State Investment House vs.

CA
GR 101163
11 January 1993
First Division, Bellosillo (J)
Facts:
Nora B. Moulic issued to Corazon Victoriano checks, as security for pieces of jewelry
sold on commission. Victoriano negotiated the checks to the State Investment
House Inc. (SIHI). Moulic failed to sell the pieces of jewelry, so he returned them to
the payee before the maturity of the checks. The checks, however, could not be
retrieved as they had already been negotiated. Before the checks maturity dates,
Moulic withdrew her funds from the drawee bank. Upon presentment of the checks
for payment, they were dishonored for insufficiency of funds. SIHI sued to recover
the value of the checks.
Issue:
Whether the personal defense of failure or absence of consideration is available, or
conversely, whether SIHI is a holder in due course.
Held:
On their faces, the post-dated checks were complete and regular; SIHI bought the
checks from the payee (Victoriano) before their due dates; SIHI took the checks in
good faith and for value, albeit at a discounted price; and SIHI was never informed
not made aware that the checks were merely issued to payee as security and not
for value. Complying with the requisites of Section 52 of the Negotiable Instruments
Law, SIHI is a holder in due course. As such, it holds the instruments free from any
defect of title of prior parties, and from defenses available to prior parties among
themselves. SIHI may enforce full payment of the checks. The defense of failure or
absence of consideration is not available as SIHI was not privy to the purpose for
which the checks were issued. That the post-dated checks were merely issued as
security is not a ground for the discharge of the instrument as against a holder in
due course. It is not one of the grounds outlined in Section 119 of the
NegotiableInstrument Law, for the instrument to be discharged. It must be noted
that the drawing and negotiation of a check have certain effects aside from the
transfer of title or the incurring of liability in regard to the instrument by the
transferor. The holder who takes the negotiated paper makes a contract with the
parties on the face of the instrument. There is an implied representation that funds
or credit are available for the payment of the instrument in the bank upon which it
is drawn. Consequently, the withdrawal of the money from the drawee bank to
avoid liability on the checks cannot prejudice the rights of holders in due course.
The drawer, Moulic, is liable to the holder in due course, SIHI.