32

SUPREMECOURTREPORTSANNOTATED
StateInvestmentHouse,Inc.vs.CourtofAppeals

5
STATE INVESTMENT HOUSE, INC.,petitioner,vs.COURT OF
APPEALSandNORAB.MOULIC,respondents.
CriminalLawNegotiableInstrumentsLawSec.52oftheNegotiable
Instruments Law provides a prima facie presumption that the holder of a
negotiableinstrumentisaholderinduecourse.Culledfromtheforegoing,
aprimafaciepresumptionexiststhattheholderofanegotiableinstrumentis
aholderinduecourse.Consequently,theburdenofprovingthatSTATEis
notaholderinduecourseliesinthepersonwhodisputesthepresumption.
Inthisregard,MOULICfailed.
Same Same Same Being a holder in due course, State holds the
instruments free from any defect of title of prior parties and from defenses
available to prior parties among themselves.Consequently, STATE is
indeed a holder in due course. As such, it holds the instruments free from
any defect of title of prior parties, and from defenses available to prior
parties among themselves STATE may, therefore, enforce full payment of
thechecks.
SameSameSameFactthatthepostdatedchecksweremerelyissued
assecurityisnotagroundforthedischargeoftheinstrumentasagainsta
holder in due course.That the postdated checks were merely issued as
security is not a ground for the discharge of the instrument as against a
holderinduecourse.For,theonlygroundsarethoseoutlinedinSec.119of
theNegotiableInstrumentsLaw.
Same Same The intentional cancellation contemplated under
paragraph C, Sec. 119 is that cancellation effected by destroying the
instrument either by tearing it up, burning it, or writing the word
cancelled on the instrument.Obviously, MOULIC may only invoke
paragraphs(c)and(d)aspossiblegroundsforthedischargeofthe

_______________
*FIRSTDIVISION.

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33

StateInvestmentHouse,Inc.vs.CourtofAppeals

instrument. But, the intentional cancellation contemplated under paragraph

(c)isthatcancellationeffectedbydestroyingtheinstrumenteitherbytearing
itup,burningit,orwritingthewordcancelledontheinstrument.Theact
of destroying the instrument must also be made by the holder of the
instrumentintentionally.SinceMOULICfailedtogetbackpossessionofthe
postdatedchecks,theintentionalcancellationofthesaidchecksisaltogether
impossible.
Same Same The Negotiable Instruments Law was enacted for the
purpose of facilitating, not hindering or hampering transactions in
commercial paper.In addition, the Negotiable Instruments Law was
enacted for the purpose of facilitating, not hindering or hampering
transactions in commercial paper. Thus, the said statute should not be
tamperedwithhaphazardlyorlightly.Norshoulditbebrushedasideinorder
tomeetthenecessitiesinasinglecase.
Same Same The withdrawal of the money from the drawee bank to
avoid liability on the checks cannot prejudice the rights of holders in due
course.The drawing and negotiation of a check have certain effects aside
from the transfer of title or the incurring of liability in regard to the
instrument by the transferor. The holder who takes the negotiated paper
makes a contract with the parties on the face of the instrument. There is an
implied representation that funds or credit are available for the payment of
the instrument in the bank upon which it is drawn. Consequently, the
withdrawal of the money from the drawee bank to avoid liability on the
checks cannot prejudice the rights of holders in due course. In the instant
case,suchwithdrawalrendersthedrawer,NoraB.Moulic,liabletoSTATE,
aholderinduecourseofthechecks.
CivilLawForeclosure of Mortgage Where the proceeds of the sale
areinsufficienttocoverthedebtinanextrajudicialforeclosureofmortgage,
themortgageeisentitledtoclaimthedeficiencyfromthedebtor.Wherethe

proceeds of the sale are insufficient to cover the debt in an extrajudicial

foreclosure of mortgage, the mortgagee is entitled to claim the deficiency
from the debtor. The step thus taken by the mortgageebank in resorting to
anextrajudicialforeclosurewasmerelytofindaproceedingforthesaleof
the property and its action cannot be taken to mean a waiver of its right to
demandpaymentforthewholedebt.For,whileAct3135,asamended,does
not discuss the mortgagees right to recover such deficiency, it does not
containanyprovisioneither,expresslyorimpliedly,prohibitingrecovery.
34

34

SUPREMECOURTREPORTSANNOTATED
StateInvestmentHouse,Inc.vs.CourtofAppeals

ThefactsarestatedintheopinionoftheCourt.
Escober,Alon&Associatesforpetitioner.
MartinD.Pantaleonforprivaterespondent.
BELLOSILLO,J.:
Theliabilitytoaholderinduecourseofthedrawerofchecksissued
to another merely as security, and the right of a real estate
mortgagee after extrajudicial foreclosure to recover the balance of
the obligation, are the issues in this Petition for Review of the
DecisionofrespondentCourtofAppeals.
Private respondent Nora B. Moulic issued to Corazon Victori
ano,assecurityforpiecesofjewelrytobesoldoncommission,two
(2)postdatedEquitableBankingCorporationchecksintheamount
of Fifty Thousand Pesos (P50,000.00) each, one dated 30 August
1979 and the other, 30 September 1979. Thereafter, the payee
negotiated the checks to petitioner State Investment House, Inc.
(STATE).
MOULIC failed to sell the pieces of jewelry, so she returned
them to the payee before maturity of the checks. The checks,
however, could no longer be retrieved as they had already been
negotiated. Consequently, before their maturity dates, MOULIC
withdrewherfundsfromthedraweebank.
Upon presentment for payment, the checks were dishonored for
insufficiency of funds. On 20 December 1979, STATE allegedly
notifiedMOULICofthedishonorofthechecksandrequestedthatit
bepaidincashinstead,althoughMOULICaversthatnosuchnotice
wasgivenher.
On 6 October 1983, STATE sued to recover the value of the
checksplusattorneysfeesandexpensesoflitigation.
In her Answer, MOULIC contends that she incurred no

obligationonthechecksbecausethejewelrywasneversoldandthe
checks were negotiated without her knowledge and consent. She
alsoinstitutedaThirdPartyComplaintagainstCorazonVictoriano,
wholaterassumedfullresponsibilityforthechecks.
On26May1988,thetrialcourtdismissedtheComplaintaswell
astheThirdPartyComplaint,andorderedSTATEtopayMOULIC
P3,000.00forattorneysfees.
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35

StateInvestmentHouse,Inc.vs.CourtofAppeals

STATEelevatedtheorderofdismissaltotheCourtofAppeals,but
the appellate court affirmed the trial court on the ground that the
Notice of Dishonor to MOULIC was made beyond the period
prescribed by the Negotiable Instruments Law and that even if
STATEdidservesuchnoticeonMOULICwithinthereglementary
period it would be of no consequence as the checks should never
havebeenpresentedforpayment.Thesaleofthejewelrywasnever
effected the checks, therefore, ceased to serve their purpose as
securityforthejewelry.
Wearenotpersuaded.
The negotiability of the checks is not in dispute. Indubitably,
theywerenegotiable.Afterall,atthepretrial,thepartiesagreedto
limittheissuetowhetherornotSTATEwasaholderofthechecks
1
induecourse.
In this regard, Sec. 52 of the Negotiable Instruments Law
provides
Sec.52.Whatconstitutesaholderinduecourse.Aholderinduecourse
isaholderwhohastakentheinstrumentunderthefollowingconditions:(a)
Thatitiscompleteandregularuponitsface(b)Thatbebecametheholder
of it before it was overdue, and without notice that it was previously
dishonored, if such was the fact (c) That he took it in good faith and for
value(d)Thatatthetimeitwasnegotiatedtohimhehadnonoticeofany
infirmityintheinstrumentordefectinthetitleofthepersonnegotiatingit.

Culledfromtheforegoing,aprimafaciepresumptionexiststhatthe2
holder of a negotiable instrument is a holder in due course.
Consequently,theburdenofprovingthatSTATEisnotaholderin
duecourseliesinthepersonwhodisputesthepresumption.Inthis
regard,MOULICfailed.
Theevidenceclearlyshowsthat:(a)ontheirfacesthepostdated
checks were complete and regular (b) petitioner bought these
3

checksfromthepayee,CorazonVictoriano,beforetheirduedates

checksfromthepayee,CorazonVictoriano,beforetheirduedates
(c)petitionertookthesechecksingoodfaithandfor
______________
1Rollo,pp.1314.

2StateInvestmentHouse,Inc.v.CourtofAppeals,G.R.No.72764,13July1989,

175SCRA310.
3PerDeedsofSaleof2July1979and25July1979,respectively,

36

36

SUPREMECOURTREPORTSANNOTATED
StateInvestmentHouse,Inc.vs.CourtofAppeals

informed nor made aware that these checks were merely issued to
payeeassecurityandnotforvalue.
Consequently,STATEisindeedaholderinduecourse.Assuch,
itholdstheinstrumentsfreefromanydefectoftitleofpriorparties,
and from defenses available to prior parties among themselves
4
STATEmay,therefore,enforcefullpaymentofthechecks.
MOULIC cannot set up against STATE the defense that there
wasfailureorabsenceofconsideration.MOULICcanonlyinvoke
thisdefenseagainstSTATEifitwasprivytothepurposeforwhich
theywereissuedandthereforeisnotaholderinduecourse.
Thatthepostdatedchecksweremerelyissuedassecurityisnota
groundforthedischargeoftheinstrumentasagainstaholderindue
course. For, the only grounds are those outlined in Sec. 119 of the
NegotiableInstrumentsLaw:
Sec. 119. Instrument how discharged.A negotiable instrument is
discharged: (a) By payment in due course by or on behalf of the principal
debtor(b)Bypaymentinduecoursebythepartyaccommodated,wherethe
instrumentismadeoracceptedforhisaccommodation(c)Bytheintentional
cancellationthereofbytheholder(d)Byanyotheractwhichwilldischarge
a simple contract for the payment of money (e) When the principal debtor
becomestheholderoftheinstrumentatoraftermaturityinhisownright.

Obviously, MOULIC may only invoke paragraphs (c) and (d) as

possible grounds for the discharge of the instrument. But, the
intentional cancellation contemplated under paragraph (c) is that
cancellationeffectedbydestroyingtheinstrumenteitherbytearing
5
6
itup, burningit, orwritingthewordcancelledontheinstrument.
Theactofdestroyingtheinstrumentmustalso

_______________
Rollo,p.13.
4Salasv.CourtofAppeals,G.R.No.76788,22January1990,181SCRA296.
5Montgomeryv.Schwald,177MoApp75,166SW831Wilkinsv.Shaglund,127

Neb589,256NW31.
6SeeHensonv.Henson,268SW378.

37

VOL.217,JANUARY11,1993

37

StateInvestmentHouse,Inc.vs.CourtofAppeals

be made by the holder of the instrument intentionally. Since

MOULICfailedtogetbackpossessionofthepostdatedchecks,the
intentionalcancellationofthesaidchecksisaltogetherimpossible.
On the other hand, the acts which will discharge a simple
contract for the payment of money under paragraph (d) are
determined by other existing legislations since Sec. 119 does
not
7
specifywhattheseactsare,e.g.,Art.1231oftheCivilCode which
enumeratesthemodesofextinguishingobligations.Again,noneof
the modes outlined therein is applicable in the instant case as Sec.
119contemplatesofasituationwheretheholderoftheinstrumentis
thecreditorwhileitsdraweristhedebtor.Inthepresentaction,the
payee,CorazonVictoriano,wasnolongerMOULICscreditoratthe
timethejewelrywasreturned.
Correspondingly, MOULIC may not unilaterally discharge
herselffromherliabilitybythemereexpediencyofwithdrawingher
funds from the drawee bank. She is thus liable as she has no legal
basistoexcuseherselffromliabilityonhercheckstoaholderindue
course.
Moreover, the fact that STATE failed to give Notice of Dis
honortoMOULICisofnomoment.Theneedforsuchnoticeisnot
absolute there are exceptions under Sec. 114 of the Negotiable
InstrumentsLaw:
Sec.114.Whennoticeneednotbegiventodrawer.Noticeofdishonoris
notrequiredtobegiventothedrawerinthefollowingcases:(a)Wherethe
drawer and the drawee are the same person (b) When the drawee is a
fictitious person or a person not having capacity to contract (c) When the
drawer is the person to whom the instrument is presented for payment (d)
Where the drawer has no right to expect or require that the drawee or
acceptorwillhonortheinstrument(e)Wherethedrawerhadcountermanded
payment.

Indeed,MOULICsactuationsleavemuchtobedesired.Shedidnot

retrievethecheckswhenshereturnedthejewelry.She
___________________
7Art.1231.Obligationsareextinguished:(1)Bypaymentorperformance(2)By

thelossofthethingdue(3)Bythecondonationorremissionofthedebt(4)Bythe
confusionormergeroftherightsofcreditoranddebtor(5)Bycompensation(6)By
novationxxxx.
38

38

SUPREMECOURTREPORTSANNOTATED
StateInvestmentHouse,Inc.vs.CourtofAppeals

simply withdrew her funds from her drawee bank and transferred
themtoanothertoprotectherself.Afterwithdrawingherfunds,she
couldnothaveexpectedhercheckstobehonored.Inotherwords,
shewasresponsibleforthedishonorofherchecks,hence,therewas
noneedtoserveherNoticeofDishonor,whichissimplybringingto
the knowledge of the drawer or indorser of the instrument, either
verbally or by writing, the fact that a specified instrument, upon
proper proceedings taken, has not been accepted or
has not been
8
paid,andthatthepartynotifiedisexpectedtopayit.
Inaddition,theNegotiableInstrumentsLawwasenactedforthe
purpose of facilitating, not hindering or hampering transactions in
commercial paper. Thus, the said statute should not be tampered
withhaphazardlyorlightly.Norshoulditbebrushedasideinorder
9
tomeetthenecessitiesinasinglecase.
Thedrawingandnegotiationofacheckhavecertaineffectsaside
fromthetransferoftitleortheincurringofliabilityinregardtothe
instrument by the transferor. The holder who takes the negotiated
papermakesacontractwiththepartiesonthefaceoftheinstrument.
Thereisanimpliedrepresentationthatfundsorcreditareavailable
for the10 payment of the instrument in the bank upon which it is
drawn. Consequently, the withdrawal of the money from the
drawee bank to avoid liability on the checks cannot prejudice the
rightsofholdersinduecourse.Intheinstantcase,suchwithdrawal
renders the drawer, Nora B. Moulic, liable to STATE, a holder in
duecourseofthechecks.
Underthefactsofthiscase,STATEcouldnotexpectpaymentas
MOULICleftnofundswiththedraweebanktomeetherobligation
11
onthechecks, sothatNoticeofDishonorwouldbefutile.
The Court of Appeals also held that allowing recovery on the
checkswouldconstituteunjustenrichmentonthepartofSTATE

______________________
8Martinv.Browns,75Ala442.
9Reinhartv.Lucas,118WVa466,190SE772.
1011AmJur589.
11 See Agbayani, Commercial Laws of the Philippines, Vol. 1, 1984 Ed., citing

Ellenbogenv.StateBank,197NYSupp278.
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39

StateInvestmentHouse,Inc.vs.CourtofAppeals

InvestmentHouse,Inc.Thisiserror.
The record shows that Mr. Romelito Caoili, an Account
Assistant,testifiedthattheobligationofCorazonVictorianoandher
husband at the time their property mortgaged to STATE was
extrajudiciallyforeclosedamountedtoP1.9millionthebidpriceat
12
publicauctionwasonlyP1million. Thus,thevalueoftheproperty
foreclosedwasnotevenenoughtopaythedebtinfull.
Wheretheproceedsofthesaleareinsufficienttocoverthedebt
inanextrajudicialforeclosureofmortgage,themortgageeisentitled
13
toclaimthedeficiencyfromthedebtor. Thestepthustakenbythe
mortgageebank in resorting to an extrajudicial foreclosure was
merelytofindaproceedingforthesaleofthepropertyanditsaction
cannotbetakentomeanawaiverofitsrighttodemandpaymentfor
14
thewholedebt. For,whileAct3135,asamended,doesnotdiscuss
themortgageesrighttorecoversuchdeficiency,itdoesnotcontain
anyprovisioneither,expresslyorimpliedly,prohibitingrecovery.In
thisjurisdiction,whenthelegislatureintendstoforeclosetherightof
a creditor to sue for any deficiency resulting from foreclosure of a
security given to guarantee an obligation, it so expressly provides.15
Forinstance,withrespecttopledges,Art.2115oftheCivilCode
doesnotallowthecreditortorecoverthedeficiencyfromthesaleof
thethingpledged.Likewise,inthecaseofachattelmortgage,ora
thing sold on installment basis, in the event of foreclosure, the
vendorshallhavenofurtheractionagainstthepurchasertorecover
anyunpaidbalanceoftheprice.Anyagreementtothecontrarywill
16
bevoid.
___________________
12TSN,25April1985,pp.1617.
13Philippine Bank of Commerce v. de Vera, No. L18816, 29 December 1962, 6

SCRA1029.

14Medinav.PhilippineNationalBank,56Phil.651.
15Art.2115.Thesaleofthethingpledgedshallextinguishtheprincipalobligation,

whether or not the proceeds of the sale are equal to the amount of the principal
obligation,interestandexpensesinapropercasexxxxIfthepriceofthesaleisless,
neither shall the creditor be entitled to recover the deficiency, notwithstanding any
stipulationtothecontrary.
16Art.1484[3]oftheCivilCode.

40

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SUPREMECOURTREPORTSANNOTATED
StateInvestmentHouse,Inc.vs.CourtofAppeals

ItisclearthenthatintheabsenceofasimilarprovisioninActNo.
3135,asamended,itcannotbeconcludedthatthecreditorloseshis
right recognized by the Rules of Court to take action for the
recovery of any unpaid balance on the principal obligation simply
because he has chosen to extrajudicially foreclose the real estate
mortgagepursuanttoaSpecialPowerofAttorneygivenhimbythe
17
mortgagorinthecontractofmortgage.
The filing of the Complaint and the ThirdParty Complaint to
enforce the checks against MOULIC and the VICTORIANO
spouses,respectively,isjustanothermeansofrecoveringtheunpaid
balanceofthedebtoftheVICTORIANOs.
Infine,MOULIC,asdrawer,isliableforthevalueofthechecks
sheissuedtotheholderinduecourse,STATE,withoutprejudiceto
any action for recompense she may pursue against the
VICTORIANOs as ThirdParty Defendants who had already been
declaredasindefault.
WHEREFORE, the petition is GRANTED. The decision
appealed from is REVERSED and a new one entered declaring
private respondent NORA B. MOULIC liable to petitioner STATE
INVESTMENT HOUSE, INC., for the value of EBC Checks Nos.
30089658 and 30089660 in the total amount of P100,000.00,
P3,000.00asattorneysfees,andthecostsofsuit,withoutprejudice
to any action for recompense she may pursue against the
VICTORIANOsasThirdPartyDefendants.
Costsagainstprivaterespondent.
SOORDERED.
Cruz(Chairman)andGrioAquino,JJ.,concur.
Padilla, J., No part, a former partner in law firm___a
retainedcounselofpetitioner.
Petitiongranteddecisionreversed.

Note.Respondent corporation holds the instrument free from

anydefectoftitleofpriorpartiesandfreefromdefensesavailableto
priorpartiesamongthemselvesandmayenforce
_____________
17SeeNote14.

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41

StateInvestmentHouse,Inc.vs.CourtofAppeals

payment of the instrument for the full amount thereof (Salas vs.
CourtofAppeals,181SCRA296).
o0o
42

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