3 SCRA 596 – Mercantile Law – Negotiable Instruments Law – Rights of the Holder – What

Constitutes a Holder in Due Course – Is a payee a holder in due course?

Matilde Gonzales was a patient of the De Ocampo Clinic owned by Vicente De Ocampo. She incurred
a debt amounting to P441.75. Her husband, Manuel Gonzales designed a scheme in order to pay off
this debt: In 1953, Manuel went to a certain Anita Gatchalian. Manuel purported himself to be selling
the car of Vicente De Ocampo. Gatchalian was interested in buying said car but Manuel told her that
De Ocampo will only sell the car if Gatchalian shows her willingness to pay for it. Manuel advised
Gatchalian to draw a check of P600.00 payable to De Ocampo so that Manuel may show it to De
Ocampo and that Manuel in the meantime will hold it for safekeeping. Gatchalian agreed and gave
Manuel the check. After that, Manuel never showed himself to Gatchalian.
Meanwhile, Manuel gave the check to his wife who in turn gave the check to De Ocampo as payment
of her bills with the clinic. De Ocampo received the check and even gave Matilde her change (sukli).
On the other hand, since Gatchalian never saw Manuel again, she placed a stop-payment on the
P600.00 check so De Ocampo was not able to cash on the check. Eventually, the issue reached the
courts and the trial court ordered Gatchalian to pay De Ocampo the amount of the check.
Gatchalian argued that De Ocampo is not entitled to payment because there was no valid indorsement.
De Ocampo argued tha he is a holder in due course because he is the named payee.
ISSUE: Whether or not De Ocampo is a holder in due course.
HELD: No. Section 52 of the Negotiable Instruments Law, defines 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.

The Supreme Court emphasized that if one is such a holder in due course, it is immaterial that he was
the payee and an immediate party to the instrument. The Supreme Court however ruled that De
Ocampo is not a holder in due course for his lack of good faith. De Ocampo should have inquired as to
the legal title of Manuel to the said check. The fact that Gatchalian has no obligation to De Ocampo
and yet he’s named as the payee in the check hould have apprised De Ocampo; that the check did not
correspond to Matilde Gonzales’ obligation with the clinic because of the fact that it was for P600.00 –
more than the indebtedness; that why was Manuel in possession of the check – all these gave De
Ocampo the 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.