Digests Nego Sept 4

8/11/2019 Digests Nego Sept 4

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HELD: No, the act is not ultra vires but De Leon is still personally liable. The act is not ultravires because the act of issuing the checks was well within the ambit of a valid corporate act. DeLeon as treasurer is authorized to sign checks. When the checks were issued, Hi-Cement hassufficient funds to cover the P2 million.As a rule, there are four instances that will make a corporate director, trustee or officer along

(although not necessarily) with the corporation personally liable to certain obligations. They are:1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or grossnegligence in directing its affairs , or (c) for conflict of interest, resulting in damages to thecorporation, its stockholders or other persons;

2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does notforthwith file with the corporate secretary his written objection thereto;

3. He agrees to hold himself personally and solidarily liable with the corporation; or4. He is made, by a specific provision of law, to personally answer for his corporate action.

In the case at bar, De Leon is negligent. She was aware that the checks were only payable to E.T.Henry’s account yet she sent a con firmation to Atrium to the effect that the checks can benegotiated to them (Atrium) by E.T. Henry. Therefore, she may be held personally liable along

with E.T. Henry (but not with Hi-Cement where she is an officer).

HI-CEMENT VS INSULAR BANK

FACTS:

Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of E.T. Henry &Co., Inc. (E.T. Henry), a company engaged in the business of processing and distributing

bunker fuel. E.T. Henry's customers were Hi-Cement Corporation (Hi-Cement), Riverside Mills

Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo) who issued postdated checks for their purchases

Sometime in 1979: Insular Bank of Asia and America (turned PCIB then Equitable PCI-Bank) granted E.T. Henry a credit facility known as ―Purchase of Short Term Receivables. (re-discounting arrangement)

Through this, E.T. Henry was able to encash, with pre-deducted interest, the postdatedchecks of its clients.

For every transaction, E.T. Henry had to execute a promissory note and a deed ofassignment

1979-1981: E.T. Henry was able to re-discount its clients' checks February 1981: 20 checks of Hi-Cement (which were crossed and which bore the restriction

―deposit to payee’s account only ) were dishonored. So were the checks of Riverside andKanebo.

Bank filed a complaint for sum of money in CFI against E.T. Henry, the spouses Tan, Hi-Cement (including its general manager and its treasurer as signatories of the postdatedcrossed checks), Riverside and Kanebo



CA Affirmed RTC: Ordering E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo, jointly and severally, to pay bank damages represented by the face value of the postdatedchecks plus interests, services, charges and penalties until fully paid

G.R. 132403: RTC & CA

Hi-Cement authorized its general manager and treasurer to issue the subject postdatedcrossed checks Hi-Cement was already estopped from denying such authority since it never objected to the

signatories' issuance of all previous checks to E.T. HenryISSUE:

1. W/N bank was a holder in due course - NO2. W/N Hi-Cement can still be made liable for the checks - NO

HELD: CA AFFIRMED with MODIFICATION remanded to RTC for recomputation1. NO.

Section 191 Section 52 Bank was all too aware that subject checks were crossed and bore restrictions that they were

for deposit to payee's account only; hence, they could not be further negotiated to it irregularity - only the treasurer's signature appeared on the deed of assignment As a banking institution, it behooved respondent to act with extraordinary diligence

in every transaction Its business is impressed with public interest, thus, it was not expected to be careless and

negligent, specially so where the checks it dealt with were crossed. 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.- failure: guilty of gross negligence amounting to legal absence of good faith

2. NO. the drawer of the postdated crossed checks was not liable to the holder who was deemed not

a holder in due course may recover from the party who indorsed/encashed the checks ―if the latter has no valid

excuse for refusing payment - E.T. Henry had no justification to refuse payment, it should pay

DE OCAMPO VS GATCHALIAN

Facts: Anita Gatchalian was interested in buying a car when she was offered by ManuelGonzales to a car owned by the Ocampo Clinic. Gonzales claim that he was duly authorized tolook for a buyer, negotiate and accomplish the sale by the Ocampo Clinic. Anita accepted theoffer and insisted to deliver the car with the certificate of registration the next day but Gonzalesadvised that the owners would only comply only upon showing of interest on the part of the



buyer. Gonzales recommended issuing a check (P600 / payable-to-bearer /cross-checked) asevidence of the buyer’s good faith. Gonzales added that it will only be for safekeeping and will

be returned to her the following day.

The next day, Gonzales never appeared. The failure of Gonzales to appeal resulted in Gatchalian

to issue a STOP PAYMENT ORDER on the check. It was later found out that Gonzales used thecheck as payment to the Vicente de Ocampo (Ocampo Clinic) for the hospitalization fees of hiswife (the fees were only P441.75, so he got a refund of P158.25). De Ocampo now demands

payment for the check, which Gatchalian refused, arguing that de Ocampo is not a holder in duecourse and that there is no negotiation of the check.

The Court of First Instance ordered Gatchalian to pay the amount of the check to De Ocampo.Hence this case.

Issue: Whether or not De Ocampo is a holder in due course.

Held: NO. De Ocampo is not a holder in due course. De Ocampo was negligent in hisacquisition of the check. There were many instances that arouse suspicion: the drawer in thecheck (Gatchalian) has no liability with de Ocampo ; it was cross-checked(only for deposit) butwas used a payment by Gonzales; it was not the exact amount of the medical fees. Thecircumstances should have led him to inquire on the validity of the check. However, he failed toexercise reasonable prudence and caution.

In showing a person had knowledge of facts that hisaction in taking the instrument amounted to bad faith need not prove that he knows the exactfraud. It is sufficient to show that the person had NOTICE that there was something wrong. The

bad faith here means bad faith in the commercial sense – obtaining an instrument with noquestions asked or no further inquiry upon suspicion.

The presumption of good faith did not apply to de Ocampo because the defect was apparent onthe instruments face – it was not payable to Gonzales or bearer. Hence, the holder’s title isdefective or suspicious. Being the case, de Ocampo had the burden of proving he was a holder indue course, but failed.

PRUDENCIO V. CA

143 SCRA 7

FACTS:

Appellants are the owners of a property, which they mortgaged to help secure a loan of acertain Domingo Prudencio. On a later date, they were approached by their relative who was theattorney-in-fact of a construction company, which was in dire need of funds for the completionof a municipal building. After some persuasion, the appellants amended the mortgagewherein the terms and conditions of the original mortgage was made an



integral part of the new mortgage. The promissory note covering the―second loan was signed by their relative. It was also signed by them, indicating therequest that the check be released by the bank.

After the amendment of the mortgage was executed, a deed of assignmentwas made by Toribio, assigning all the payments to the Bureau to the constructioncompany. This notwithstanding, the Bureau with approval of the bank, conditioned however thatthey should be for labor and materials,made three payments to the company. The last request was denied by the bank, averring that theaccount was long overdue, the remaining balance of the contract price should be applied to theloan.

The company abandoned the work and as consequence, the Bureaurescinded the contract and assumed the work. Later on, the appellantswrote to the PNB that since the latter has authorized payments to thecompany instead of on account of the loan guaranteed by the mortgage, there was achange in the conditions of the contract without the knowledge of appellants, which entitled thelatter to cancel the mortgage contract.The trial court held them still liable together with their co-makers. It has also been held that ifthe judgment is not satisfied within a period of time, the mortgaged properties would beforeclosed and sold in public auction.

In their appeal, petitioners contend that as accommodation makers, the nature of theirliability is only that of mere sureties instead of solidary co-debtors such that a material alterationin the principal contract, effected by the creditor without the knowledge and consent of thesureties, completely discharges the sureties from all liabilities on the contract of suretyship.

HELD:

There is no question that as accommodation makers, petitioners would be primarily andunconditionally liable on the promissory note to a holder for value, regardless of whether theystand as sureties or solidary co-debtors since such distinction would be entirely immaterial andinconsequential as far as a holder for value is concerned. Consequently, the petitionerscannot claim to have been released from their obligation simply because atthe time of payment of such obligation was temporarily deferred by thePNB without their knowledge and consent. There has to be another basisfor their claim of having been freed from their obligation. It has to be determined ifPNB was a holder for value.

A holder for value is one who meets the requirement of being a holder in due course except thenotice for want of consideration. In the case at bar, PNB may not be considered as a holderfor value. Not only was PNB animmediate party or privy to the promissory note, knowing fully well that petitioners onlysigned as accommodation parties, but more importantly itwas the Deed of Assignment which moved the petitioners to sign the promissorynote. Petitioners also relied on the belief that there will be no



alterations to the terms of the agreement. The deed provided that there will no further conditionswhich could possibly alter the agreement withoutthe consent of the petitioner such as the grant of greater priority to obligations other thanthe payment of the loan. This notwithstanding, the

bank approved the release of payments to the Company instead of the

same to the bank. This was in violation of the deed of assignment and prejudiced the rights of petitioners. The bank was not in good faith — a requisite for aholder to be one in due course.

STELCO VS CAFacts : Petitioner Stelco Marketing Corp (Stelco) is engaged in the distribution and sale to the

public of structural steel bars. It sold on 7 occasions quantities of steel bars and rolls of G.Isheets with an aggregate amount of P126,859.61 to RYL Construction, Inc. (RYL). Despite the

parties’ agreement that payment would be on COD basis, RYL never paid upon delivery of the materials and despite insistent demands.

One year later, RYL issued a check drawn against Metrobank to Armstrong Industries, the sistercompany and manufacturing arm of Stelco, to the amount of its obligations to the latter. Thecheck however was a company check of another corporation Steelweld Corporation of thePhilippines (Steelweld) signed by its President and Vice President. Said check was issued by the

president of Steelweld at the request of the president of RYL as an accommodation and ―only asguaranty but not to pay for anything. Armstrong subsequently deposited the check but wasdishonoured because it was DAIF*. It bore the endorsements of RYL and Armstrong. The latterfiled a complaint against the pres and vp of Steelweld for violation of BP22. The trial courtacquitted the defendants noting that the checks were not issued to apply on account for value, it

being merely for accommodation purposes. However, the court did not release Steelweld from itsliabilities, relying on Sec 29 of the NIL for issuing a check for accommodation.

Relying on the previous decision and averring that it was a holder in due course, Stelcosubsequently filed a complaint for recovery of the value of the materials from RYL andSteelweld. However, RYL had already been dissolved leading the trial court to rule againstSteelweld and hold them liable. Steelweld appealed to the CA which reversed the decision of theRTC declaring that STELCO was not a holder in due course and Steelweld was a stranger to thecontract between STELCO and RYL.

Issue: Whether or not STELCO was a holder in due course

Held: STELCO’s reliance on the RTC’s decision in the previous criminal case is misplaced.Although the RTC maintained that Steelweld was liable for issuing a check for accommodation,the RTC did not specify to whom it was liable. Despite the records showing that STELCO was in

possession of the check, such possession does not give a presumption that the holder is one forvalue. There was no evidence that STELCO had possession before the checks were presented



and dishonoured nor evidence that the checks were given to STELCO, indorsed to STELCO inany manner or form of payment. Only after said checks were dishonoured were they acquired bySTELCO.

STELCO never became a holder for value since nowhere in the check was STELCO identified as payee, indorsee, or depositor. Evidence shows that Armstrong was the intended payee, that it wasthe injured party, and the proper party to bring the action.FOSSUM VS HERMANOS

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 considerationthereof, a time draft with the Philippine National Bank (PNB), a negotiable instrument, wasexecuted by FH in the amount of $2,250.00 payable in 60 days. But later, FH dishonored thedraft 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 thedraft.Fossum maintains that he is a holder in due course; that he inherited that status from the previousholder (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 isunenforceable because it has no consideration, the shaft being substandard. AIP did not complywith its obligation thus the draft was dishonored – and Fossum was well aware of this as part ofthe 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, the bearer). This presumption does not apply to Fossum because he was not a payee nor an indorsee.He’s not an indorsee because the bank merely delivered the draft to him and the delivery waseven without consideration.But if the presumption previously applied to PNB, wasn’t that acquired b y Fossum?

No. The presumption only covers the present holder, and not the previous holder. When a holderdelivers/indorses the instrument, he loses that presumption. It will then become incumbent uponthe person who received the instrument to prove that the previous holder is a holder in duecourse 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 wasan 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 byFH.Further even assuming PNB is a holder in due course, there is a well-known rule of law that ifthe original payee of a note unenforceable for lack of consideration repurchases (in this case, thedraft was not even repurchased, it was merely delivered back) the instrument after transferring itto a holder in due course, the paper again becomes subject in the payee’s hands to the samedefenses 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.State Investment House Inc. vs. CA

GR No. 101163 January 11, 1993

Bellosillo, J.:

Facts: Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold oncommission, two postdated checks in the amount of fifty thousand each. Thereafter, Victorianonegotiated the checks to State Investment House, Inc. When Moulic failed to sell the jewellry,she returned it to Victoriano before the maturity of the checks. However, the checks cannot beretrieved as they have been negotiated. Before the maturity date Moulic withdrew her funds fromthe bank contesting that she incurred no obligation on the checks because the jewellery wasnever sold and the checks are negotiated without her knowledge and consent. Upon presentment

of for payment, the checks were dishonoured for insufficiency of funds.

Issues:1. Whether or not State Investment House inc. was a holder of the check in due course2. Whether or not Moulic can set up against the petitioner the defense that there was failure orabsence of consideration

Held:

Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence shows

that: on the faces of the post dated checks were complete and regular; that State InvestmentHouse Inc. bought the checks from Victoriano before the due dates; that it was taken in goodfaith and for value; and there was no knowledge with regard that the checks were issued assecurity and not for value. A prima facie presumption exists that a holder of a negotiableinstrument is a holder in due course. Moulic failed to prove the contrary.

No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose forwhich they were issued and therefore is not a holder in due course.

No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic failedto get back the possession of the checks as provided by paragraph c, intentional cancellation of

instrument is impossible. As provided by paragraph d, the acts which will discharge a simplecontract of payment of money will discharge the instrument. Correlating Article 1231 of theCivil Code which enumerates the modes of extinguishing obligation, none of those modesoutlined therein is applicable in the instant case. Thus, Moulic may not unilaterally dischargeherself from her liability by mere expediency of withdrawing her funds from the drawee bank.She is thus liable as she has no legal basis to excuse herself from liability on her check to aholder in due course. Moreover, the fact that the petitioner failed to give notice of dishonor is of



no moment. The need for such notice is not absolute; there are exceptions provided by Sec 114of NIL.

BATAAN CIGAR VS CAFACTS:

Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in themanufacturing of cigarettes purchased from King Tim Pua George (George King) 2,000

bales of tobacco leaf to be delivered starting October 1978. July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the total

amount of P820K 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 previousfailure in delivery

It issued post dated crossed checks in the total amount of P1.1M payable sometime in

September 1979.

July 19, 1978: George sold to SIHI at a discount check amounting to P164K, post datedMarch 31, 1979, drawn by BCCFI w/ George as payee.

December 19 and 26, 1978: George sold 2 checks both in the amount of P100K, post datedSeptember 15 & 30, 1979 respectively, drawn by BCCFI w/ George as payee

Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 astop payment order for all checks

SIHI failing to claim, filed a claim against BCCFI RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial to the

caseISSUE: W/N SIHI is a holder in due course beign a second indorser and a holder of crossedchecks

HELD: YES. GRANTED. RTC reversed. Sec. 521. That it is complete and regular upon its face2. That he became the holder of it before it was overdue, and without notice that it had been

previously dishonored, if such was the fact3. That he took it in good faith and for value4. 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 Sec. 59 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 wasdefective, 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.

effect of crossing of a check

1. check may not be encashed but only deposited in the bank2. check may be negotiated only once — to one who has an account with a bank3. act of crossing the check serves as warning to the holder that the check has been issued for

a definite purpose - 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 should put the holder on inquiry and upon him devolves the duty toascertain the indorser's title to the check or the nature of his possession - failure = guilty ofgross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the

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 aholder who is not a holder in due course is that the instrument is subject to defenses as if itwere non-negotiable. Hence, SIHI can collect from the immediate indorser, George

State Investment House Inc. (SIHI) vs. Intermediate Appellate Court [GE 72764, 13 July1989]Third Division, Fernan (CJ): 3 concur, 1 on leaveFacts: Shortly before 5 September 1980, New Sikatuna Wood Industries, Inc. (NSWII) requestedfor a loan from Harris Chua. The latter agreed to grant the same subject to the condition that theformer should wait until December 1980 when he would have the money. In view of thisagreement, Anita Pena Chua (HarrisChua's wife) issued 3 crossed checks payable to NSWII all

postdated 22 December 1980. The total value of the postdated checks amounted to P 299,450.00.Subsequently, NSWII entered into an agreement with State Investment House, Inc. (SIHI)whereby for and in consideration of the sum of Pl,047,402.91 under a deed of sale, the formerassigned and discounted with SIHI 11 postdated checks including the 3 postdated checks issued

by Peña Chua to NSWII. When the three checks issued by Pena Chua were allegedly deposited by SIHI, these checks were dishonored by reason of "insufficient funds", "stop payment" and"account closed", respectively. SIHI claimed that despite demands on Peña Chua to make goodsaid checks, the latter failed to pay the same necessitating the former to file an action forcollection against the latter and her husband before the Regional Trial Court of Manila, BranchXXXVII (Civil Case 82-10547). The spouses Chua filed a third party complaint against NSWIIfor reimbursement and indemnification in the event that they be held liable to SIHI. For failureof NSWII to answer the third party complaint despite due service of summons, the latter wasdeclared in default. On 30 April 1984, the lower court rendered judgment against the spouses,ordering them to pay jointly and severally to SIHI P 229,450.00 with interest at the rate of 12%

per annum from 24 February 1981 until fully paid; P 29,945.00 as and for attorney's fees; and thecosts of suit. On the third party complaint, NSWII was ordered to pay the spouses all amounts



said spouses may pay to SIHI on account of the case. On appeal filed by the spouses (AC-GRCV 04523), the Intermediate Appellate Court (now Court of Appeals) reversed the lower court's

judgment in its decision, dismissing the complaint, with costs against SIHI. SIHI filed the petition for review.

Issue [1]: Whether SIHI is a holder in due course as to entitle it to proceed against the spousesChua for the amount stated in the dishonored cross checks.Held [1]: NO. Section 52(c) of the Negotiable Instruments Law defines a holder in due course asone 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 theinstrument was negotiated to him he had no notice of any defect in the title of the personnegotiating it." However, under Section 59 every holderis deemed prima facie to be a holder indue course. Admittedly, the Negotiable Instruments Law regulating the issuance of negotiablechecks as well as the lights and liabilities arising therefrom, does not mention "crossed checks".But the Court has taken cognizance of the practice that a check with two parallel lines in theupper 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 theduty to ascertain the holder's title to the check or the nature of his possession. Failing in thisrespect, the payee is declared guilty of gross negligence amounting to legal absence of good faithand as such the consensus of authority is to the effect that the holder of the check is not a holderin good faith. Relying on the ruling in Ocampo v. Gatchalian (GR L-15126, 30 November 1961),the Intermediate Appellate Court (now Court of Appeals), correctly elucidated that the effects ofcrossing a check are: the check may not be encashed but only deposited in the bank; the checkmay be negotiated only once to one who has an account with a bank; and the act of crossing thecheck serves as a warning to the holder that the check has been issued for a definite purpose sothat he must inquire if he has received the check pursuant to that purpose, otherwise he is not aholder in due course. Further, the appellate court said that when SIHI rediscounted the checkknowing that it was a crossed check he was knowingly violating the avowed intention ofcrossing the check; that his failure to inquire from the holder, NSWII, the purpose for which thethree checks were cross despite the warning of the crossing,

prevents him from being considered in good faith and thus he is not a holder in due course; that being not a holder in due course, SIHI was subject to personal defenses, such as lack ofconsideration between the spouses and NSWII (no deposits were made, hence no loan was made,hence the three checks are without consideration as per Section 28, NIL); that NSWII negotiatedthe three checks in breach of faith in violation of Section 55, Negotiable Instruments Law, whichis a personal defense available to the drawer of the check; that such instruments are mentioned inSection 541 of the Code of Commerce; and that tThe 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 notcorrectly made. The Supreme Court agreed with the appellate court.

Issue [2]: Whether SIHI is a proper party authorized to make presentment of the cross checks inquestion.Held [2]: NO. Under usual practice, crossing a check is done by placing two parallel linesdiagonally on the left top portion of the check. The crossing may be special wherein between thetwo parallel lines is written the name of a bank or a business institution, in which case thedrawee 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 atall as in the case at bar, in which case the drawee should not encash the same but merely acceptthe 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. As to who the holder or authorized person will be depends on the instructions stated on the faceof the check.Herein, the three subject checks had been crossed generally and issued payable to NSWII whichcould 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 thedrawer. Thus, in the absence of due presentment, the drawer did not become liable.Consequently, no right of recourse is available to SIHI against the drawer of the subject checks,Pena Chua, considering that SIHI is not the proper party authorized to make presentment of the

checks in question.Issue [3]: Whether SIHI can still recover even if it is not a holder in due course.Held [3]: YES. It does not follow that simply because SIHI was not a holder in due course asfound by the appellate court for having taken the instruments in question with notice that thesame is for deposit only to the account of payee named in the subject checks, SIHI could notrecover on the checks. The Negotiable Instruments Law does not provide that a holder who is nota holder in due course may not in any case recover on the instrument. Herein, SIHI may recoverfrom NSWII if the latter has no valid excuse for refusing payment. The only disadvantage of aholder who is not in due course is that the negotiable instrument is subject to defenses as if itwere non-negotiable.MESINA VS IAC

Jose Go maintains an account with Associated Bank. He needed to transfer P800,000.00 fromAssociated Bank to another bank but he realized that he does not want to be carrying that cash sohe bought a cashier’s check from Associated Bank worth P800,000.00. Associated Bank thenissued the check but Jose Go forgot to get the check so it was left on top of the desk of the bankmanager. The bank manager, when he found the check, entrusted it to Albert Uy for the later tosafe keep it. The check was however stolen from Uy by a certain Alexander Lim.Jose Go learned that the check was stolen son he made a stop payment order against the check.Meanwhile, Associated Bank received the subject check from Prudential Bank for clearing.Apparently, the check was presented by a certain Marcelo Mesina for payment. Associated Bankdishonored the check.When asked how Mesina got hold of th e check, he merely stated that Alfredo Lim, who’s already

at large, paid the check to him for ―a certain transaction . ISSUE: Whether or not Mesina is a holder in due course.HELD: No. Admittedly, Mesina became the holder of the cashier’s check as endorsed byAlexander Lim who stole the check. Mesina however refused to say how and why it was passedto him. Mesina had therefore notice of the defect of his title over the check from the start. Theholder of a cashier’s check who is not a holder in due course cannot enforce such check againstthe issuing bank which dishonors the same. The check in question suffers from the infirmity of



not having been properly negotiated and for value by Jose Go who is the real owner of saidinstrument.

Digests Nego Sept 4

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