x x As to who the holder
or authorized person will be depends on the instructions stated on the face of the
check.
The NIL does not provide that a holder who is not a holder in due course may not in
any case recover on the instrument; The only disadvantage of a holder who is not in
due course is that the negotiable instrument is subject to defenses as if it were non-
negotiable - the fact that respondents are not holders in due course does not
automatically mean that they cannot recover on the check. The Negotiable
Instruments Law does not provide that a holder who is not a holder in due course
may not in any case recover on the instrument. The only disadvantage of a holder
who is not in due course is that the negotiable instrument is subject to defenses as if
it were non-negotiable. Among such defenses is the absence or failure of
consideration, which petitioner sufficiently established in this case. Petitioner issued
the subject check supposedly for a loan in favor of Consings group, who turned out
to be a syndicate defrauding gullible individuals. Since there is in fact no valid loan to
speak of, there is no consideration for the issuance of the check. Consequently,
petitioner cannot be obliged to pay the face value of the check.
Facts: Dino was approached by a syndicate who owns a large parcel of land to get a
loan amounting to 3M, with a REM. But one Vivencia Ompok Consing, offered DOA in
lieu of the REM which Dino accepted. Dino then issued 3 MBTC checks totaling 3M.
Dino discovered its government properties, and ordered stop payment upon the
checks. Holder of the check, Lobitana, endorsed a check to herein respondents
Judal-Loot where before they accepted, they first inquired from MBTC (drawee bank)
if it was sufficiently funded, which it is. However, when it was deposited, it was
dishonored because of the fact that it was Payment stopped. Judal-Loot then filed
a collection suit. TC and CA ruled in favor of respondents being a holder in due
course since petitioners own admission that respondents were never parties to the
transaction among petitioner, Lobitana, Concordio Toring, Cecilia Villacarlos, and
Consing, proved respondents lack of knowledge of any infirmity in the instrument or
defect in the title of the person negotiating it. Moreover, respondents verified from
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Metrobank whether the check was sufficiently funded before they accepted it.
Therefore, respondents must be excluded from the ambit of petitioners stop payment
order.
Issue: Whether Judal-Loot is a holder in due course being that the check is a
crossed-check (raised for the first-time in MR in CA) NO
Held: Besides Section 52, in the case of a crossed check, as in this case, the
following principles must additionally be considered: A crossed check (a) may not be
encashed but only deposited in the bank; (b) may be negotiated only once to one
who has an account with a bank; and (c) warns the holder that it has been issued for
a definite purpose so that the holder thereof must inquire if he has received the
check pursuant to that purpose; otherwise, he is not a holder in due course.
Based on the foregoing, respondents had the duty to ascertain the indorsers, in this
case Lobitanas, title to the check or the nature of her possession. This respondents
failed to do. Respondents verification from Metrobank on the funding of the check
does not amount to determination of Lobitanas title to the check. Failing in this
respect, respondents are guilty of gross negligence amounting to legal absence of
good faith, contrary to Section 52(c) of the Negotiable Instruments Law. Hence,
respondents are not deemed holders in due course of the subject check.
The three subject checks in the case at bar had been crossed generally and issued
payable to payee named therein which could only mean that the drawer had intended
the same for deposit only by the rightful person, i.e., the payee named therein.
Apparently, it was not the payee who presented the same for payment and therefore,
there was no proper presentment, and the liability did not attach to the drawer.
Thus, in the absence of due presentment, the drawer did not become liable.
Consequently, no right of recourse is available to petitioner against the drawer of the
subject checks, private respondent wife, considering that petitioner is not the proper
party authorized to make presentment of the checks in question. Accordingly, no
right of recourse is available to respondents against the drawer of the check,
petitioner herein, since respondents are not the proper party authorized to make
presentment of the subject check.
However, the fact that respondents are not holders in due course does not
automatically mean that they cannot recover on the check. The Negotiable
Instruments Law does not provide that a holder who is not a holder in due course
may not in any case recover on the instrument. The only disadvantage of a holder
who is not in due course is that the negotiable instrument is subject to defenses as if
it were non-negotiable. Among such defenses is the absence or failure of
consideration, which petitioner sufficiently established in this case. Petitioner issued
the subject check supposedly for a loan in favor of Consings group, who turned out
to be a syndicate defrauding gullible individuals. Since there is in fact no valid loan to
speak of, there is no consideration for the issuance of the check. Consequently,
petitioner cannot be obliged to pay the face value of the check.
Respondents can collect from the immediate indorser, in this case Lobitana.
Significantly, Lobitana did not appeal the trial courts decision, finding her solidarily
liable to pay, among others, the face value of the subject check.