Charles Fossum vs Fernadez Hermanos

G.R. L-19461
March 28, 1923

Facts:
Fossum is a representative of a company which promised to deliver to Fernadez Hermanos a
tail shaft for a ship. When the shaft was delivered, the compony drew a time draft upon
Hermanos, payable to PNB. But the shaft that was delivered was not as specified by HErmanos
that Hermanos declined to pay the draft. The draft was in the possession of PNB. PNB gave the
same draft to Fossum without consideration. Fossum tried to collect from Hermanos but it was
denied. When a case against the Hermanos was instituted, the lower court ruled in favor of
Hermanos because Fossum was aware of the defect of the title therefore it cannot be said to be
a holder in due course. The decision was appealed with Fossum claiming that under the shelter
rule, his rights must be protected.

Issue:
Can the shelter rule be applied to Fossum?

Held.
No. If Fossum claims safety under the shelter rule, it must first prove that PNB was a holder in
due course. The provision on the presumption of holder in due course cannot be invoked by
Fossum because such can only be invoked by someone in actual possession of the instrument
(definition of holder). There is no sufficient evidence to establish that PNB is HDC.

It cannot be denied that Fossum was party to the original transaction that gave birth to the
instrument. He is an agent of the company in that transaction. He cannot therefore have a
better claim than the principal.

Not HDC -> HDC ->agent of not HDC= the transaction if as if the instrument was never passed to
HDC.