Professional Documents
Culture Documents
CASE
LIST
4
1.
DE
OCAMPO
V
GATCHALIAN
Emergeny
Recit:
GONZALES
offered
GATCHALIAN
a
car
of
DE
OCAMPO
(a
doctor).
Upon
agreeing
to
the
sale,
Gonzales
asked
Gatchalian
for
a
check
a
P600
to
show
De
Ocampo
that
he
was
serious
about
the
sale
(this
check
was
only
for
safekeeping
and
was
to
be
returned).
Next
day,
car
did
not
arrive.
Gatchalian
issued
a
Stop
Payment
Order.
Concurrently,
De
Ocampo
was
now
in
possession
of
the
check,
having
received
it
as
payment
for
the
medical
bills
of
Gonzaless
wife,
and
even
giving
the
latter
change
for
the
excess
of
the
checks
value.
De
Ocampo
now
wants
payment.
First
of
all,
court
ruled
that
there
was
a
valid
negotiation,
appearing
to
De
Ocampo
that
Gonzales
became
a
delivery
agent
of
Gatchalian.
De
Ocampo
was
ruled
not
a
holder
in
due
course.
The
circumstances
(F-I
of
facts)
attending
the
possession
of
Gonzales
of
the
check
should
have
put
De
Ocampo
on
guard.
He
was
ruled
to
be
guilty
of
gross
neglect,
amounting
to
legal
access
of
good
faith.
Facts:
Stipulation
of
Facts:
a. Gatchalian
was
interested
in
a
car
for
her
husband
and
family.
b. Gonzales
represented
to
Gatchalian
that
he
was
authorized
by
the
owner,
Ocampo
Clinic,
to
look
for
a
buyer.
De
Ocampo
did
not
know
about
this.
c. Finding
the
price
okay,
Gatchalian
requested
Gonzales
to
present
the
car
so
that
her
husband
can
inspect
it.
With
respect
to
this,
Gonzales
advised
her
that
the
owner
will
not
be
willing
to
give
certificate
of
registration
the
party
interested
is
ready
and
willing
to
make
such
purchase.
For
this
purpose,
Gonzales
requested
Gatchalian
to
give
him
(Gonzales)
a
check
which
will
be
shown
to
the
owner
as
evidence
of
buyers
good
faith.
The
said
check
to
be
for
safekeeping
only
and
to
be
returned
the
day
when
the
car
is
shown.
De
Ocampo
did
not
know
about
this.
In
the
ratio,
it
was
stated
that
payee
was
De
Ocampo.
d. Check
was
drawn
and
delivered,
Gonzales
issued
a
receipt
for
this.
Check
was
for
P600.
e. Failure
of
Gonzales
to
appear
next
day,
Gatchalian
issued
a
stop
payment
order.
De
Ocampo
was
not
given
notice
of
said
order.
Gatchalian
did
not
know
De
Ocampo
was
already
given
the
check.
f. Gatchalians
did
not
know
Gonzales
personally
before
this.
However,
the
husband
personally
knew
De
Ocampo.
g. Gatchalian
had
no
debts
owing
to
De
Ocampo.
There
neither
was
any
arrangement
that
Gatchalians
assumed,
expressly
or
impliedly,
to
shoulder
the
hospitalization
of
Gonzaless
wife
in
the
Ocampo
clinic.
h.
Gonzales
delivered
the
check
to
De
Ocampo
in
payment
of
expenses
arising
from
the
hospitalization
of
his
wife.
De
Ocampo
never
made
inquiries
to
Gatchalian
regarding
this
check.
i. For
and
in
consideration
of
this
check,
De
Ocampo
applied
it
to
said
fees.
De
Ocampo
even
gave
Gonzales
change,
the
excess
of
the
checks
value
over
the
fees
owed.
Bills
were
like
P440
something.
j. De
Ocampo
filed
a
complaint
for
estafa
against
Gonzales,
then
dropped
it.
Sec.
52
A
holder
in
due
course
is
a
holder
who
has
taken
the
instrument
under
the
following
conditions
(c)
That
he
took
it
in
good
faith
and
for
value
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
facts
in
this
present
case
are
on
all
fours
to
the
case
of
State
Investment
House,
Inc.
v.
Intermediate
Appellate
Court
o A
check
is
defined
by
law
as
a
bill
of
exchange
drawn
on
a
bank
payable
on
demand.
Crossed
check
is
one
where
two
parallel
lines
are
drawn
across
its
face
or
across
a
corner
thereof.
It
may
be
crossed
generally
or
specially.
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.
o 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.
o 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.
o 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,
Bataan
Cigars
defense
in
stopping
payment
is
as
good
to
Investment
as
it
is
to
George.
There
being
failure
of
consideration,
Investment
is
not
a
holder
in
due
course.
Consequently,
Bataan
Cigar
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.
WHEREFORE,
finding
that
the
court
a
quo
erred
in
the
application
of
law,
the
instant
petition
is
hereby
GRANTED.
The
decision
of
the
Regional
Trial
Court
as
affirmed
by
the
Court
of
Appeals
is
hereby
REVERSED.
Cost
against
private
respondent.
A
check
that
has
lines
drawn
across
its
face
and
writing
that
specifies
the
bank
to
which
the
check
must
be
presented
for
payment
For
deposit
to
the
account
of
White
House
Shoe
Supply
with
the
China
Banking
Corporation.
o
Cleared
through
the
clearing
office
of
Central
Bank
of
the
Philippines.
All
prior
endorsements
and/or
lack
of
endorsements
guaranteed.
China
Banking
Corporation.
o
For
deposit
to
the
credit
of
our
account.
Viuda
e
Hijos
de
Chua
Chiong
Pio.
People's
Shoe
Company.
Followed
by
the
endorsement
of
China
Banking
Corporation
as
in
Exhibits
A
and
B.
All
the
crossed
checks
have
the
"clearance"
endorsement
of
China
Banking
Corporation.
These
circumstances
would
seem
to
show
deposit
of
the
checks
with
China
Banking
Corporation
and
subsequent
presentation
by
the
latter
through
the
clearing
office;
but
as
drawee
had
no
funds,
they
were
unpaid
and
returned,
some
of
them
stamped
"account
closed".
o How
they
reached
his
hands,
Chan
Wan
did
not
indicate.
o Most
probably,
as
the
trial
court
surmised,
this
is
not
a
finding
of
fact
he
got
them
after
they
had
been
thus
returned,
because
he
presented
them
in
court
with
such
"account
closed"
stamps,
without
bothering
to
explain.
o Naturally
and
rightly,
the
lower
court
held
him
not
to
be
a
holder
in
due
course
under
the
circumstances,
since
he
knew,
upon
taking
them
up,
that
the
checks
had
already
been
dishonored
Yet
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
NIL
does
not
provide
that
a
holder
(he
was
a
holder
because
he
was
in
possession
of
checks
payable
to
bearer)
who
is
not
a
holder
in
due
course,
may
not
in
any
case,
recover
on
the
instrument.
If
B
purchases
an
overdue
negotiable
promissory
note
signed
by
A,
he
is
not
a
holder
in
due
course;
but
he
may
recover
from
A
(S.
51,
NIL),
if
the
latter
has
no
valid
excuse
for
refusing
payment.
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
(S.
58,
NIL).
o Now
what
defense
did
the
defendant
Tan
Kim
prove?
o 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.
Tan
Kim
admitted
on
cross-examination
either
that
the
checks
had
been
issued
as
evidence
of
debts
to
Pinong
and
Muy,
and/or
that
they
had
been
issued
in
payment
of
shoes
which
Pinong
had
promised
to
make
for
her.
Seeming
to
imply
that
Pinong
had
to
make
the
shoes,
she
asserted
Pinong
had
"promised
to
pay
the
checks
for
me".
Yet
she
did
not
complete
the
idea,
perhaps
because
she
was
just
answering
cross-
questions,
her
main
testimony
having
referred
merely
to
their
counter-
claim.
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.
SEC.
52.
WHAT
CONSTITUTES
A
HOLDER
IN
DUE
COURSE.
A
holder
in
due
course
is
a
holder
who
has
taken
the
instrument
under
the
following
conditions:
(c)
That
he
took
it
in
good
faith
and
for
value
(d)
That
the
time
it
was
negotiated
by
him
he
had
no
notice
of
any
infirmity
in
the
instrument
of
defect
in
the
title
of
the
person
negotiating
it
We
subscribe
to
the
view
of
Campos
and
Campos
that
a
financing
company
is
not
a
holder
in
good
faith
as
to
the
buyer.
NG
to
paraphrase:
In
installment
sales,
generally
when
a
financing
company
is
involved
(as
in
the
present
case),
Courts
generally
rule
in
favor
of
the
buyer
when
there
arises
a
breach
in
the
original
transaction
(such
as
want
of
consideration).
The
Courts
believe
that
the
financing
companies
are
more
capable
of
bearing
this
risk,
rather
than
have
the
installment
buying
public
suffer.
We
note,
however,
that
since
the
ATLANTIC
has
not
been
impleaded
herein,
there
is
no
obstacle
for
the
IFC
to
file
a
civil
Suit
and
litigate
its
claims
against
the
seller-
assignor
in
the
rather
unlikely
possibility
that
it
so
desires,
6.
STATE
INVESTMENT
HOUSE
V.
IAC
Emergency
Recit:
New
Sikatuna
requested
a
loan
from
the
Chuas,
which
were
given
as
3
postdated
crossed
checks.
New
Sikatuna
entered
into
an
agreement
with
State
Investment
and
assigned
with
the
latter
11
postdated
checksincluding
the
3
from
the
Chuas.
When
State
Investment
deposited
the
checks,
they
were
dishonored.
ISSUE:
W/N
SIH
is
a
holder
in
due
course?
HELD:
No!
Ratio:
The
Negotiable
Instruments
Law,
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.
DOCTRINE:
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.
It
appears
that
New
Sikatuna
Wood
Industries,
Inc.
requested
for
a
loan
from
private
respondent
Harris
Chua.
o
The
latter
agreed
agreed
In
view
of
this
agreement,
private
respondent-wife,
Anita
Pena
Chua
issued
three
(3)
crossed
checks
payable
to
New
Sikatuna
Wood
Industries,
Inc.
all
postdated
December
22,
Subsequently,
New
Sikatuna
Wood
Industries,
Inc.
entered
into
an
agreement
with
State
Investment
House(SIH),
Inc.
for
the
sum
of
Pl,047,402.91
under
a
deed
of
sale
New
Sikatuna
assigned
with
SIH
eleven
(11)
postdated
checks
including
the
aforementioned
three
(3)
postdated
checks
issued
by
herein
private
respondent-wife
Anita
Pea
Chua
When
the
three
checks
issued
by
Anita
Pena
Chua
were
deposited,
these
checks
were
dishonored
by
reason
of
"insufficient
funds",
"stop
payment"
and
"account
closed",
respectively.
STH
claims
that
despite
demands
on
private
respondent
Anita
Pea
to
make
good
said
checks,
the
latter
failed
to
pay.
The
Negotiable
Instruments
Law,
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.
It
results
therefore
that
when
SIH
rediscounted
the
check
knowing
that
it
was
a
crossed
check
he
was
knowingly
violating
the
avowed
intention
of
crossing
the
check.
Furthermore,
his
failure
to
inquire
from
the
holder,
party
defendant
New
Sikatuna
the
purpose
for
which
the
three
checks
were
crossed
despite
the
warning
of
the
crossing,
prevents
him
from
being
considered
in
good
faith
and
thus
he
is
not
a
holder
in
due
course.
o
Being
not
a
holder
in
due
course,
plaintiff
is
subject
to
personal
defenses,
such
as
lack
of
consideration
between
appellants
and
New
Sikatuna
Wood
Industries.
Note
that
under
the
facts
the
checks
were
postdated
and
issued
only
as
a
loan
to
New
Sikatunano
deposits
=
no
loan
o
the
three
checks
are
without
consideration
In
addition,
such
instruments
are
mentioned
in
Section
541
of
the
Negotiable
Instruments
Law
as
follows:
Sec.
541.
The
maker
or
any
legal
holder
of
a
check
shall
be
entitled
to
indicate
therein
that
it
be
paid
to
a
certain
banker
or
institution,
which
he
shall
do
by
writing
across
the
face
the
name
of
said
banker
or
institution,
or
only
the
words
"and
company."
The
payment
made
to
a
person
other
than
the
banker
or
institution
shall
not
exempt
the
person
on
whom
it
is
drawn,
if
the
payment
was
not
correctly
made.
Crossing
a
check
is
done
by
placing
two
parallel
lines
diagonally
on
the
left
top
portion
of
the
check.
o
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.
o
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.
o
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
...
The
three
subject
checks
in
the
case
at
bar
had
been
crossed
generally
and
issued
payable
to
New
Sikatuna
which
could
only
mean
that
the
drawer
had
intended
the
same
for
deposit
only
by
the
rightful
person
Apparently,
it
was
not
the
New
Sikatuna
(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.
Yet
it
does
not
follow
as
a
legal
proposition
that
simply
because
SIH
was
not
a
holder
in
due
course
it
could
not
recover
on
the
checks.
SIH
may
recover
from
the
New
Sikatuna.
CA
decision
affirmed.
Sometime
in
1983,
AVELINO
Violago,
President
of
Violago
Motor
Sales
Corporation
(VMSC),
offered
to
sell
a
Toyota
Cressida
Model
1983
to
his
cousin,
PEDRO
F.
Violago,
and
the
latter's
wife,
FLORENCIA.
o needed
to
sell
to
increase
the
sales
quota
of
VMSC
o Pedro
and
Florencia
only
had
to
pay
down
payment
of
P60,500.
Balance
would
be
paid
by
BA
Finance
o Spouses
would
pay
monthly
installments
to
BA
Finance
o Avelino
would
take
care
of
documentation
and
approval
of
financing
Promissory
Note
-
Spouses
bound
themselves
to
pay
jointly
and
severally
to
the
order
of
VMSC
the
amount
of
PhP
209,601
in
36
monthly
installments
of
PhP
5,822.25
a
month,
the
first
installment
to
be
due
and
payable
on
September
16,
1983.
Chattel
mortgage
on
car
for
payment
of
Php
209,601
Sales
Invoice
filed
with
LTO
Baliwag
Branch.
Certificate
of
Registration
in
the
name
of
Pedro
(August
1983)
o Spouses
unaware
that
the
car
had
been
previously
sold
to
ESMERALDO
Violago
(1982).
Registered
in
LTO
San
Rafael.
o No
delivery
of
the
vehicle.
Since
there
was
no
delivery,
Pedro
did
not
pay
any
monthly
amortization
to
BA
Finance.
Case
in
the
RTC
BA
Finance
filed
a
complaint
for
Replevin
with
Damages
against
spouses.
Prayed
for
delivery
of
vehicle
to
BA
Finance
or
payment
of
Php
199,049.41
plus
penalty
at
3%/month.
BA
Finance
also
asked
for
the
payment
of
attorney's
fees,
liquidated
damages,
replevin
bond
premium,
expenses
in
the
seizure
of
the
vehicle,
and
costs
of
suit.
RTC
issued
an
Order
for
Replevin
Spouses
Violago
declared
in
default
for
failing
to
file
an
answer
Decision
in
favor
if
BA
Finance.
Same
time
as
case
in
RTC,
Esmeraldo
conveyed
the
vehicle
to
Jose
V.
Olvido
issued
a
Certificate
of
Registration
by
LTO-Cebu
City
Olvido
executed
a
Chattel
Mortgage
over
the
vehicle
in
favor
of
Generoso
Lopez
as
security
for
a
loan
covered
by
a
promissory
note.
This
promissory
note
was
endorsed
to
BA
Finance,
Cebu
Branch
A
holder
in
due
course
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.
Thus,
petitioners
are
liable
to
respondent
corporation
for
the
payment
of
the
amount
stated
in
the
instrument.
(Corp.
Issue
not
relevant
to
Nego)
The
test
in
determining
the
applicability
of
the
doctrine
of
piercing
the
veil
of
corporate
fiction
is
as
follows:
1. Control,
not
mere
majority
or
complete
stock
control,
but
complete
domination,
not
only
of
finances
but
of
policy
and
business
practice
in
respect
to
the
transaction
attacked
so
that
the
corporate
entity
as
to
this
transaction
had
at
the
time
no
separate
mind,
will
or
existence
of
its
own;
2. Such
control
must
have
been
used
by
the
defendant
to
commit
fraud
or
wrong,
to
perpetuate
the
violation
of
a
statutory
or
other
positive
legal
duty,
or
dishonest
and
unjust
acts
in
contravention
of
plaintiffs
legal
rights;
and
3. The
aforesaid
control
and
breach
of
duty
must
proximately
cause
the
injury
or
unjust
loss
complained
of.
This
case
meets
the
foregoing
test.
Avelino
clearly
defrauded
petitioners.
His
actions
were
the
proximate
cause
of
petitioners'
loss.
He
cannot
now
hide
behind
the
separate
corporate
personality
of
VMSC
to
escape
from
liability
for
the
amount
adjudged
by
the
trial
court
in
favor
of
petitioners.
The
fact
that
VMSC
was
not
included
as
defendant
in
petitioners'
third
party
complaint
does
not
preclude
recovery
by
petitioners
from
Avelino;
neither
would
such
non-inclusion
constitute
a
bar
to
the
application
of
the
piercing-of-the-corporate-veil
doctrine.
WHEREFORE,
the
CA's
August
20,
2002
Decision
and
May
15,
2003
Resolution
in
CA-G.R.
CV
No.
48489
are
SET
ASIDE
insofar
as
they
dismissed
without
prejudice
the
third
party
complaint
of
petitioners-spouses
Pedro
and
Florencia
Violago
against
respondent
Avelino
Violago.
The
March
5,
1994
Decision
of
the
RTC
is
REINSTATED
and
AFFIRMED.
Costs
against
Avelino
Violago.
CA:
affirmed
the
trial
courts
finding
that
spouses
Loot
are
holders
in
due
course
of
CHECK.
The
CA
pointed
out
that
Dinos
own
admission
that
the
Loots
were
never
parties
to
the
transaction
among
petitioner,
Lobitana,
Concordio
Toring,
Cecilia
Villacarlos,
and
Consing,
proved
their
lack
of
knowledge
of
any
infirmity
in
the
instrument
or
defect
in
the
title
of
the
person
negotiating
it.
Issue
Whether
spouses
Loot
are
holders
in
due
course
of
the
CHECK
as
to
entitle
them
to
collect
the
face
value
of
the
check
from
Dino.
Held:
Spouses
Loot
NOT
a
holder
in
due
course.
Ratio:
Dino
maintained
that
the
Loots
are
not
holders
in
due
course
of
the
subject
check,
and
as
such,
they
could
not
recover
any
liability
on
the
check
from
petitioner.
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.
Section
52
of
the
NIL
states:
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.
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,
the
Loots
had
the
duty
to
ascertain
the
indorsers,
in
this
case
Lobitanas,
title
to
the
check
or
the
nature
of
her
possession.
This
they
failed
to
do.
Loots
verification
from
Metrobank
on
the
funding
of
the
check
does
not
amount
to
determination
of
Lobitanas
title
to
the
check.
Failing
in
this
respect,
the
Loots
are
guilty
of
gross
negligence.
Hence,
they
are
not
deemed
holders
in
due
course
of
the
subject
check.
However,
the
fact
that
the
Loots
are
not
holders
in
due
course
does
not
automatically
mean
that
they
cannot
recover
on
the
check.
The
only
disadvantage
of
a
holder
who
is
not
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,
Dino
cannot
be
obliged
to
pay
the
face
value
of
the
check.
However,
the
Loots
can
collect
from
the
immediate
indorser,
in
this
case
Lobitana.