BATAAN CIGAR VS CA crossing of checks should put the holder on inquiry and upon him devolves the duty

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 - failure = guilty of gross negligence
G.R. No. 93048 March 3, 1994 amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law
Lessons Applicable: Rights of a holder (Negotiable Instruments Law) SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the
checks. However, that SIHI 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-
FACTS: negotiable. Hence, SIHI can collect from the immediate indorser, George
Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of
cigarettes purchased from King Tim Pua George (George King) 2,000 bales of tobacco leaf to be
delivered starting October 1978. Negotiable Instruments Case Digest: Consolidated Plywood Industries, Inc V. IFC Leasing And
July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the total amount of
P820K
Acceptance Corp. (1987)
George represented that he would complete delivery w/in 3 months from Dec 5 1978
so BCCFI agreed to purchase additional 2,500 bales of tobacco leaves, despite the previous failure
in delivery
It issued post dated crossed checks in the total amount of P1.1M payable sometime in September FACTS: Consolidated (buyer pays promossor note) > IPM (seller-assignor who violated warranty) > IFC
1979.
(holder in due course or merely an assignee?)
July 19, 1978: George sold to SIHI at a discount check amounting to P164K, post dated March 31, Consolidated Plywood Industries, Inc (Consolidated) is a corporation engaged in the logging
1979, drawn by BCCFI w/ George as payee.
business
December 19 and 26, 1978: George sold 2 checks both in the amount of P100K, post dated
September 15 & 30, 1979 respectively, drawn by BCCFI w/ George as payee
For the purpose of opening of additional roads and simultaneous logging operations along the
Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 a stop route of roads, it needed 2 additional units of tractors
payment order for all checks
SIHI failing to claim, filed a claim against BCCFI Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm,
RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial to the case Industrial Products Marketing (IPM) (seller-assignor) offered to sell 2 "Used" Allis Crawler Tractors
ISSUE: W/N SIHI is a holder in due course beign a second indorser and a holder of crossed checks
IPM inspected the job site and assured that the tractors were fit for the job and gave a 90-days
performance warranty of the machines and availability of parts.
HELD: YES. GRANTED. RTC reversed.
Sec. 52 Consolidated purchased on installment.
1. That it is complete and regular upon its face
2. 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
It paid the down payment of P210,000
3. That he took it in good faith and for value
4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or April 5, 1978: IPM issued the sales invoice and the deed of sale with chattel mortgage with
defect in the title of the person negotiating it promissory note was executed
Sec. 59
every holder is deemed prima facie a holder in due course IPM, by means of a deed of assignment, assigned its rights and interest in the chattel mortgage in
favor of IFC Leasing and Acceptance Corp. (IFC)
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.
After 14 days, one of the tractors broke down and after another 9 days, the other tractor too
effect of crossing of a check Because of the breaking down of the tractors, the road building and simultaneous logging
operations were delayed
1. check may not be encashed but only deposited in the bank
2. check may be negotiated only once to one who has an account with a bank
3. act of crossing the check serves as warning to the holder that the check has been issued for a Consolidated unilaterally rescinded the contract w/ IPM
definite purpose - he must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course April 7, 1979: Wee of Consolidated asked IPM to pull out the units and have them reconditioned,
and thereafter to offer them for sale.

The proceeds were to be given to IFC and the excess will be divided between:
ADDITIONAL CASES NEGO Page 1|8

IPM
Consolidated which offered to bear one-half 1/2 of the reconditioning cost
IPM didn't do anything
IFC filed against Consolidated for the recovery of the principal sum P1,093,789.71, interest and
attorney's fees
RTC and CA: favored IFC
breach of warranty if any, is not a defense available to Consolidated either to withdraw from the
contract and/or demand a proportionate reduction of the price with damages in either case
ISSUE: W/N IFC is a holder in due course of the negotiable promissory note so as to bar completely all
the available defenses of the Consolidated against IPM
HELD: CA reversed and set aside
Consolidated is a victim of warranrty
The Civil Code provides that:
ART. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold
may have, should they render it unfit for the use for which it is intended, or should they diminish its
fitness for such use to such an extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent
defects or those which may be visible, or for those which are not visible if the vendee is an expert who,
by reason of his trade or profession, should have known them.chanroblesvirtualawlibrary chanrobles
virtual law library
ART. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the
goods, as follows:
(1) Where the buyer, expressly or by implication makes known to the seller the particular purpose for
which the goods are acquired, and it appears that the buyer relies on the sellers skill or judge judgment
(whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be
reasonably fit for such purpose;
xxx xxx xxx chanrobles virtual law library
ART. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be
annexed by the usage of trade.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
ART. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold even
though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the
hidden faults or defects in the thing sold. (Emphasis supplied).
GR: extends to the corporation to whom it assigned its rights and interests
EX: assignee is a holder in due course of the promissory note
assuming the note is negotiable
ADDITIONAL CASES NEGO
Consolidated's defenses may not prevail against it.chanroblesvirtualawlibrary chanrobles virtual
law library
Articles 1191 and 1567 of the Civil Code provide that:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between
withdrawing from the contract and demanding a proportionate reduction of the price, with damages in
either case. (Emphasis supplied)
Consolidated, having unilaterally and extrajudicially rescinded its contract with the seller-assignor,
can no longer sue IPM except by way of counterclaim if IPM sues it because of the rescission
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a
promissory note "must be payable to order or bearer" - in this case it is non-negotiable
= expression of consent that the instrument may be transferred
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. . . .
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
Even conceding for purposes of discussion that the promissory note in question is a negotiable
instrument, the IFC cannot be a holder in due course due to absence of GF for knowing that the
tractors were defective
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: chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
(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 deffect in
the title of the person negotiating it
Page 2|8
SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. - To constitute notice of an infirmity in the instrument
or defect in the title of the person negotiating the same, the person to whom it is negotiated must have
had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the
instrument amounts to bad faith. (Emphasis supplied)
We believe the finance company is better able to bear the risk of the dealer's insolvency than the
buyer and in a far better position to protect his interests against unscrupulous and insolvent
dealers. . .
SALAS VS CA
G.R. No. 76788 January 22,1990
Lessons Applicable: Introduction to Negotiable Instruments (Negotiable Instruments Law)
FACTS:
February 6, 1980: Juanita Salas bought a motor vehicle from the Violago Motor Sales Corp. (VMS)
for P58,138.20 as evidence by a promissory note
This note was subsequently endorsed to Filinvest Finance &Leasing Corp. (FFLC)
May 21, 1980: Salas defaulted in her installments allegedly due to discrepancies in the engine and
chassis number of the vehicle delivered and discovery of certificate of reg. and deed of mortgage
VMS initiated for a sum of money at the RTC
RTC: favored VMS
CA: Affirmed
ISSUE: W/N the promissory note is a negotiable which will bar completely all defenses of Salas against
VMS
HELD: YES. Affirmed
Requisites under the law (Sec. 1 of Negotiable Instruments Law)
it is in writing and signed by the maker (Salas)
it contains an unconditional promise to pay the amount P58,138.20
it is payable at a fixed or determinable future time which is P1,614.95 monthly for 36
months due and payable on the 21st day of each month starting March 21, 1980 thru and
inclusive of Feb 21 1983
It is payable to VMS or order and as such
drawee is named or indicated with certainty
Filinvest = holder in due course
Great Asian Sales Center Corp. V. CA (2002)
FACTS:
March 17, 1981: Great Asian BOD approved a resolution authorizing its Treasurer and General
Manager, Arsenio Lim Piat, Jr. (Arsenio) to secure a loan, not exceeding 1M, from Bancasia
February 10, 1982: Great Asian BOD approved a resolution authorizing Great Asian to secure a
discounting line with Bancasia in an amount not exceeding P2M
also designated Arsenio as the authorized signatory to sign all instruments, documents and checks
necessary to secure the discounting line
ADDITIONAL CASES NEGO
Tan Chong Lin signed 2 surety agreements in favor of Bancasia
Great Asian, through its Treasurer and General Manager Arsenio, signed 4 Deeds of Assignment of
Receivables (Deeds of Assignment), assigning to Bancasia 15 postdated checks:
9 checks were payable to Great Asian
3 were payable to "New Asian Emp."
3 were payable to cash
various customers of Great Asian issued these postdated checks in payment for appliances and
other merchandise.
Deed of Assignments of assignment:
January 12, 1982: 4 post-dated checks of P244,225.82 maturing March 17, 1982, 2 were
dishonored
January 12, 1982: 4 post-dated checks of P312,819 maturing April 1, 1982, all 4 were dishonored
February 11, 1982: 8 postdated checks of P344,475 maturing April 30, 1982, all 8 checks were
dishonored
March 5, 1982: 1 postdated checks of P200K maturing March 18, 1982 also dishonored
Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the
face value of the checks
Arsenio endorsed all the 15 dishonored checks by signing his name at the back of the checks
8 dishonored checks bore the endorsement of Arsenio below the stamped name of "Great Asian
Sales Center"
7 dishonored checks just bore the signature of Arsenio
The drawee banks dishonored the 15 checks on maturity when deposited for collection by
Bancasia, with any of the following as reason for the dishonor:
"account closed"
"payment stopped"
"account under garnishment"
"insufficiency of funds
March 18, 1982: Bancasia's lawyer,Atty. Eladia Reyes, sent by registered mail to Tan Chong Lin a
letter notifying him of the dishonor and demanding payment from him
June 16, 1982: Bancasia sent by personal delivery a letter to Tan Chong Lin
May 21, 1982: Great Asian filed a case before the CFI for insolvency listing Bancasia as one of the
creditors of Great Asian in the amount of P1,243,632.00
June 23, 1982: Bancasia filed a complaint for collection of a sum of money against Great Asian and
Tan Chong Lin
CFI: favored Bancasia ordering Great Asian and Tan Chong Lin to pay jointly and severally
CA: deleted atty. fees
ISSUE: W/N Bancasia and Tang Chon Lin should be held liable under the Civil Code because it was a
separate and distinct deed of assignment
HELD: YES. Affirmed with Modification
As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or
discounting line from Bancasia
Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment
were the very transactions envisioned in the two board resolutions of Great Asian to raise funds for
its business.
There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new),
that prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation
Page 3|8
 uniformly found in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument
may be assigned.
the endorsement does not operate to make the finance company a holder in due course. For its
own protection, therefore, the finance company usually requires the assignor, in a separate and
distinct contract, to pay the finance company in the event of dishonor of the notes or checks. (only
security)
Otherwise, consumers who purchase appliances on installment, giving their promissory notes or
checks to the seller, will have no defense against the finance company should the appliances later
turn out to be defective
As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the
Negotiable Instruments Law. Had it so proceeded, the Negotiable Instruments Law would have
governed Bancasias cause of action. Bancasia, however, did not choose this route.
Instead, Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right
that Bancasia had under the express with recourse stipulation in the Deeds of Assignment.
Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian
can then proceed against the drawers who issued the checks. Even if Bancasia failed to give timely
notice of dishonor, still there would be no prejudice whatever to Great Asian.
Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right
to expect or require the bank to honor the check, or if the drawer has countermanded payment
In the instant case, all the checks were dishonored for any of the following reasons:
"account closed"
"account under garnishment"
"insufficiency of funds"
drawers had no right to expect or require the bank to honor the checks
"payment stopped"
drawers had countermanded payment
Moreover, under common law, delay in notice of dishonor, where such notice is required,
discharges the drawer only to the extent of the loss caused by the delay.
Again, we reiterate that this obligation of Great Asian is separate and distinct from its warranties as
indorser under the Negotiable Instruments Law.Civil Code are applicable and not the Negotiable
Instruments Law.
separate Deeds of Assignment - provisions of the Civil Code are applicable (NOT Negotiable
Instruments Law)
Great Asians four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate
the suspensive condition that in the event the drawers of the checks fail to pay, Great Asian itself
will pay Bancasia
The stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan Chong
Lin with Great Asian
Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly
encompassing "all the notes, drafts, bills of exchange, overdraft and other obligations of every kind
which the PRINCIPAL may now or may hereafter owe the Creditor"
Villanueva V. Nite (2006)
G.R. No. 148211 July 25, 2006
Lessons Applicable: Liabilities of Parties (Negotiable Instruments Law)
ADDITIONAL CASES NEGO
FACTS:
Nite loaned from Villanueva P409,000
as a sceurity he issued an Asian Bank Corporation (ABC) check of P325,500 dated February 8, 1994
it was consented to be changed to June 8, 1994
check was dishonored due to a material alteration
August 24, 1994: Nite while abroad partially paid P235K through her representative Emily
P. Abojada
The balance of P174K was due on or before December 8, 1994.
August 24, 1994: Villanueva filed an action for a sum of money and damages against ABC for the
full amount of the dishonored check (despite the loan not being due and Nite away)
RTC: favored Villanueva
June 30, 1997: Nite went to ABC to withdraw but she was not able to because of the RTC order
August 25, 1997: ABC remitted to the sheriff a managers check amounting to P325,500 drawn on
Nite's account
CA: favored Nite's appeal
ISSUE: W/N ABC should be liable to Villanueva
HELD: NO. DENIED
Negotiable Instruments Law
SEC. 185. Check, defined. A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of
exchange payable on demand apply to a check
SEC. 189. When check operates as an assignment. A check of itself does not operate as an
assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not
liable to the holder, unless and until it accepts or certifies the check
Rule 3, Sec. 7 of the Rules of Court states:
Sec. 7. Compulsory joinder of indispensable parties. Parties in interest without whom no final
determination can be had of an action shall be joined either as plaintiffs or defendants.
The contract of loan was between Villanueva and Nite. No collection suit could prosper without
Nite who was an indispensable party
BPI vs Roxas 536 SCRA 168. October 15, 2016
Facts:
Gregorio C. Roxas, respondent, is a trader. He delivered stocks of vegetable oil to spouses
Rodrigo and Marissa Cawili. As payment therefor, spouses Cawili issued a personal check in the amount
of P348,805.50. However, when respondent tried to encash the check, it was dishonored by the drawee
bank. Spouses Cawili then assured him that they would replace the bounced check with a cashiers check
from the Bank of the Philippine Islands (BPI), petitioner.
Respondent and Rodrigo Cawili went to petitioners branch at Shaw Boulevard, Mandaluyong City where
Elma Capistrano, the branch manager, personally attended to them. Upon Elmas instructions, Lita
Sagun, the bank teller, prepared BPI Cashiers Check No. 14428 in the amount of P348,805.50, drawn
Page 4|8
against the account of Marissa Cawili, payable to respondent. Rodrigo then handed the check to
respondent in the presence of Elma.
The following day, respondent returned to petitioners branch at Shaw Boulevard to encash the cashiers
check but it was dishonored. Elma informed him that Marissas account was closed on that date. Despite
respondents insistence, the bank officers refused to encash the check and tried to retrieve it from
respondent. He then called his lawyer who advised him to deposit the check in his (respondents)
account at Citytrust, Ortigas Avenue. However, the check was dishonored on the ground "Account
Closed."
Respondent filed with the RTC complaint for sum of money against petitioner. The RTC renders
judgment ordering BPI to pay Roxas.
Court of Appeals affirmed the trial courts judgment.
Issue:
1. Whether or not respondent is a holder in due course.
2. Whether or not BPI is liable to respondent for the amount of the cashiers check.
Ruling:
1. Yes.
Section 52 of the Negotiable Instruments Law provides:
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:
(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 person negotiating it.
As a general rule, under the above provision, every holder is presumed prima facie to be a holder in due
course. One who claims otherwise has the onus probandi to prove that one or more of the conditions
required to constitute a holder in due course are lacking. In this case, petitioner contends that the
element of "value" is not present, therefore, respondent could not be a holder in due course.
Petitioners contention lacks merit. Section 25 of the same law states:
ADDITIONAL CASES NEGO
SEC. 25. Value, what constitutes. Value is any consideration sufficient to support a simple contract. An
antecedent or pre-existing debt constitutes value; and is deemed as such whether the instrument is
payable on demand or at a future time. There is no dispute that respondent received Rodrigo Cawilis
cashiers check as payment for the formers vegetable oil. The fact that it was Rodrigo who purchased
the cashiers check from petitioner will not affect respondents status as a holder for value since the
check was delivered to him as payment for the vegetable oil he sold to spouses Cawili. Verily, the Court
of Appeals did not err in concluding that respondent is a holder in due course of the cashiers check.
2. Yes.
It bears emphasis that the disputed check is a cashiers check. The Court held that a cashiers check is
really the banks own check and may be treated as a promissory note with the bank as the maker. The
check becomes the primary obligation of the bank which issues it and constitutes a written promise to
pay upon demand. The Court took judicial notice of the "well-known and accepted practice in the
business sector that a cashiers check is deemed as cash." This is because the mere issuance of a
cashiers check is considered acceptance thereof.
In view of the above pronouncements, petitioner bank became liable to respondent from the moment it
issued the cashiers check. Having been accepted by respondent, subject to no condition whatsoever,
petitioner should have paid the same upon presentment by the former.
STATE INVESTMENT HOUSE V. IAC
175 SCRA 310
FACTS:
New Sikatuna requested for a loan from Spouses Chua. Latter issued post-dated 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.
HELD:
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
Page 5|8
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. August 4, 1983: the spouses and Avelino signed a promissory note under which they bound

themselves to pay jointly and severally to the order of VMSC the amount of PhP 209,601 in 36
The checks in issue were crossed generally and issued payable to New
Sikatuna Wood which could only mean that the drawer has intended the monthly installments of PhP 5,822.25 a month, the first installment to be due and payable
same for deposit only by the rightful person. Apparently, it was not the payee who on September 16, 1983.
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 reco
urse is available to petitioner against the drawer of the subject checks considering that the petitioner Avelino prepared a Disclosure Statement of Loan/Credit Transportation which showed the net
is the proper party authorized to make presentment of the checks in question.
purchase price of the vehicle, down payment, balance, and finance charges.
Nonetheless, the holder could still collect from New Sikatuna if the latter doesn't have a valid
excuse from refusing payment

VMSC then issued a sales invoice in favor of the spouses with a detailed description of the Toyota

Cressida car.

Negotiable Instruments Case Digest: Violago V. BA Finance Corp. (2008)

In turn, the spouses executed a chattel mortgage over the car in favor of VMSC as security for the

amount of PhP 209,601.

G.R. No. 158262 July 21, 2008

Lessons Applicable: Promissory notes and checks (Negotiable Instruments Law) VMSC, through Avelino, endorsed the promissory note to BA Finance without recourse. After

receiving the amount of PhP 209,601,

FACTS:

1983: Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell
VMSC executed a Deed of Assignment of its rights and interests under the promissory note and
a Toyota Cressida Model 1983 to increase the sales quota to his cousin, Pedro F. Violago and his
chattel mortgage in favor of BA Finance. Meanwhile, the spouses remitted the amount of PhP
wife, Florencia.
60,500 to VMSC through Avelino

spouses would just have to pay a down payment of PhP 60.5K while the balance would be financed
spouses were unaware that the same car had already been sold in 1982 to Esmeraldo Violago,
by BA Finance.
another cousin of Avelino

The spouses would pay the monthly installments to BA Finance while Avelino would take care of
Since VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA Finance.
the documentation and approval of financing of the car.

ADDITIONAL CASES NEGO Page 6|8

 March 1, 1984: BA Finance filed with the RTC a complaint for Replevin with Damages against the

spouses

Section 52. What constitutes a holder in due course.A holder in due course is a holder who has taken

RTC: favored BA finance , however, declared that they are entitled to be indemnified by Avelino the instrument under the following conditions:

CA: affirmed - promissory note was a negotiable instrument and that BA Finance was a holder in
(a) That it is complete and regular upon its face;
due course
(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;

ISSUE: W/N the holder of an invalid promissory note may be considered a holder in due course
(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.

HELD: YES. CA reversed because Avelino and VMSC are the same

negotiable:

(a) the Promissory Note, Exhibit A, is complete and regular; (b) the Promissory Note was
Section 1. Form of Negotiable Instruments. An instrument to be negotiable must conform to the
endorsed by the VMSC in favor of the Appellee; (c) the Appellee, when it accepted the Note, acted
following requirements:
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
(a) It must be in writing and signed by the maker or drawer;
his rights to the BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987,
(b) Must contain an unconditional promise or order to pay a sum certain in money; 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

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated the object and nullity of the sale against the corporation.
therein with reasonable certainty.

ADDITIONAL CASES NEGO Page 7|8

 VMSC is a family-owned corporation of which Avelino was president. Avelino committed fraud in

selling the vehicle to petitioners, a vehicle that was previously sold to Avelinos other cousin,

Esmeraldo

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.

obligation was incurred in the name of the corporation, the petitioner [Arcilla] would still be

personally liable therefor because for all legal intents and purposes, he and the corporation are

one and the same

ADDITIONAL CASES NEGO Page 8|8