Fossum vs. Hermanos the bearer).

the bearer). This presumption does not apply to Fossum because he was not a payee nor
GR. No. L-19461
March 28, 1923
Topic: Holder in Due Course
Petitioners: Charles Fossum
Respondents: Fernandez Hermanos
Ponente: J. Street
FACTS:
 In 1919, the Fernandez Hermanos (FH) contracted with the American Iron Products
Company, Inc. (AIP), for the latter to build a shaft for one of the ships managed by FH. In
consideration thereof, a time draft with the Philippine National Bank (PNB), a negotiable
instrument, was executed by FH in the amount of $2,250.00 payable in 60 days. But later,
FH dishonored the draft because AIP was not able to comply with the specifications of the
shaft ordered by FH.
 Nevertheless, Charles Fossum, the agent of AIP here in the Philippines and the person with
whom FH was transacting with, was able to obtain the draft from the bank without
consideration (for free). Fossum then instituted an action against FH to recover the amount
covered by the draft.
an indorsee. He’s not an indorsee because the bank merely delivered the draft to him and
the delivery was even without consideration.
 But if the presumption previously applied to PNB, wasn’t that acquired by Fossum? No. The
presumption only covers the present holder, and not the previous holder. When a holder
delivers/indorses the instrument, he loses that presumption. It will then become
incumbent upon the person who received the instrument to prove that the previous holder
is a holder in due course especially in this case when the current holder, Fossum, cannot be
granted the presumption in Sec. 59, which is merely prima facie by the way, because of the
fact that he was an original party fully notified of the failure of the consideration.
 At any rate, PNB itself is not a holder in due course due to the timely dishonor of the draft
by FH.
 Further even assuming PNB is a holder in due course, there is a well-known rule of law that
if the original payee of a note unenforceable for lack of consideration repurchases (in this
case, the draft was not even repurchased, it was merely delivered back) the instrument
after transferring it to a holder in due course, the paper again becomes subject in the
payee’s hands to the same defenses to which it would have been subject if the paper had
never passed through the hands of a holder in due course. The same is true where the
instrument is re-transferred to an agent of the payee.

 Fossum maintains that he is a holder in due course; that he inherited that status from the
previous holder (PNB, named payee in the draft); that as such, he is entitled to payment.

ISSUE: Whether or not Fossum is a holder in due course.

HELD: No.

 In the first place, Fossum, as an agent of AIP, is well aware that the draft is unenforceable
because it has no consideration, the shaft being substandard. AIP did not comply with its
obligation thus the draft was dishonored – and Fossum was well aware of this as part of the
original party.

 Under Sec. 59 of the Negotiable Instruments Law, there is indeed a presumption that every
holder is a holder in due course, this covers a payee or an indorsee (for bearer instruments,