CHAN WAN V TAN KIN

Tan Kim and her husband (Chen So) issued 11 checks payable to cash or bearer to be

drawn against their account with the Equitable Banking Corporation. The checks w
ere
negotiated to the White House Shoe Supply (company). White House then deposited
the
checks to their China Bank account. China Bank then presented the checks to Equi
table
Bank but the checks were returned because Equitable Bank then had no funds to co
ver
the checks. China Bank then stamped the checks with Account Closed and Non
negotiable China Bank Corporation.
But somehow, Chan Wan got hold of these checks (Chan Wan was not able to explain
in
court how he got hold of the checks). Chan Wan now wants to encash the checks bu
t
Equitable Bank refused accept the said checks.
ISSUE: Whether or not Chan Wan is a holder in due course.
HELD: No. As a general rule, a dishonored check/instrument may still be negotiat
ed either
by indorsement or delivery and the holder may be a holder in due course provided
that he
received no notice regarding the dishonor of the instrument. In this case, the c
hecks were
already crossed on their face hence Chan Wan was properly notified of the dishon
or of the
checks at the time of his acquisition.
But may Chan Wan still recover?
Yes. 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 holder may recov
er
directly from the drawee, in this case Tan Kim and Chen So, unless the drawees h
ave a
valid excuse in refusing payment. The only disadvantage of a holder who is not a
holder in
due course is that the negotiable instrument is subject to defense as if it were
nonnegotiable.
The case was remanded to the lower court for a proper determination as to
how Chan Wan acquired the checks and to determine if he is indeed entitled to pa
yment
based on some other transactions involving those checks.
ATRIUM V CA
In 1981, Hi-Cement Corporation through Lourdes De Leon (its Treasurer) and Anton
io De
Las Alas (its Chairman, now deceased) issued four postdated checks to E.T. Henry
and
Co. The checks amount to P2 million. The checks are crossed checks and are only
made
payable to E.T. Henrys account. However, E.T. Henry still indorsed the checks to
Atrium
Management Corporation (AMC). AMC then made sure that the checks were validly
issued by requesting E.T. Henry to get some confirmation from Atrium. Interestin
gly, De
Leon confirmed the checks and advised that the checks are okay to be rediscounte
d by
AMC notwithstanding the fact that the checks are crossed checks payable to no ot
her
accounts but that of E.T. Henry. So when AMC presented the check, it was dishono
red
because Hi-Cement stopped payment. Eventually, AMC sued Hi-Cement, E.T. Henry, a
nd
De Leon. The trial court ruled in favor of AMC and made all the respondents liab
le.
On appeal, Hi-Cement averred that De Leons act in signing the check was ultra vir
es
hence De Leon should be personally liable for the check. De Leon, on the other h
and,
insisted that the checks were authorized by the corporation.
ISSUE: Whether or not De Leons act of signing the check constitutes an ultra vire
s act
hence making her personally liable.
HELD: No, the act is not ultra vires but De Leon is still personally liable. The
act is not
ultra vires because the act of issuing the checks was well within the ambit of a
valid
corporate act. De Leon as treasurer is authorized to sign checks. When the check
s were
issued, Hi-Cement has sufficient 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 certa
in
obligations. They are:
He assents (a) to a patently unlawful act of the corporation, or (b) for bad fai
th or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting
in damages to the
corporation, its stockholders or other persons;
He consents to the issuance of watered down stocks or who, having knowledge ther
eof,
does not forthwith file with the corporate secretary his written objection there
to;
He agrees to hold himself personally and solidarily liable with the corporation;
or
He is made, by a specific provision of law, to personally answer for his corpora
te action.
In the case at bar, De Leon is negligent. She was aware that the checks were onl
y
payable to E.T. Henrys account yet she sent a confirmation to Atrium to the effec
t that the
checks can be negotiated to them (Atrium) by E.T. Henry. Therefore, she may be h
eld
personally liable along with E.T. Henry (but not with Hi-Cement where she is an
officer).
HI CEMENT V INSULAR
o
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.
o
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
o
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)
o
Through this, E.T. Henry was able to encash, with pre-deducted interest, the
postdated checks of its clients.
o
For every transaction, E.T. Henry had to execute a promissory note and a deed
of assignment
o
1979-1981: E.T. Henry was able to re-discount its clients' checks
o
February 1981: 20 checks of Hi-Cement (which were crossed and which bore the
restriction deposit to payees account only) were dishonored. So were the
checks of Riverside and Kanebo.
o
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 o
f
the postdated crossed checks), Riverside and Kanebo
o
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 postdated checks plus interests, services, charges and penalties
until fully paid
o
G.R. 132403: RTC & CA
o
Hi-Cement authorized its general manager and treasurer to issue the subject
postdated crossed checks
o
Hi-Cement was already estopped from denying such authority since it never
objected to the signatories' issuance of all previous checks to E.T. Henry
ISSUE:
1) W/N bank was a holder in due course -NO
2) W/N Hi-Cement can still be made liable for the checks -NO
HELD: CA AFFIRMED with MODIFICATION remanded to RTC for recomputation
1) NO.
Section 191
Section 52
Bank was all too aware that subject checks were crossed and bore restrictions th
at they
were for deposit to payee's account only; hence, they could not be further negot
iated 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 dilig
ence 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 indorsers title to the check or the nature of
his
possession. -failure: guilty of gross negligence amounting to legal absence of g
ood 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
PRUDENCIO V CA
In 1955, Concepcion and Tamayo Construction Enterprise had a contract with the B
ureau
of Public Works. The firm needed fund to push through with the contract so it co
nvinced
spouses Eulalio and Elisa Prudencio to mortgage their parcel of land with the Ph
ilippine
National Bank for P10,000.00. Prudencio, without consideration, agreed and so he

mortgaged the land and executed a promissory note for P10k in favor of PNB. Prud
encio
also authorized PNB to issue the P10k check to the construction firm.
In December 1955, the firm executed a Deed of Assignment in favor of PNB which
provides that any payment from the Bureau of Public Works in consideration of wo
rk done
(by the firm) so far shall be paid directly to PNB this will also ensure that th
e loan gets to
be paid off before maturity.
Notwithstanding the provision in the Deed of Assignment, the Bureau of Public Wo
rks
asked PNB if it can make the payments instead to the firm because the firm needs
the
money to buy construction materials to complete the project. Notwithstanding the

provision of the Deed of Assignment, PNB agreed. And so the loan matured without
PNB
actually receiving any payment from the Bureau of Public Works. Prudencio, upon
learning that no payment was made on the loan, petitioned to have the mortgage c
anceled
(to save his property from foreclosure). The trial court ruled against Prudencio
; the Court
of Appeals affirmed the trial court.
ISSUE: Whether or not Prudencio should pay the promissory note to PNB.
HELD: No. PNB is not a holder in due course.
Prudencio is an accommodation party for he signed the promissory note as maker b
ut he
did not receive value or consideration therefor. He expected the firm (accommoda
ted
party) to pay the loan this obligation was shifted to the Bureau of Public Works
by way of
the Deed of Assignment). As a general rule, an accommodation party is liable on
the
instrument to a holder for value/in due course, notwithstanding such holder at t
he time of
taking the instrument knew him to be only an accommodation party. The exception
is that
if the holder, in this case PNB, is not a holder in due course. The court finds
that PNB is
not a holder in due course because it has not acted in good faith (pursuant to S
ection 52
of the Negotiable Instruments Law) when it waived the supposed payments from the

Bureau of Public Works contrary to the Deed of Assignment. Had the Deed been fol
lowed,
the loan would have been paid off at maturity.
STELCO V CA
Facts: 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.I sheets 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 Industri
es, the
sister company and manufacturing arm of Stelco, to the amount of its obligations
to the
latter. The check however was a company check of another corporation Steelweld
Corporation of the Philippines (Steelweld) signed by its President and Vice Pres
ident. Said
check was issued by the president of Steelweld at the request of the president o
f RYL as
an accommodation and only as guaranty but not to pay for anything. Armstrong
subsequently deposited the check but was dishonoured because it was DAIF*. It bo
re the
endorsements of RYL and Armstrong. The latter filed a complaint against the pres
and vp
of Steelweld for violation of BP22. The trial court acquitted the defendants not
ing that the
checks were not issued to apply on account for value, it being merely for accomm
odation
purposes. However, the court did not release Steelweld from its liabilities, rel
ying on Sec
29 of the NIL for issuing a check for accommodation. 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
, Stelco
subsequently filed a complaint for recovery of the value of the materials from R
YL and
Steelweld. However, RYL had already been dissolved leading the trial court to ru
le against
Steelweld and hold them liable. Steelweld appealed to the CA which reversed the
decision
of the RTC declaring that STELCO was not a holder in due course and Steelweld wa
s a
stranger to the contract between STELCO and RYL.
Issue: Whether or not STELCO was a holder in due course
Held: STELCOs reliance on the RTCs decision in the previous criminal case is
misplaced. Although the RTC maintained that Steelweld was liable for issuing a c
heck for
accommodation, the RTC did not specify to whom it was liable. Despite the record
s
showing that STELCO was in possession of the check, such possession does not giv
e a
presumption that the holder is one for value. There was no evidence that STELCO
had
possession before the checks were presented and dishonoured nor evidence that th
e
checks were given to STELCO, indorsed to STELCO in any manner or form of payment
.
Only after said checks were dishonoured were they acquired by STELCO.
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 t
he
intended payee, that it was the injured party, and the proper party to bring the
action.
FOSSUM V 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 manage
d by FH. In
consideration thereof, a time draft with the Philippine National Bank (PNB), a n
egotiable
instrument, was executed by FH in the amount of $2,250.00 payable in 60 days. Bu
t later,
FH dishonored the draft because AIP was not able to comply with the specificatio
ns of the
shaft ordered by FH.
Nevertheless, Charles Fossum, the agent of AIP here in the Philippines and the p
erson
with whom FH was transacting with, was able to obtain the draft from the bank wi
thout
consideration (for free). Fossum then instituted an action against FH to recover
the
amount covered by the draft.
Fossum maintains that he is a holder in due course; that he inherited that statu
s from the
previous holder (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 is
unenforceable because it has no consideration, the shaft being substandard. AIP
did not
comply with its obligation thus the draft was dishonored and Fossum was well awa
re of
this as part of the original party.
Under Sec. 59 of the Negotiable Instruments Law, there is indeed a presumption t
hat
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 w
as not
a payee nor an indorsee. Hes not an indorsee because the bank merely delivered th
e
draft to him and the delivery was even without consideration.
But if the presumption previously applied to PNB, wasnt that acquired by Fossum?
No. The presumption only covers the present holder, and not the previous holder.
When a
holder delivers/indorses the instrument, he loses that presumption. It will then
become
incumbent upon the person who received the instrument to prove that the previous
holder
is a holder in due course especially in this case when the current holder, Fossu
m, cannot
be granted the presumption in Sec. 59, which is merely prima facie by the way, b
ecause
of the fact that he was an original party fully notified of the failure of the c
onsideration.
At any rate, PNB itself is not a holder in due course due to the timely dishonor
of the draft
by FH.
Further even assuming PNB is a holder in due course, there is a well-known rule
of law
that if the original payee of a note unenforceable for lack of consideration rep
urchases (in
this case, the draft was not even repurchased, it was merely delivered back) the

instrument after transferring it to a holder in due course, the paper again beco
mes subject
in the payees hands to the same defenses to which it would have been subject if t
he
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 V CA MOLICOU
Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter
may sell
the same. As security for the jewelries, Moulic issued to Victoriano two post da
ted checks
in the aggregate amount of P100,000.00. Moulic was not able to sell the jewelrie
s so she
returned the same to Victoriano. Victoriano was however unable to return the che
cks
hence Moulic withdrew all her funds from the bank.
Apparently, the checks were negotiated by Victoriano to State Investment House.
So
when the checks were dishonored, State Investment demanded Moulic to pay. Moulic

refused to pay because she said the checks were merely used as security for the
jewelry.
Moulic further averred that she received no notice of dishonor.
ISSUE: Whether or not State Investment House is entitled to be paid.
HELD: Yes. State Investment is a holder in due course as it met all the requirem
ents to be
one pursuant to Section 52 of the Negotiable Instruments Law. In particular, it
is clearly
shown that: (a) on their faces the post-dated checks were complete and regular:
(b) State
Investment bought these checks from Victoriano, before their due dates; (c) Stat
e
Investment took these checks in good faith and for value, (d) State Investment w
as never
informed nor made aware that these checks were merely issued to Victoriano as se
curity
and not for value.
Further, there is no need to issue a notice of dishonor to Moulic. After Moulic
withdrew her
funds, she could not have expected her checks to be honored. It would only be fu
tile for
State Investment to be sending her notices of dishonor for the two checks.
ulic. After Moulic withdrew her
funds, she could not have expected her checks to be honored. It would only be fu
tile for
State Investment to be sending her notices of dishonor for the two checks.
BATAAN V CIGAR
o
Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the
manufacturing of cigarettes purchased from King Tim Pua George (George King)
2,000 bales of tobacco leaf to be delivered starting October 1978.
o
July 13, 1978: it issued crossed checks post dated sometime in March 1979 in
the total amount of P820K
o
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 previous failure in delivery
o
It issued post dated crossed checks in the total amount of P1.1M payable
sometime in September 1979.
o
July 19, 1978: George sold to SIHI at a discount check amounting to P164K,
post dated March 31, 1979, drawn by BCCFI w/ George as payee.
o
December 19 and 26, 1978: George sold 2 checks both in the amount of P100K,
post dated September 15 & 30, 1979 respectively, drawn by BCCFI w/ George
as payee
o
Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 &
28, 1979 a stop payment order for all checks
o
SIHI failing to claim, filed a claim against BCCFI
o
RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is
immaterial to the case
ISSUE: W/N SIHI is a holder in due course beign a second indorser and a holder o
f
crossed checks
HELD: YES. GRANTED. RTC reversed.
Sec. 52
That it is complete and regular upon its face
That he became the holder of it before it was overdue, and without notice that i
t had been
previously dishonored, if such was the fact
That he took it in good faith and for value
That at the time it was negotiated to him he had no notice of any infirmity in t
he 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 in
strument
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.
effect of crossing of a check
check may not be encashed but only deposited in the bank
check may be negotiated only once to one who has an account with a bank
act of crossing the check serves as warning to the holder that the check has bee
n 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 du
ty to
ascertain the indorser's title to the check or the nature of his possession -fai
lure = guilty of
gross 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 disadvant
age 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,
George
STATE INVESTMENT V CA (W/O MOULIC)
Facts: Shortly before 5 September 1980, New Sikatuna Wood Industries, Inc. (NSWI
I)
requested for a loan from Harris Chua. The latter agreed to grant the same subje
ct to the
condition that the former should wait until December 1980 when he would have the

money. In view of this agreement, Anita Pena Chua (Harris Chua'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 considerat
ion of
the sum of Pl,047,402.91 under a deed of sale, the former assigned and discounte
d 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 SIH
I,
these checks were dishonored by reason of "insufficient funds", "stop payment" a
nd
"account closed", respectively. SIHI claimed that despite demands on Peña Chua to
make
good said checks, the latter failed to pay the same necessitating the former to
file an
action for collection against the latter and her husband before the Regional Tri
al Court of
Manila, Branch XXXVII (Civil Case 82-10547). The spouses Chua filed a third part
y
complaint against NSWII for reimbursement and indemnification in the event that
they be
held liable to SIHI. For failure of NSWII to answer the third party complaint de
spite due
service of summons, the latter was declared in default. On 30 April 1984, the lo
wer court
rendered judgment against the spouses, ordering them to pay jointly and severall
y to SIHI
P 229,450.00 with interest at the rate of 12% per annum from 24 February 1981 un
til fully
paid; P 29,945.00 as and for attorney's fees; and the costs of suit. On the thir
d 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-GR CV 04523), th
e
Intermediate Appellate Court (now Court of Appeals) reversed the lower court's j
udgment
in its decision, dismissing the complaint, with costs against SIHI. SIHI filed t
he petition for
review.
Issue [1]: Whether SIHI is a holder in due course as to entitle it to proceed ag
ainst the
spouses Chua for the amount stated in the dishonored cross checks.
Held [1]: NO. Section 52(c) of the Negotiable Instruments Law defines a holder i
n due
course as one who takes the instrument "in good faith and for value". On the oth
er 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 notic
e of any
defect in the title of the person negotiating it." However, under Section 59 eve
ry holder is
deemed prima facie to be a holder in due course. Admittedly, the Negotiable Inst
ruments
Law regulating the issuance of negotiable checks as well as the lights and liabi
lities arising
therefrom, does not mention "crossed checks". But the Court has taken cognizance
of the
practice that a check with two parallel lines in the upper left hand corner mean
s 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 a
scertain
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. Relying on the ruling in Ocampo v. Gatchalian (GR L-15126,
30
November 1961), the Intermediate Appellate Court (now Court of Appeals), correct
ly
elucidated that the effects of crossing a check are: the check may not be encash
ed 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 th
e holder
that the check has been issued for a definite purpose so hat he must inquire if
he has
received the check pursuant to that purpose, otherwise he is not a holder in due
course.
Further, the appellate court said that when SIHI rediscounted the check knowing
that it
was a crossed check he was knowingly violating the avowed intention of crossing
the
check; that his failure to inquire from the holder, NSWII, the purpose for which
the three
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 n
ot a holder
in due course, SIHI was subject to personal defenses, such as lack of considerat
ion
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 N
SWII
negotiated the three checks in breach of faith in violation of Section 55, Negot
iable
Instruments Law, which is a personal defense available to the drawer of the chec
k; that
such instruments are mentioned in Section 541 of the Code of Commerce; and that
tThe
payment made to a person other than the banker or institution shall not exempt t
he person
on whom it is drawn, if the payment was not correctly made. The Supreme Court ag
reed
with the appellate court.
one may be a holder in due course, it is
necessary that "at the time the instrument was negotiated to him he had no notic
e of any
defect in the title of the person negotiating it." However, under Section 59 eve
ry holder is
deemed prima facie to be a holder in due course. Admittedly, the Negotiable Inst
ruments
Law regulating the issuance of negotiable checks as well as the lights and liabi
lities arising
therefrom, does not mention "crossed checks". But the Court has taken cognizance
of the
practice that a check with two parallel lines in the upper left hand corner mean
s 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 a
scertain
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. Relying on the ruling in Ocampo v. Gatchalian (GR L-15126,
30
November 1961), the Intermediate Appellate Court (now Court of Appeals), correct
ly
elucidated that the effects of crossing a check are: the check may not be encash
ed 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 th
e holder
that the check has been issued for a definite purpose so hat he must inquire if
he has
received the check pursuant to that purpose, otherwise he is not a holder in due
course.
Further, the appellate court said that when SIHI rediscounted the check knowing
that it
was a crossed check he was knowingly violating the avowed intention of crossing
the
check; that his failure to inquire from the holder, NSWII, the purpose for which
the three
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 n
ot a holder
in due course, SIHI was subject to personal defenses, such as lack of considerat
ion
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 N
SWII
negotiated the three checks in breach of faith in violation of Section 55, Negot
iable
Instruments Law, which is a personal defense available to the drawer of the chec
k; that
such instruments are mentioned in Section 541 of the Code of Commerce; and that
tThe
payment made to a person other than the banker or institution shall not exempt t
he person
on whom it is drawn, if the payment was not correctly made. The Supreme Court ag
reed
with the appellate court.
Issue [2]: Whether SIHI is a proper party authorized to make presentment of the
cross
checks in question.
Held [2]: NO. Under usual practice, crossing a check is done by placing two para
llel lines
diagonally on the left top portion of the check. The crossing may be special whe
rein
between the two parallel lines is written the name of a bank or a business insti
tution, in
which case the drawee should pay only with the intervention of that bank or comp
any, 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 s
hould 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 mad
e (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 th
e face of
the check. Herein, the three subject checks had been crossed generally and issue
d
payable to NSWII 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 absenc
e of due
presentment, the drawer did not become liable. Consequently, no right of recours
e is
available to SIHI against the drawer of the subject checks, Pena Chua, consideri
ng that
SIHI is not the proper party authorized to make presentment of the checks in que
stion.
Issue [3]: Whether SIHI can still recover even if it is not a holder in due cour
se.
Held [3]: YES. It does not follow that simply because SIHI was not a holder in d
ue course
as found by the appellate court for having taken the instruments in question wit
h notice
that the same is for deposit only to the account of payee named in the subject c
hecks,
SIHI could not recover on the checks. The Negotiable Instruments Law does not pr
ovide
that a holder who is not a holder in due course may not in any case recover on t
he
instrument. Herein, SIHI may recover from NSWII if the latter has no valid excus
e 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.
MESINA V IAC
Jose Go maintains an account with Associated Bank. He needed to transfer P800,00
0.00
from Associated Bank to another bank but he realized that he does not want to be
carrying
that cash so he bought a cashiers check from Associated Bank worth P800,000.00.
Associated Bank then issued the check but Jose Go forgot to get the check so it
was left
on top of the desk of the bank manager. The bank manager, when he found the chec
k,
entrusted it to Albert Uy for the later to safe keep it. The check was however s
tolen from
Uy by a certain Alexander Lim.
Jose Go learned that the check was stolen son he made a stop payment order again
st the
check. Meanwhile, Associated Bank received the subject check from Prudential Ban
k for
clearing. Apparently, the check was presented by a certain Marcelo Mesina for pa
yment.
Associated Bank dishonored the check.
When asked how Mesina got hold of the check, he merely stated that Alfredo Lim,
whos
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 cashiers check as endorsed
by
Alexander Lim who stole the check. Mesina however refused to say how and why it
was
passed to him. Mesina had therefore notice of the defect of his title over the c
heck from
the start. The holder of a cashiers check who is not a holder in due course canno
t enforce
such check against the issuing bank which dishonors the same. The check in quest
ion
suffers from the infirmity of not having been properly negotiated and for value
by Jose Go
who is the real owner of said instrument.