NIL_digests_6.27.2014.pdf

PatricioPD – NIL ATTY AMPIL

June 27, 2014 NIL Digests

1. De Ocampo v. Gatchalian

Doctrine: Section 52 (c) provides that a holder in due course is one who takes the

instrument "in good faith and for value;" Section 59, "that every holder is deemed prima facie to be a holder in due course;" and Section 52 (d), that in order that one

may be a holder in due course it is necessary that "at the time the instrument was negotiated to him "he had no notice of any x x x defect in the title of the person

negotiating it;" and lastly Section 59, that every holder is deemed prima facieto be a holder in due course.

Where a holder's title was defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of said defect in holder's title, and for this

reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not exist.

Where the payee acquired the check under circumstances which should have put it to inquiry, why the holder had the check and used it to pay his own personal account,

the duty devolved upon it to prove that it actually acquired said check in good faith. The stipulation of facts contains no statement of such good faith.

Facts: Anita Gatchalian bought a car from Ocampo clinic, thru Manuel Gonzales, whereby Anita Gatchalian issued a crossed-check before Manuel delivered it. Manuel

made assurance that the check was only for safekeeping until the delivery of the car.

Manuel failed to show up the next day, and Anita made a Stop Order Payment. De Ocampo clinic has no prior arrangements or agreements with Manuel but the

hospitalization of his wife. The check was used by Manuel to pay for the hospitalization fees of his wife. Upon acceptance of De Ocampo clinic of the check,

no further inquiry was made to the plaintiff. Plaintiff contends that Ocampo’s are not holder in due course for the reason that there was no negotiation of check to

Ocampo, further that the check is for mere safekeeping purposes only. Plaintiff asserts that the check was not personal check of Manuel therefore should have put

Ocampos under their guard and inquire about the check. The check is payable is crossed which in practice means that check could only be deposited but may not be

converted into cash, and which should have been subjected to inquiries by the Ocampos, because Gatchalian has no liabilities with the Ocampo clinic.

Issue: Whether Ocampos are holders in due course NO

Held: The stipulation of facts expressly states that plaintiff-appellee was not aware of

the circumstances under which the check was delivered to Manuel Gonzales, but we agree with the defendants-appellants that the circumstances indicated by them in

their briefs, such as the fact that appellants had no obligation or liability to the

Ocampo Clinic; that the amount of the check did not correspond exactly with the obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two

parallel lines in the upper left hand corner, which practice means that the check could only be deposited but may not be converted into cash — all these circumstances

should have put the plaintiff-appellee to inquiry as to the why and wherefore of the possession of the check by Manuel Gonzales, and why he used it to pay Matilde's

account. It was payee's duty to ascertain from the holder Manuel Gonzales what the nature of the latter's title to the check was or the nature of his possession. Having

failed in this respect, we must declare that plaintiff-appellee was guilty of gross

neglect in not finding out the nature of the title and possession of Manuel Gonzales, amounting to legal absence of good faith, and it may not be considered as a holder

of the check in good faith. It is sufficient to show that the defendant had notice that there was something wrong about his assignor's acquisition of title, although he did

not have notice of the particular wrong that was committed.

In the case at bar the rule that a possessor of the instrument is prima facie a holder

in due course does not apply because there was a defect in the title of the holder (Manuel Gonzales), because the instrument is not payable to him or to bearer. On the

other hand, the stipulation of facts indicated by the appellants in their brief, like the fact that the drawer had no account with the payee; that the holder did not show or

tell the payee why he had the check in his possession and why he was using it for the payment of his own personal account — show that holder's title was defective or

suspicious, to say the least. As holder's title was defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of said defect in holder's

title, and for this reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not exist. And having presented no

evidence that it acquired the check in good faith, it (payee) cannot be considered as a holder in due course. In other words, under the circumstances of the case, instead

of the presumption that payee was a holder in good faith, the fact is that it acquired

possession of the instrument under circumstances that should have put it to inquiry as to the title of the holder who negotiated the check to it. The burden was,

therefore, placed upon it to show that notwithstanding the suspicious circumstances, it acquired the check in actual good faith.

2. Green v. Lopez

Doctrine: Consideration – An allegation that a negotiable note was indorsed by the payee to the purchaser “for value received” is substantially equivalent to a formal

allegation that the indorsement was made for a valuable consideration

Rights of Purchaser - Where negotiable paper has been put in circulation, and there is

no infirmity or defense between the antecedent parties thereto, a purchaser of such security is entitled to recover thereon, as against the maker, the whole amount,

irrespective of what he may have paid therefor. Where there is nothing on the face of a negotiable note to put a purchaser from the payee on the notice of the existence

of an equitable defense as between the maker of the note and the payee, the existence of such equitable defense can in no event defeat the right of the holder of

the note by indorsement and for valuable consideration until and unless knowledged

of the existence of such equitable defenses is brought home to them, or until it appears that the holders had such knowledged of the existence of defects in the

instrument as to charge them with bad faith in acquiring it under all the attendant circumstances.

Facts: This case is an appeal from the judgment in favor of the plaintiff Green on the alleged PN. Plaintiff/Green purchased a note against the makes with

a declaration of the subsidiary liability of the payee, from whom the note was purchased and by whom it was indorsed to the plaintiffs. The complaint alleged that

the note was indorsed by the payee to the plaintiffs "for value received”, which was


validly adduced by evidence at the trial. What has been said disposes of the various

contentions of appellants based upon the failure of the court below to sustain a demurrer to the complaint because of the lack of an allegation setting forth

specifically the nature and amount of the consideration paid by the plaintiffs to the payee of the note, by whom it was indorsed in their favor. The real defense relied

upon in the court below by the makers of the note was that the plaintiffs were not bona fide holders of the note by indorsement, in that they had knowledge of the

existence of certain equitable defenses which the maker were entitled to set us against the payee of the note, before they acquired it by indorsement from the

payee.

Issue: Whether Plaintiff Green are deemed holders in due course

Held: Yes, Section 59, Presumption that a Holder is a Holder in Due Course

But there was nothing on the face of the note to put the purchasers on notice of the

existence of such equitable defenses. It was entirely regular in form and came into their possession in the usual course of business. Under these circumstances the

burden of proof was manifestly upon the makers of the note to establish the fact of knowledge of these equitable defenses before they could be permitted to rely upon

such defenses as against the purchasers, and also, the only evidence based upon was the testimony of Lopez, who represented to be employee of the Greens, inquiring

about the validity and genuineness of the note, stating that his principal desired this

information because he was contemplating its purchase. The court however, held that the evidence sustains an affirmative finding that the plaintiffs had knowledge of

the alleged equitable defenses when they purchased the note. It is also said that interviewing such purchasers of high caliber, one is broker and one is attorney,

strengthened the fact that they (the Plaintiffs) took precautions on purchasing the said note.

3. Bataan Cigar v. CA

Doctrine: What constitutes a holder in due course- The Negotiable Instruments Law

states what constitutes a holder in due course, thus: Sec. 52 — 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 the person negotiating it.

Every holder is a deemed prima facie a holder in due course - 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 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 - 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. Hence, respondent can collect from

the immediate indorser, in this case, George King.

A check may be crossed specially or generally - 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.

Effects of crossing of checks - In order to preserve the credit worthiness of checks, 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.

Crossing of checks puts the holder on inquiry and upon him devolves the duty to

ascertain the indorser’s title to the check or nature of his possession - 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, and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course.

Facts: Bataan Cigar & Cigarette Factory, Inc. (BCCFI) bought 2,000 bales of tobacco from George King and issued post-dated crossed checks at total amount of

Php1,100,000. George King sold the 2 checks at a discount to SIHI. George King failed to deliver the tobacco which prompted BCCFI to stop payment order of the

checks including the check George King sold to SIHI. SIHI cannot from BCCFI, thus instituted this case.

TC ruled SIHI has valid claim being a holder in due course

Issue: Whether SIHI, as second indorser, is a holder in due course.NO

Held: 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. In the

Philippine business setting, however, we used to be beset with bouncing checks, forging of checks, and so forth that banks have become quite guarded in encashing

checks, particularly those which name a specific payee. Unless one is a valued client,

a bank will not even accept second indorsements on checks. In order to preserve the credit worthiness of checks, 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. 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, and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course. In the

present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King. Because, really, the checks were issued with the intention that George

King would supply BCCFI with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due course. Consequently, BCCFI 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. Hence, respondent can collect from the immediate indorser, in this case,

George King.

4. Chan Wan v. Tan Kim

Doctrine: Crossed checks; absence of due presentment; liability of drawer - the drawer in drawing the check engaged that "on due presentment, the check would be

paid, and that if it be dishonored x x x he will pay the amount thereof to the holder". Wherefore, in the absence of due presentment, the drawer did not become liable.

Crossed check specially in favor of a certain bank, how collected; liability of drawee

for wrong payment – Where a check is crossed specially in favor of a certain bank, the check is generally deposited with the bank mentioned in the crossing, so that the

latter may take charge of the collection. If it is not presented by said Bank for payment, the drawee is liable to the true owner, in case of payment to persons not

entitled thereto.

A Holder who is not a holder in due course can still recover on the check - The

Negotiable Instruments Law does not provide that a holder who is not a holder in due course, may not in any case, recover on the instrument. 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.

Facts: Tan Kim drawn from Equitable Banking Corporation (drawer bank) a check payable to “cash or bearer”. Such checks were presented to drawee bank but they

were all dishonored because of “insufficient funds and/or causes attributable to the drawer”. Tan Kim had indicated that the 2 checks dishonored were for Pinong or

Muy, which were mere intended as receipts. The lower court declined to order payment for two principal reasons: (a) plaintiff failed to prove he was a holder in due

course, and (b) the checks being crossed checks should not have been deposited

instead with the bank mentioned in the crossing.

Issue: Whether defendants have the right to claim on the 11 commercial documents.

Yes, he has a right to collect even if not a holder in due course.

Held: 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 Negotiable Instruments Law does not provide that a holder7 who is not a holder in due course,

may not in any case, recover on the instrument. 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. Now what defense did the defendant Tan Kim

prove? 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. 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. REMANDED FOR

ADDITIONAL EVIDENCE BASED ON THE EVIDENCE THE SHOULD BE HEREIN PROVIDED.

5. Consolidated Plywood v. IFC Leasing and Acceptance Corporation

Doctrine: Promissory Note must be payable to order or to bearer to be negotiable -

The instrument in order to be considered negotiable must contain the so-called 'words of negotiable, must be payable to 'order' or 'bearer'. These words serve as an

expression of consent that the instrument may be transferred. This 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 x x x These are the only two ways by which an

instrument may be made payable to order. There must always be a specified person

named in the instrument. It means that the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. 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."

Effect if promissory note is non-negotiable - Therefore, considering that the subject

promissory note is not a negotiable instrument, it follows that the respondent can never be a holder in due course but remains a mere assignee of the note in question.

Thus, the petitioner may raise against the respondent all defenses available to it as against the seller-assignor Industrial Products Marketing.

Facts: Consolidated Plywood Industries, Inc, (CPI) thru Wee and Vergara, bought from bought from Atlantic Gulf and Pacific Company, through its sister company

Industrial Products Marketing “Used” Allis Crawler Tractors, paid 210K down payment, executed a CHM and a PN. Also, CPI assigned thru Deed of Assignment

herein CHM. Simultaneously, the seller assigned the deed of sale with chattel

mortgage and promissory note to IFC Leasing, herein respondent. One Tractor broke down in 14 days, the other one in 9 days. Buyer enforced the warranty provision of

their sales contract however Tractors are no longer serviceable therefore there was a failure of consideration. Vergara advised Industrial Products Marketing, seller, that

due to the halting of road building and logging operations, delays payments of the installments as listed in the promissory note would likewise be delayed until the

seller-assignor completely fulfills its obligation under its warranty. And since the tractors were no longer serviceable, Wee asked that tractors be pulled-out,

reconditioned and offer for sale. The proceeds were to be given to the respondent


and the excess, if any, to be divided between the seller-assignor and petitioner-

corporation which offered to bear one-half (1/2) of the reconditioning cost. The request of Wee was not heeded by Industrial Products Marketing. Therefore,

institution of the recovery of amount in the PN. TC and CA granted.

Issue: (a)Whether the PN is a negotiable instrument NO. (b)Whether the holder,

i.e. IFC Leasing, is not a holder in due course. NO

Held: (a) The instrument in order to be considered negotiablility-i.e. must contain

the so-called 'words of negotiable, must be payable to 'order' or 'bearer'. In the case at bar, “I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS

MARKETING” contains no words of negotiability rendering it a non-negotiable instrument. (b) Therefore, considering that the subject promissory note is not a

negotiable instrument, it follows that the respondent can never be a holder in due course but remains a mere assignee of the note in question. Thus, the petitioner may

raise against the respondent all defenses available to it as against the seller-assignor Industrial Products Marketing. The evidence presented in the instant case shows that

prior to the sale on installment of the tractors, there was an arrangement between the seller-assignor, Industrial Products Marketing, and the respondent whereby the

latter would pay the seller-assignor the entire purchase price and the seller-assignor, in turn, would assign its rights to the respondent which acquired the right to collect

the price from the buyer, herein petitioner Consolidated Plywood Industries, Inc.

The respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase price was not unconditional, and that it was subject to the

condition that the tractors -sold were not defective. The respondent knew that when the tractors turned out to be defective, it would be subject to the defense of failure of

consideration and cannot recover the purchase price from the petitioners. Even assuming for the sake of argument that the promissory note is negotiable, the

respondent, which took the same with actual knowledge of the foregoing facts so that its action in taking the instrument amounted to bad faith, is not a holder in due

course. As such, the respondent is subject to all defenses which the petitioners may raise against the seller-assignor.

6. State Investment House v. IAC

Doctrine: Holder in due course; defined - Section 52(c) of the Negotiable

Instruments Law defines a holder in due course as one 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 the instrument was negotiated to him he had no notice of any x x x defect in the title of

the person negotiating it." However, under Section 59 every holder is deemed prima

facie to be a holder in due course.

Duty of the payee to ascertain the holder’s title to the check or the nature of his

possession - Admittedly, the Negotiable Instruments Law regulating the issuance of negotiable checks as well as the lights and liabilities arising therefrom, 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.

Effects of crossing a check - Relying on the ruling in Ocampo v. Gatchalian (supra), the Intermediate Appellate Court (now Court of Appeals), correctly elucidated that

the effects of crossing a check are: the check may not be encashed but only deposited in the bank; the check may be negotiated only once to one who has an

account with a bank; and 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.

Drawee should not encash a crossed check but merely accept the for deposit - Under usual practice, crossing a check is done by placing two parallel lines diagonally on the

left top portion of the check. 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, 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.

Presentment for payment; No right of recourse is available to petitioner against the

drawer; Reasons; Case at bar - The three subject checks in the case at bar had been crossed generally and issued payable to New Sikatuna Wood Industries, Inc. which

could 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 the drawer. Thus, in the absence of due

presentment, the drawer did not become liable. Consequently, no right of recourse is available to petitioner against the drawer of the subject checks, private respondent

wife, considering that petitioner is not the proper party authorized to make presentment of the checks in question.

Holder not in due course; Disadvantage of; Defense of; The Negotiable Instruments Law, does not provide that a holder not in due course may not in any case recover on

the instrument; Reasons; Case at bar - Yet it does not follow as a legal proposition that simply because petitioner was not a holder in due course as found by the

appellate court for having taken the instruments in question with notice that the same is for deposit only to the account of payee named in the subject checks,

petitioner could not recover on the checks. The Negotiable Instruments Law does not

provide that a holder who is not a holder in due course may not in any case recover on the instrument for in the case at bar, petitioner may recover from the New

Sikatuna Wood Industries, Inc. if the latter has no valid excuse for refusing payment. The only disadvantage of a holder who is not in due course is that the negotiable

instrument is subject to defenses as if it were non-negotiable. That the subject checks had been issued subject to the condition that private respondents on due date

would make the back-up deposit for said checks but which condition apparently was not made, thus resulting in the non-consummation of the loan intended to be granted

by private respondents to New Sikatuna Wood Industries, Inc., constitutes a good defense against petitioner who is not a holder in due course.


Facts: Harris Chua (Loaned to) � New Sikatuna (Discounted to) + Anita Pena’s 3

checks� State Investment

New Sikatuna requested for a loan from Spouses Chua. Latter issued postdated 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.

Issue: (a) Whether SIHI is entitled to payment YES, from SIKATUNA, and whether SIHI is a holder in due course YES.

Held:

(a) It does not follow as a legal proposition that simply because petitioner was not a

holder in due course as found by the appellate court for having taken the instruments in question with notice that the same is for deposit only to the account of payee

named in the subject checks, petitioner could not recover on the checks. The

Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument for in the case at bar,

petitioner may recover from the New Sikatuna Wood Industries, Inc. if the latter has no valid excuse for refusing payment. The only disadvantage of a holder who is not in

due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. That the subject checks had been issued subject to the condition that

private respondents on due date would make the back up deposit for said checks but which condition apparently was not made, thus resulting in the non-consummation of

the loan intended to be granted by private respondents to New Sikatuna Wood Industries, Inc., constitutes a good defense against petitioner who is not a holder in

due course.

(b) 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 once—to 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 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.

The checks in issue were crossed generally and issued payable to New Sikatuna

Wood which could only mean that the drawer has intended the same for deposit only by the rightful person. Apparently, it was not the payee who 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 recourse is available to petitioner against the drawer of the subject checks considering that the petitioner is the proper party

authorized to make presentment of the checks in question.

7. Spouses Violago v. BA Finance Corporation

Doctrine: The promissory note is clearly negotiable - The promissory note is clearly negotiable. The appellate court was correct in finding all the requisites of a

negotiable instrument present. The NIL provides: Section 1. Form of Negotiable Instruments. – An instrument to be negotiable must conform to the following

requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be

payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must

be named or otherwise indicated therein with reasonable certainty.

The law presumes that a holder of a negotiable instrument is a holder thereof in due

course - The law presumes that a holder of a negotiable instrument is a holder thereof in due course. In this case, the CA is correct in finding that BA Finance meets

all the foregoing requisites: In the present recourse, on its face, (a) the “Promissory Note”, Exhibit “A”, is complete and regular; (b) the “Promissory Note” was endorsed

by the VMSC in favor of the Appellee; (c) the Appellee, when it accepted the Note, acted 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 his rights to the BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987, 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.

The Negotiable Instruments Law considers every negotiable instrument prima facie to have been issued for a valuable consideration - In the hands of one other than a

holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. A holder in due course, however, 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.

The NIL considers every negotiable instrument prima facie to have been issued for a valuable consideration. In Salas, we held that a party holding an instrument may

enforce payment of the instrument for the full amount thereof. As such, the maker cannot set up the defense of nullity of the contract of sale. Thus, petitioners are

liable to respondent corporation for the payment of the amount stated in the

instrument.

Facts: Avelino Violago, President of Violago Motor Sales Corporation (VMSC), sold a

car to his cousin Pedro and his spouse Florencia (Sps. Violago) with a term of DP 60K and balance financed by BA Finance. Spouses Violago signed PN to pay jointly and

severally to the order of VMSC, 36 monthly installments. Avelino failed to transfer the ownership of the car to Spouses Violago because it was sold to Esmeraldo,

therefore there was no delivery of the vehicle. Since VmSC failed to deliver the car, Pedro did not pay any monthly amortization to BA Finance. Therefore BA Finance

instituted a replevin or payment of the PN thereof. Sps. Violago alleged that since they have not received the consideration and that BA Finance is not a holder in due


course by Section 59, the recourse of BA Finance is to VMSC, and they impleaded

Avelino, not VMSC. RTC ordered Sps. Violago to deliver the car or pay the PN, consequently Avelino was ordered to deliver the car or pay the PN also to the Sps.

Violago. CA held same except the claim of Sps. Violago should be with VMSC not Avelino.

Issue: Whether the PN is a Negotiable instrument YES and as such BA Finance could be a holder in due course YES, as it complies with Section 52.

Held: In addressing the threshold issue of whether BA Finance is a holder in due course of the promissory note, we must determine whether the note is a negotiable

instrument and, hence, covered by the NIL. It is in writing; signed by the Violago spouses; has an unconditional promise to pay a certain amount, i.e., PhP 209,601, on

specific dates in the future which could be determined from the terms of the note; made payable to the order of VMSC; and names the drawees with certainty. The

indorsement by VMSC to BA Finance appears likewise to be valid and regular.

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. 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. The NIL considers every negotiable instrument prima facie to have been

issued for a valuable consideration. As such, the maker cannot set up the defense of nullity of the contract of sale. Thus, petitioners are liable to respondent

corporation for the payment of the amount stated in the instrument. Therefore, SC reinstated the RTC ruling.

8. Dino v. Judal-Loot

Doctrine: 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- 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. Contrary to respondents’ view, petitioner never changed his theory,

that respondents are not holders in due course of the subject check, as would violate fundamental rules of justice, fair play, and due process. Besides, the subject check

was presented and admitted as evidence during the trial and respondents did not and in fact cannot deny that it is a crossed check.

Holder in due course defined - Section 52 of the Negotiable Instruments Law defines

a holder in due course, thus: 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.

Principles that must be considered in the treatment of crossed checks - 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.

Crossing a check is done by placing two parallel lines diagonally on the left top portion of the check - Under usual practice, crossing a check is done by placing two

parallel lines diagonally on the left top portion of the check. 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, 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. 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 x x x As to who the holder

or authorized person will be depends on the instructions stated on the face of the

check.

The NIL does not provide that a holder who is not a holder in due course may not in

any case recover on the instrument; The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were non-

negotiable - the fact that respondents are not holders in due course does not automatically mean that they cannot recover on the check. The Negotiable

Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument. The only disadvantage of a holder

who is not in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. Among such defenses is the absence or failure of

consideration, which petitioner sufficiently established in this case. Petitioner issued the subject check supposedly for a loan in favor of Consing’s 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,

petitioner cannot be obliged to pay the face value of the check.

Facts: Dino was approached by a syndicate who owns a large parcel of land to get a

loan amounting to 3M, with a REM. But one Vivencia Ompok Consing, offered DOA in

lieu of the REM which Dino accepted. Dino then issued 3 MBTC checks totaling 3M. Dino discovered it’s government properties, and ordered stop payment upon the

checks. Holder of the check, Lobitana, endorsed a check to herein respondents Judal-Loot where before they accepted, they first inquired from MBTC (drawee bank)

if it was sufficiently funded, which it is. However, when it was deposited, it was dishonored because of the fact that it was “Payment stopped”. Judal-Loot then filed

a collection suit. TC and CA ruled in favor of respondents being a holder in due course since petitioner’s own admission that respondents were never parties to the

transaction among petitioner, Lobitana, Concordio Toring, Cecilia Villacarlos, and Consing, proved respondents’ lack of knowledge of any infirmity in the instrument or

defect in the title of the person negotiating it. Moreover, respondents verified from


Metrobank whether the check was sufficiently funded before they accepted it.

Therefore, respondents must be excluded from the ambit of petitioner’s stop payment order.

Issue: Whether Judal-Loot is a holder in due course being that the check is a crossed-check (raised for the first-time in MR in CA) NO

Held: Besides Section 52, 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, respondents had the duty to ascertain the indorser’s, in this case Lobitana’s, title to the check or the nature of her possession. This respondents

failed to do. Respondents’ verification from Metrobank on the funding of the check does not amount to determination of Lobitana’s title to the check. Failing in this

respect, respondents are guilty of gross negligence amounting to legal absence of good faith, contrary to Section 52(c) of the Negotiable Instruments Law. Hence,

respondents are not deemed holders in due course of the subject check.

The three subject checks in the case at bar had been crossed generally and issued

payable to payee named therein which could 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 the drawer. Thus, in the absence of due presentment, the drawer did not become liable.

Consequently, no right of recourse is available to petitioner against the drawer of the subject checks, private respondent wife, considering that petitioner is not the proper

party authorized to make presentment of the checks in question. Accordingly, no right of recourse is available to respondents against the drawer of the check,

petitioner herein, since respondents are not the proper party authorized to make presentment of the subject check.

However, the fact that respondents are not holders in due course does not automatically mean that they cannot recover on the check. The Negotiable

Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument. The only disadvantage of a holder

who is not in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. Among such defenses is the absence or failure of

consideration, which petitioner sufficiently established in this case. Petitioner issued

the subject check supposedly for a loan in favor of Consing’s 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, petitioner cannot be obliged to pay the face value of the check.

Respondents can collect from the immediate indorser, in this case Lobitana. Significantly, Lobitana did not appeal the trial court’s decision, finding her solidarily

liable to pay, among others, the face value of the subject check.

NIL_digests_6.27.2014.pdf

Documents

Transcript of NIL_digests_6.27.2014.pdf