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State Investment House vs. CA [G.R. No. 101163. January 11, 1993.

] First Division, Bellosillo (J): 2 concurring, 1 took no part Facts: Nora B. Moulicissued to Corazon Victoriano, as securityforpieces of jewelry to be sold on commission, 2 post-dated Equitable Banking Corporation checks in the amount of P50,000 each, one dated 30 August 1979 and the other, 30 September 1979. Thereafter, the payeenegotiated the checks to the State Investment House Inc. (SIHI). Moulicfailed to sell the pieces of jewelry, so she returned them to the payee before maturity of the checks. The checks, however, could no longer be retrieved as they had alreadybeennegotiated. Consequently, before their maturity dates, Moulicwithdrew her funds from the draweebank.Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20 December 1979, SIHI allegedly notifiedMoulic of the dishonor of the checks and requested that it be paid in cash instead, although Moulic avers that no such notice was given her. On 6 October 1983, SIHI sued to recover the value of the checks plus attorney's fees and expenses of litigation. In her Answer, Moulic contends that she incurred no obligation on the checks because the jewelry was never sold and the checks were negotiated without her knowledge and consent. She also instituted a ThirdParty Complaint against Corazon Victoriano, who later assumed full responsibility for the checks. On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party Complaint, and ordered SIHI to pay Moulic P3,000.00 for attorney's fees. SIHI elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed the trial court on the ground that the Notice of Dishonor to Moulic was made beyond the periodprescribed by the Negotiable Instruments Law and that even if SIHI did serve such notice on Moulic within the r eglementary period it would be of no consequence as the checks should never have been presented for payment. Hence, the petition for review. The Supreme Court granted the petition , reversed the decision appealed from, and entered a new one declaring privat e Moulicliable to SIHI for the value of EBC Checks 30089658 and 30089660 in the total amount of P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without prejudice to any action for recompense she may pursue against the Victorianos as Third-Party Defendants; with costsagainstMoulic 1. Negotiability of checks not in dispute The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at the pre -trial, the parties agreed to limit the issue to whether or not SIHI was a holder of the checks in due

course. 2. Section 52 NIL, Holder in due course; Burden of proving a holder not in due course Section 52 of the Negotiable Instruments Law (What constitutes a holder in due course) provides 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 was 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." Thus, a prima facie presumption exists that the holder of a negotiable instrument is a holder in due course. Consequently, the burden of proving that SIHI is not a holder in due course lies in the person who disputes the presumption. In this regard, Moulic failed. The evidence clearly shows that: (a) on their faces the post-dated checks were complete and regular; (b) SIHI bought these checks from the payee, Corazon Victoriano, before their due dates; 3 (c) SIHI took these checks in good faith and for value, albeit at a discounted price; and, (d) SIHI was never informed nor made aware that these checks were merely issued to payee as security and not for value. Consequently, SIHI is indeed a holder in due course. As such, it holds the instruments free from any defect of title of prior parties, and from defenses av ailable to prior parties among themselves; SIHI may, therefore, enforce full payment of the checks. 3. Personal defense of failure or absence of consideration not available Moulic cannot set up against SIHI the defense that there was failure or absence of consideration. Moulic can only invoke this defense against SIHI if it was privy to the purpose for which they were issued and therefore is not a holder in due course. 4. Section 119 NIL, Instrument how discharged 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. For, the only grounds are those outlined in Section 119 of the Negotiable Instrument Law (Instrument; how discharged), i.e. A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holde r; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right." 5. Section 119 (c) NIL; intentional cancellation contemplate d in paragraph (c) The

intentional cancellation contemplated under paragraph (c) is that cancellation effected by destroying the instrument either by tearing it up, burning it, or writing the word "cancelled" on the instrument. The act of destroying the in strument must also be made by the holder of the instrument intentionally. Since Moulic failed to get back possession of the post -dated checks, the intentional cancellation of the said checks is altogether impossible. 6. Section 119 (d) NIL; Acts discharging a simple contract not specified in Section 119 The acts which will discharge a simple contract for the payment of money under paragraph (d) are determined by other existing legislations since Section 119 does not specify what these acts are, e.g., Art. 1 231 of the Civil Code which enumerates the modes of extinguishing obligations. Again, none of the modes outlined therein is applicable in the instant case as Section 119 contemplates of a situation where the holder of the instrument is the creditor while i ts drawer is the debtor. In the present case, the payee, Corazon Victoriano, was no longer Moulic's creditor at the time the jewelry was returned. Correspondingly, Moulic may not unilaterally discharge herself from her liability by the 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 checks to a holder in due course. 7. Need for notice of dishonor not absolute The fact that SIHI failed to give Notice of Dishonor to Moulic is of no moment. The need for such notice is not absolute; there are exceptions under Section 114 of the Negotiable Instruments Law (When notice need not be given to drawer), to wit: Notice of dishonor is not required to be given to the drawer in the following cases: (a) Where the drawer and the drawee are the same person; (b) When the drawee is a fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is presented for payment; (d ) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer had countermanded payment." In the present case, Moulic did not retrieve the checks when she returned the jewelry; but simply w ithdrew her funds from her drawee bank and transferred them to another to protect herself. After withdrawing her funds, she could not have expected her checks to be honored; therefore, she was responsible for the dishonor of her checks, there was no need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or indorser of the instrument, either verbally or by writing, the fact that a specified instrument, upon proper proceedings taken, has not been accepted or has not been paid, and that the party notified is expected to pay it. 8. Purpose of the enactment of the Negotiable Instruments Law The Negotiable

Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single case. 9. Effects of drawing and negotiation of a check; Drawer liable to holder in due course 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 pr ejudice the rights of holders in due course. In the present case, such withdrawal renders the drawer, Nora B. Moulic, liable to SIHI, a holder in due course of the checks. 10. Right of mortgagee to claim deficiency in extrajudicial foreclosure of mortgage The obligation of Corazon Victoriano and her husband at the time their property mortgaged to SIHI was extrajudicially foreclosed amounted to P1.9 million; the bid price at public auction was only P1 million. Thus, the value of the property foreclosed was not even enough to pay the debt in full. Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the deficiency from the debtor. The step thus taken by the mortgagee -bank in resorting to an extrajudicial foreclosure was merely to find a proceeding for the sale of the property and its action cannot be taken to mean a waiver of its right to demand payment for the whole debt. 11. Legislative intent to foreclose right of a creditor to sue for deficiency usually expressed; Creditor does not lose right to recover in the absence of provision While Act 3135, as amended, does not discuss the mortgagee's right to recover such deficiency, it does not contain any provision either, expressly or impliedly, prohibiting recovery. In this jurisdiction, when the legislature intends to foreclose the right of a creditor to sue for any deficiency resulting from foreclosure of a security given to guarantee an obligation, it so expressly provides. For instance, with respect to pledges, Art. 2115 of the Civil Code does not allow the creditor to recover the deficiency from the sale of the thing pledged. Likewise, in the case of a chattel mortgage, or a thing sold on installment basis, in the event of foreclosure, the vendor "shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary will be void". Thus, in the absence of a similar provision in Act 3135, as amended, it cannot be concluded that the creditor loses his right recognized by

the Rules of Court to take action for the recovery of any unpaid balance on the principal obligation simply because he has chosen to extrajudicially foreclose the real estate mortgage pursuant to a Special Power of Attorney given him by the mortgagor in the contract of mortgage. 12. Complaint and Third-party complaint another means of recovering unpaid balance The filing of the Complaint and the Third -Party Complaint to enforce the checks against Moulic and the Victoriano spouses, respectively, is just another means of recovering the unpaid balance of the debt of the Victorianos. Moulic, as drawer, is liable for the value of the checks she issued to the holder in due course, SIHI, without prejudice to any action for recompense she may pursue against the Victorianos as Third-Party Defendants who had already been declared as in default.

Bataan Cigar and Cigarette Factory vs. CA [G.R. No. 93048. March 3, 1994.] Second Division, Nocon (J): 3 concurring Facts: Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of cigarettes, engaged one of its suppliers, KingTimPuaGeorge (George King), to deliver 2 ,000bales of tobaccoleaf starting October 1978. In consideration thereof, BCCFI, on 13 July 1978 issuedcrossedcheckspostdated sometime in March 1979 in the total amount of P820,000. Relying on the supplier's representation that he would completedeliverywithin 3 months from 5 December 1978, BCCFIagreed to purchaseadditional 2,500bales of tobacco leaves, despite the supplier'sfailure to deliver in accordance with their earlieragreement. Again, BCCFI issuedpostdatedcrossedchecks in the total amount of P1,100,000, payable sometime in September 1979. During these times, George King was simultaneously dealing with State Investment House Inc . (SIHI). On 19 July 1978, he soldatadiscountcheck TCBT 551826 bearing an amount of P164,000.00, postdated 31 March 1979, drawn by BCCFI, naming GeorgeKingaspayee to SIHI. On 19 December and 26, 1978, he againsold to SIHI checks TCBT 608967 & 608968, both in the amount of P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by BCCFI in favor of George King. In as much as George King failed to deliver the bales of tobacco leaf as agreed despite its demand, BCCFI issued on 30 March 1979, a stoppaymentorder on all checks payable to George King, including check TCBT 551826. Subsequently, stop payment was also ordered on checks TCBT 608967 & 608968 on September 14 & 28, 1979, respectively, due to George King's failure to deliver the tobacco leaves. Efforts of SIHI to collect from BCCFI having failed , it instituted the present case with the Regional Trial Court , naming only BCCFI as party defendant. The trial

court pronounced SIHI as having a va lid claim being aholder in due course. It further said that the non-inclusion of King Tim Pua George as party defendant is immaterial in this case, since he, as payee, is not an indispensable party. Raised in the Court of Appeals, the appellate court affirmed the decision of the trial court. Hence, the present petition for review. The SupremeCourtgranted the petition, finding that the court a quo erred in the application of law; and thus reversed the decision of the Regional Trial Court as affirmed by the Court of Appeals with cost against SIHI. 1. Section 52 NIL; Holder in Due Course Section 52 of the The Negotiable Instruments Law states what constitutes 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 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." 2. Section 59 NIL 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. 3. SIHI vs. IAC on all fours The facts in thepresent case are on all fours to the case of State Investment House, Inc. (the very respondent in this case) v. Intermediate Appellate Court wherein the Court made a discourse on the effects of crossing of checks. 4. Check defined; Kinds A check is defined by law as a bill of exchange drawn on a bank payable on demand. There are a variety of checks, the more popular of which are the memorandum check, cashier's check, traveler's check and crossed check. Crossed check is one where two parallel lines are drawn across its face or across a corner thereof. It may be crossed generally or specially. 5. Crossed check 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 presentment can be made only by a bank. Veritably the Negotiable Instruments Law (NIL) does not mention "crossed checks," although Article 541 of the Code of Commerce refers to such

instruments. 6. General viewpoint and English setting o n crossed check: Negotiability of a check not affected According to commentators, 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. This is specially true in England where the Negotiable Instrument Law originated. 7. Philippine setting: Effects of a crossed check In the Philippine business setting, 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 ba nk 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 th e 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. 8. Crossed check should put holder on inquiry to ascertain indorsers title or nature of possession; Effects of failure, Section 52 (c) NIL 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 Geo rge King; because 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 check s. 9. SIHI can collect from immediate indorser, George King It does not mean, 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-negotiable. Hence, SIHI can collect from the immediate indorser, in this case, George King.


Pineda was caught in a case against the NARIC for his alleged misappropriation of many cavans of palay. He hired Atty. Dela Rama to delay the filing of the complaint against him, on alleged representation of the lawyer that he is a friend of the NARIC administrator. Pineda then issued a promissory note in favor of dela Rama to pay for the advances that the lawyer made to the administrator to delay the filing of the complaint. Dela Rama on the other hand contended that the promissory note was for the loan advanced to Pineda by him. Dela Rama filed an action against Pineda for the collection of the amount of the note.

The presumption that a negotiable instrument was issued for valuable consideration is a rebuttable presumption. It can be rebutted by proof to the contrary. In the case at bar, the claims of dela Rama that the promissory note was for a loan advanced to Pineda is unbelievable. The grant of a loan by a lawyer to a moneyed client and whom he has known for only 3 months can not be relied on. Pineda had actually just purchased numerous properties. It is highly illogical that he would loan from dela Rama P9500 for 5 days apart. Furthermore, the note was void ab initio because the consideration given was to influence the administrator to delay charges against Pineda. The consideration was void for being against law and public policy.


Tam Kim issued 11 checks payableto cash or bearer. Chan Wan presented these for

payment but were dishonored for insufficiency of funds. This prompted Chan Wan to institute an action against Tam Kim. She didn't take the witness stand and merelypresented the checksforpayment. Tan Kim on the other hand alleged that the checks were for mere receipts only. The trial court dismissed the complaint as Chan Wan failed to show that she was a holder in due course.

Eight of the checks were crossed checks specially to Chinabank and should have been presented for payment by Chinabank and not by Chan Wan. Inasmuch as Chan Wan didn't present them for payment himself, there was no proper presentment, and the liability didn't attach to the drawer. The facts show that the checks were indeed deposited with Chinabank and were by the latter presented for collection to the drawee bank. But as the account had no sufficient funds, they were unpaid and returned, some of them stamped account closed. How it reached the hands of Chan Wan, she didn't indicate. Most probably, as the trial court surmised, she acquired them after they have been dishonored. Chan Wan is then not a holder in due course. Nonetheless, it doesn't mean that she couldn't collect on the checks. He can still collect against Tan Kim if the latter has no valid excuse for refusing payment. The only disadvantage for Chan Kim is that she is susceptible to defenses of Tan Kim but what are the defenses of latter? This has to be further deliberated by the trial court.

Atrium Management Corporation vs. Court of Appeals (GR 109491, 28 February 2001)
Atrium Management Corporation vs. Court of Appeals [GR 109491, 28 February 2001], also De Leon vs. Court of Appeals [GR 121894] First Division, Pardo (J): 4 concur Facts: Hi-Cement Corporation through its corporate signatories, Lourdes M. de Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks to Atrium Management Corporation for valuable consideration. Upon presentment for payment, the drawee bank dishonored all four checks for the common reason "payment stopped". On 3 January 1983, Atrium Management Corporation filed with the Regional Trial Court, Manila an action for collection of the proceeds of four postdated checks in the total amount

of P2 million, after its demand for payment of the value of the checks was denied. After due proceedings, on 20 July 1989, the trial court rendered a decisi on ordering Lourdes M. de Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc. and Hi-Cement Corporation to pay Atrium jointly and severally, the amount of P2 million corresponding to the value of the four checks, plus interest and attorney's fees. On appeal to the Court of Appeals, on 17 March 1993, the Court of Appeals promulgated its decision modifying the decision of the trial court, absolving Hi-Cement Corporation from liability and dismissing the complaint as against it. The appellate court ruled that: (1) Lourdes M. de Leon was not authorized to issue the subject checks in favor of E.T. Henry, Inc.; (2) The issuance of the subject checks by Lourdes M. de Leon and the late Antonio de las Alas constituted ultra vires acts; and (3) The subject chec ks were not issued for valuable consideration. Hence, Atrium filed the petition. Issue [1]: Whether the issuance of the checks was an ultra vires act. Held [1]: The record reveals that Hi-Cement Corporation issued the four (4) checks to extend financial assistance to E.T. Henry, not as payment of the balance of the P30 million pesos cost of hydro oil delivered by E.T. Henry to Hi Cement. Why else would petitioner de Leon ask for counterpart checks from E.T. Henry if the checks were in payment for hydro oil delivered by E.T. Henry to HiCement? Hi-Cement, however, maintains that the checks were not issued for consideration and that Lourdes and E.T. Henry engaged in a "kiting operation" to raise funds for E.T. Henry, who admittedly was in need of financial ass istance. There was no sufficient evidence to show that such is the case. Lourdes M. de Leon is the treasurer of the corporation and is authorized to sign checks for the corporation. At the time of the issuance of the checks, there were sufficient funds in the bank to cover payment of the amount of P2 million pesos. Thus, the act of issuing the checks was well within the ambit of a valid corporate act, for it was for securing a loan to finance the activities of the corporation, hence, not an ultra vires act. An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law" The term "ultra vires" is "distinguished from an illegal act for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated. Issue [2]: Whether Lourdes M. de Leon and Antonio de las Alas were personally liable for the checks issued as corporate officers and authorized signatories of the check.

Held [2]: Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when: (1) He assents (a) to a pa tently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; (2) He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) He agrees to hold himself personally and solidarily liable with the corporation; or (4) He is made, by a specific provi sion of law, to personally answer for his corporate action." Herein, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi -Cement were authorized to issue the checks. However, Ms. de Leon was negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to the payee's account and not to be further negotiated. What is more, the confirmation letter contained a clause that was not true, that is, "that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi -Cement from E.T. Henry". Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may be held personally liable therefor.


Fernandez Hermanos placed an order with the products company for the manufacturing of a chain given a set of specifications. The chain was duly prepared and delivered. A draft was drawn by the company and was accepted by Fernandez Hermanos. Thereafter, the draft was negotiated with Fossum who demanded payment on the instrument but was refused by Fernandez on alleged failure of the chain delivered to satisfy the specifications given.

It devolved around Fernandez Hermanos to allege and prove its claim that which was delivered and received didn't comply with the specifications and didn't answer the purposes for which it was intended. It alleged that the chain didn't meet the specifications given by the contract. Nonetheless, there was failure to identify the

so-called defects of the chain. It was uponFernandezHermanos to show that indeed the chain was defective. But as the trial court found out, there was a failure of proof.

BPI v. ALFRED BERWIN & CO. FACTS: BPI summons Diaz to testify about his debt to Defendant Firm, Alfred Berwin& Co. for the purpose of carrying into effect the execution of judgment rendered in this case. Diaz admitted to owe Berwin 20k, evidenced by two promissory notes. However, it is not clear whether such promissory notes are still in the hands of Alfred Berwin& Co., or whether they have been negotiated by the latter. ISSUE: W/N the lower court erred in ordering Diaz to pay BPI the P20,000, despite the uncertainty of the identity of the Holder in due course. HELD/RATIO: YES. As it does not appear from the record that the promissory notes in question are still at the disposal of Alfred Berwin& Co., so that they may return them to the maker Anselmo Diaz upon the latter's making the payment thereof (sec. 74, Negotiable Instruments Law, Act No. 2031), said Diaz cannot be compelled to pay the sum of the said promissory notes to any person, except to the holder of such documents in due course, for said person is the one entitled to receive it. (Sec. 57, Act cited.) 1awph! In the present state of the proceedings it is not known whether the judgment debtor Alfred Berwin& Co., is still the holder in due course of such promissory notes or not, that is to say, that it is not known whether they still have their credit of P20,000 represented by such promissory notes, or whether the same has already been alienated, and as the latter possibility exists, that is, that Alfred Berwin& Co., is no longer entitled to the amount of the promissory notes on account of having negotiated them, it is not just to compel the maker Anselmo Diaz to satisfy the credit of Alfred Berwin& Co., or to the sheriff as a credit in favor of this firm if the latter is no longer entitled to such credit. To compel Diaz to pay Alfred Berwin& Co., or the sheriff as a credit in favor of this corporation, which is contrary to the law, under the circumstances of the case, would be to expose Anselmo Diaz to the situation in which, having paid the amount of the promissory notes without settling the same, a hold in due er course may appear and within all, reason demand its full payment. The debt was secured by negotiable instruments, and notwithstanding such notice it was beyond Anselmo Diaz's power to prevent Alfred Berwin& Co., from negotiating the promissory notes. We hold the lower court's judgment premature inasmuch as it orders the appellant to pay to the plaintiff bank said sum of P20,000 which is the amount of the promissory notes in question, with nothing to show, in accordance with the law, who has actually the right to receive such amount. Wherefore, the appealed order is revoked, and let this case be remanded to the lower court with directions to proceed to further investigation and inquiry in accordance with the foregoing, without express pronouncement as to costs. So ordered.

WALKER RUBBER CORP. NEDERLANDSCH FACTS: The NederlandschIndischeHandelsbank, N. V., hereafter called the bank, brought an action against the South Sea Surety & Insurance Company, Inc., hereafter called the surety company, to collect the amount of P14,000 on a performance bond, jointly and severally executed by the surety company with the Walker Rubber Corporation, hereafter designated

as vendee, in favor of the Associated Finance Company, Inc., hereaft r designated as e vendor. The performance is to secure payment of the sum of P14,000, the price of 100,000 pounds of camelback rubber which vendor had agreed to sell to vendee. The SURETY, and the VENDEE, entered into an agreement whereby the former assumed and took delivery of the undelivered balance of camelback rubber and further assumed the full responsibility of the P14,000 draft thereby releasing and discharging the VENDEE from the liability as acceptor of said draft, and rescinding and declaring null and void the contract of sale entered into between them. The bank released the said rubber, which was under its possession by reason of mortgage, to the vendee. ISSUE: W/N respondent bank is a holder in due course of the draft, despite admitting not to have paid for it, or not to have credited its drawer, the Associated Finance Co., Inc., (VENDOR)for its value. HELD/RATIO: YES! For the bank in the case at bar the relinquishment of its possession and lien over the rubber is its consideration for the draft and the performance bond executed to guarantee the payment of the draft. It cannot be contended, therefore, that the sight draft, was delivered by the VENDOR to the BANK for collection merely, because by the delivery of the 100,000 pounds of camelback rubber mortgage to it, the bank released its lien over said rubber. By virtue of the mortgage, the bank could have caused the rubber to be sold to satisfy the debt covered by the mortgage, and if the proceeds are insufficient it could have demanded a deficiency judgment that could be enforced against any other property of the mortgage. The bank only authorized the delivery and parted with the possession of the 100,000 pounds of camelback rubber only upon the assurances of the surety that the draft was cover by the ed performance bond that it had executed and that it would pay the draft if dishonored. It actually had an interest in the rubber sold and delivered by it and the parting with the rubber was a sufficient consideration for the holding of the draft. Hence the BANK is a holder in due course who acquired the draft for valuable consideration.

Prudenciovs CA 143 SCRA 07 Facts: Appellants, EulaliaPrudencio and Elsie Prudencio were the registered owners of a parcel of land which was mortgaged by them to PNB to guarantee a loan of P1,000.00 extended to one Domingo Prudencio. After some persuasion by the Conception & Tamayo Construction Company, appellants signed the amendment of the Real Estate Mortgage with the same parcel of land to PNB to guarantee a loan of P110,000.00 extended to the Company. The promissory note covering the loan of P110,000.00 was signed by Jose Sorebio as an Attorney-in-fact of the company and by the appellants. The appellants also signed the portion of the promissory note indicating that they are requesting PNB to issue the check covering the loans to the company. Soon thereafter, the project was abandoned by the company and the appellants ask for the cancellation of the Real Estate Mortgage. Issue: Whether the appellants would be held solidarily liable with the principal debtors on the promissory note which they signed as accommodation party/maker. Held: Yes, an accommodation maker/party is a loan agreement is primarily and unconditionally liable in the promissory note to a holder for value, regardless of whether they are standing as sureties or solidarity co-debtor since such distinction is entirely immaterial and inconsequential as for as a holder for value is concerned.

A holder for value under Sec. 29 of NIL is the one who must meet all the requirement of a holder in due course under Sec. 52 except notice of warrant of consideration.