SPOUSES VIOLAGO VS.

BA FINANCE
G.R. No. | JULY 21, 2008

FACTS:
Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a car to
his cousin, Pedro Violago, and the latter’s wife, Florencia. Avelino explained that they would
just have to pay a down payment of PhP60,500 while the balance would be financed by
respondent BA Finance. Under these terms, spouses agreed to purchase a Toyota Cressida 1983
from VMSC.
The spouses and Avelino signed a promissory note under which they bound themselves to pay
jointly and severally to the order of VMSC the amount of PhP 209,601 in 36 monthly
installments of PhP 5,822.25 a month, the first installment to be due and payable on September
16, 1983. Avelino prepared a Disclosure Statement of Loan/Credit Transportation which showed
the net purchase price of the vehicle, down payment, balance, and finance charges. VMSC then
issued a sales invoice in favor of the spouses with a detailed description of the Toyota Cressida
car. In turn, the spouses executed a chattel mortgage over the car in favor of VMSC as security
for the amount of PhP 209,601. VMSC, through Avelino, endorsed the promissory note to BA
Finance without recourse. After receiving the amount of PhP 209,601, VMSC executed a Deed
of Assignment of its rights and interests under the promissory note and chattel mortgage in favor
of BA Finance. Meanwhile, the spouses remitted the amount of PhP 60,500 to VMSC through
Avelino.
The spouses were unaware that the same car had already been sold in 1982 to Esmeraldo
Violago, another cousin of Avelino, and registered in Esmeraldo’s name. Despite the spouses’
demand for the car and Avelino’s repeated assurances, there was no delivery of the vehicle.
Since VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA
Finance.
BA Finance filed with RTC Pasay a complaint for Replevin with Damages against the spouses.
RTC issued an Order of Replevin. The Violago spouses were declared in default for failing to
file an answer. Eventually, RTC rendered a decision in favor of BA Finance.
The spouses filed their Answer before the RTC, alleging the following: they never received the
vehicle from VMSC; the vehicle was previously sold to Esmeraldo; BA Finance was not a holder
in due course under Section 59 of the Negotiable Instruments Law; and the recourse of BA
Finance should be against VMSC. Violago spouses, with prior leave of court, filed a Third-Party
Complaint against Avelino praying that he be held liable to them in the event that they be held
liable to BA Finance, as well as for damages.
The RTC rendered a Decision for BA Finance but against the Violago spouses.
ISSUE: WHETHER OR NOT THE HOLDER OF AN INVALID NEGOTIABLE
PROMISSORY NOTE MAY BE CONSIDERED A HOLDER IN DUE COURSE
RULING: YES.
In addressing the threshold issue of WON BA Finance is a holder in due course of the
promissory note, we must determine if the note is a negotiable instrument and, hence, covered by
the NIL.
The promissory note is clearly negotiable. The appellate court was correct in finding all the
requisites of a negotiable instrument present (see Section 1, NIL). It clearly satisfies the
requirements of a negotiable instrument under the NIL. It is in writing; signed by the Violago
spouses; has an unconditional promise to pay a certain amount, i.e., PhP 209,601, on specific
dates in the future which could be determined from the terms of the note; made payable to the
order of VMSC; and names the drawees with certainty. The indorsement by VMSC to BA
Finance appears likewise to be valid and regular.
The more important issue now is whether or not BA Finance is a holder in due course. The
resolution of this issue will determine whether petitioners’ defense of fraud and nullity of the
sale could validly be raised against respondent corporation. (See Sec. 52, NIL).
The law presumes that a holder of a negotiable instrument is a holder in due course. In this case,
the CA is correct in finding that BA Finance meets all the foregoing requisites:
In the present recourse, on its face, (a) the "Promissory Note", Exhibit "A", is complete and
regular; (b) the "Promissory Note" was endorsed by the VMSC in favor of the Appellee; (c) the
Appellee, when it accepted the Note, acted in good faith and for value; (d) the Appellee was
never informed, before and at the time the "Promissory Note" was endorsed to the Appellee, that
the vehicle sold to the Defendants-Appellants was not delivered to the latter and that VMSC had
already previously sold the vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the
vehicle to Generoso Lopez, who assigned his rights to the BA Finance Corporation, the same
occurred only on May 8, 1987, much later than August 4, 1983, when VMSC assigned its rights
over the "Chattel Mortgage" by the Defendants-Appellants to the Appellee. Hence, Appellee was
a holder in due course.
In the hands of one other than a holder in due course, a negotiable instrument is subject to the
same defenses as if it were non-negotiable. A holder in due course, however, holds the
instrument free from any defect of title of prior parties and from defenses available to prior
parties among themselves, and may enforce payment of the instrument for the full amount
thereof. Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-
delivery of the object and nullity of the sale against the corporation. The NIL considers every
negotiable instrument prima facie to have been issued for a valuable consideration. In Salas, we
held that a party holding an instrument may enforce payment of the instrument for the full
amount thereof. As such, the maker cannot set up the defense of nullity of the contract of sale.
Thus, petitioners are liable to respondent corporation for the payment of the amount stated in the
instrument
 Chan Wan v. Tan Kim
G.R. No. L- 15380 | September 30, 1960

FACTS: SUIT FOR COLLECTION OF 11 CHECKS

Tan Kim issued eleven (11) checks payable to "cash or bearer". The checks were all presented
for payment by Chan Wan to the drawee bank, but they "were all dishonored and returned to him
unpaid due to insufficient funds and/or causes attributable to the Drawer."
Tan Kim declared without contradiction that the checks had been issued to two persons named
Pinong and Muy for some shoes the former had promised to make and "were intended as mere
receipts"
Chan Wan filed a suit to collect eleven checks. The lower court declined to order payment for
two principal reasons: (a) plaintiff failed to prove he was a holder in due course, and (b) the
checks being crossed checks should not have been presented to the drawee for "payment," but
should have been deposited instead with the bank mentioned in the crossing.

ISSUE:
Whether or not a holder who is not a holder in due course may recover on the checks

RULING: YES.
Eight of the checks here in question have been crossed specially to the China Banking
Corporation and should have been presented for payment by China Banking, and not by Chan
Wan. Where a check is crossed specially in favor of a certain bank, the check is generally
deposited with the bank mentioned in the crossing, so that the latter may take charge of the
collection. If it is not presented by said bank for payment, the drawee is liable to the true owner,
in case of payment to persons not entitled thereto.
Yet it does not follow as a legal proposition, that simply because he was not a holder in due
course, Chan Wan could not recover on the checks. A holder who is not a holder indue course
can still recover on the check. 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 only
disadvantage of a holder who is not a holder in due course is that the negotiable instrument is
subject to defenses as if it were non-negotiable.
Considering the deficiency of important details on which a fair adjudication of the parties' rights
depends, the case is remanded to the lower court for additional evidence, and such further
proceedings as are not inconsistent with this opinion.
 STATE INVESTMENT HOUSE INC. VS. CA
July 13, 1989

FACTS: New Sikatuna Wood Industries, Inc. requested for a loan from Chua. The latter agreed
to grant the same subject to the condition that the former should wait until December 1980 when
he would have the money. In view of this agreement, private respondent Chua issued three (3)
"crossed checks" payable to New Sikatuna Wood Industries, Inc. all postdated December 22,
1980. Subsequently, New Sikatuna entered into an agreement with herein petitioner State
Investment House, Inc. whereby New Sikatuna assigned and discounted with petitioner eleven
(11) postdated checks including the aforementioned three (3) postdated checks issued by Chua.
The checks, however, were dishonored by reason of "insufficient funds", "stop payment" and
"account closed", respectively. Petitioner claims that despite demands on Chua to make good
said checks, the latter failed to pay the same necessitating the former to file an action for
collection. When the CA reversed the trial court ruling favoring State Investment House, the
latter elevated the issue before the SC.
ISSUE: WON petitioner is a holder in due course as to entitle it to proceed against private
respondents Chua for the amount stated in the dishonored checks
HELD: The Intermediate Appellate Court (now Court of Appeals), correctly elucidated that the
effects of crossing a check are: the check may not be encashed 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 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.
It results therefore that when State Investment House rediscounted the check knowing that it was
a crossed check he was knowingly violating the avowed intention of crossing the check.
Furthermore, his failure to inquire from the holder, party defendant New Sikatuna Wood
Industries, Inc., 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. Being not a holder in due course, plaintiff is subject to personal defenses, such as lack of
consideration between appellants and New Sikatuna Wood Industries. Note that under the facts
the checks were postdated and issued only as a loan to New Sikatuna Wood Industries, Inc. if
and when deposits were made to back up the checks. Such deposits were not made, hence no
loan was made, hence, the three checks are without consideration (Sec. 28, Negotiable
Instruments Law).
 ROBERTO DINO VS. MARIA LUISA JUDAL-LOOT
Facts: Petitioner was induced to lend a syndicate P3,000,000.00 to be secured by a real estate
mortgage on several parcels of land situated in Canjulao, Lapu-lapu City. Upon scrutinizing the
documents involving the properties, petitioner discovered that the documents covered rights over
government properties. Realizing he had been deceived, petitioner advised Metrobank to stop
payment of his checks. However, only the payment of Check No. C-MA- 142119406-CA was
ordered stopped. The other two checks were already encashed by the payees.
Meanwhile, Check No. C-MA- 142119406-CA (a cross-check) was negotiated and indorsed to
respondents by petitioner in exchange for cash in the sum of P948,000.00, which respondents
borrowed from Metrobank and charged against their credit line. Drawee bank, Metrobank, Cebu-
Mabolo Branch, which is also their depositary bank, answered that the checks were suffiiently
funded. However, the same was dishonored by the drawee bank when they tried to deposit it for
reason “PAYMENT STOPPED.” Respondents filed a collection suit against petitioner and
Lobitana before the trial court.
The trial court ruled in favor of respondents and declared them due course holders of the subject
check, since there was no privity between respondents and defendants. CA affirmed but modified
the trial court’s decision by deleting the award of interest, moral damages, attorney’s fees and
litigation expenses. The Court of Appeals opined that petitioner “was only exercising (although
incorrectly), what he perceived to be his right to stop the payment of the check which he
rediscounted.” The Court of Appeals ruled that petitioner acted in good faith in ordering the
stoppage of payment of the subject check and thus, he must not be made liable for those
amounts.
Issue: WON The respondents were holders in due course?
Held: NO
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 has 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.
In the case of a crossed check, as in this case, the following principles must additionally be
considered: A crossed check (a) may not be encashed but only deposited in the bank; (b) may be
negotiated only once — to one who has an account with a bank; and (c) warns the holder that it
has been issued for a definite purpose so that the holder thereof must inquire if he has received
the check pursuant to that purpose; otherwise, he is not a holder in due course.
Based on the foregoing, respondents had the duty to ascertain the indorser’s, in this case
Lobitana’s, title to the check or the nature of her possession. This respondents failed to do.
Respondents’ verification from Metrobank on the funding of the check does not amount to
determination of Lobitana’s title to the check. Failing in this respect, respondents are guilty of
gross negligence amounting to legal absence of good faith,[15] contrary to Section 52(c) of the
Negotiable Instruments Law. Hence, respondents are not deemed holders in due course of the
subject check.
However, the fact that respondents are not holders in due course does not automatically mean
that they cannot recover on the check. 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 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. Among such defenses is the absence or failure of
consideration,[ which petitioner sufficiently established in this case. Petitioner issued the subject
check supposedly for a loan in favor of Consing’s group, who turned out to be a syndicate
defrauding gullible individuals. Since there is in fact no valid loan to speak of, there is no
consideration for the issuance of the check. Consequently, petitioner cannot be obliged to pay the
face value of the check.
G.R. No. 121413 January 29, 2001
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK
OF ASIA AND AMERICA), petitioner, vs. COURT OF APPEALS and FORD
PHILIPPINES, INC. and CITIBANK, N.A., respondents.
FACTS:
 This case is composed of three consolidated petitions involving several checks, payable to
the Bureau of Internal Revenue, but was embezzled allegedly by an organized syndicate.
 (G.R. Nos. 121413 and 121479) On October 19, 1977, plaintiff Ford issued a Citibank check
amounting to P4,746,114.41 in favor of the Commissioner of Internal Revenue for the
payment of manufacturer’s taxes. The check was deposited with defendant IBAA (now
PCIB), subsequently cleared the Central Bank, and paid by Citibank to IBAA.
 The proceeds never reached BIR, so plaintiff was compelled to make a second payment.
Defendant refused to reimburse plaintiff, and so the latter filed a complaint.
 An investigation revealed that the check was recalled by Godofredo Rivera, the general
ledger accountant of Ford, and was replaced by a manager’s check. Alleged members of a
syndicate deposited the two manager’s checks with Pacific Banking Corporation. Ford filed a
third party complaint against Rivera and PBC. The case against PBC was dismissed.
 (G.R. No. 128604) On another case, Ford drew two checks in favor of the Commissioner of
Internal Revenue, amounting to P5,851,706.37 and P6,311,591.73. Both are crossed checks
payable to payee’s account only. The checks never reached BIR, so plaintiff was compelled
to make second payments.
 On investigation of NBI, the modus operandi was discovered. Gorofredo Rivera made the
checks but instead of delivering them to BIR, passed it to Castro, who was the manager of
PCIB San Andres. Castro opened a checking account in the name of a fictitious person
“Reynaldo Reyes”. Castro deposited a worthless Bank of America check with the same
amount as that issued by Ford. While being routed to the Central Bank for clearing, the
worthless check was replaced by the genuine one from Ford.
 Thus, Ford instituted actions to recover the amounts from the collecting (depository) and
drawee banks.
ISSUE: W/N Ford can hold both PCIB and Citibank liable
RULING: YES
The mere fact that forgery was committed by a drawer-payor’s confidential employee or
agent, who by virtue of his position had unusual facilities to perpetrate the fraud and imposing
the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in
the absence of some circumstance raising estoppel against the drawer. The rule applies to checks
fraudulently negotiated or diverted by the confidential employees who hold them in their
possession.
In GRs 121413 and 121479, PCIBank failed to verify the authority of Mr. Rivera to
negotiate the checks. Furthermore, PCIBank’s clearing stamp which guarantees prior or lack of
indorsements render PCIBank liable as it allowed Citibank without any other option but to pay
the checks. PCIBank, being a depository / collecting bank of the BIR, had the responsibility to
make sure that the crossed checks were deposited in “Payee’s account only” as found in the
instrument.
In GR 128604, on the other hand, the switching operation involving the checks, while in
transit for clearing, were the clandestine or hidden actuations performed by the members of the
syndicate in their own personal, covert and private capacity; without the knowledge nor official
or conscious participation of PCIBank in the process of embezzlement. Central Bank Circular
580 (1977), however, provide d that any theft affecting items in transit for clearing are for the
account of the sending bank (herein PCIBank). Still, Citibank was likewise negligent in the
performance of its duties as it failed to establish its payment of Ford’s checks were made in due
course and legally in order. The fact that drawee bank did not discover the irregularity
seasonably constitutes negligence in carrying out the bank’s duty to its depositors.
 [G.R. NO. 96160. JUNE 17, 1992]
STELCO MARKETING CORPORATION V. COURT OF APPEALS
FACTS:
 Stelco Marketing Corporation sold and delivered bars and wires on seven occasions to RYL
(Romeo Lim) Construction, Inc. The aggregate price for the purchases was P126,859.61.
They agreed that RYL would pay Cash on Delivery but the latter made no payments for the
construction materials.
 RYL gave to Armstrong, Industries — described by STELCO as it’s “sister corporation” and
“manufacturing arm” — a check drawn against Metrobank. That check was a company check
of another corporation, Steelweld Corporation of the Philippines, signed by its President and
its Vice-President. The check was issued by Limson at the behest of his friend, President of
RYL. Romeo Lim had asked Limson for financial assistance, and the latter had agreed to
give Lim a check only by way of accommodation, “only as guaranty but not to pay for
anything. When the latter deposited the check at its bank, it was dishonored because “drawn
against insufficient funds.” When so deposited, the check bore two (2) endorsements, that of
“RYL Construction,” followed by that of “Armstrong Industries.”
 On account of the dishonored check, Armstrong filed a case against Limson and Torres for
violation of BP 22. They were acquitted on the ground that the check in question was not
issued by the drawer ‘to apply on account for value,’ it being merely for
accommodation purposes. That judgment however conditioned the acquittal with the
following pronouncement: “This is not however to release Steelweld Corporation from its
liability under Sec. 29 of the Negotiable Instruments Law for having issued it for the
accommodation of Romeo Lim.”
 STELCO filed with the RTC a civil complaint against both RYL and STEELWELD for the
recovery of the value of the steel bars.
ISSUE: Whether Steelweld as an accommodating party can be held liable by Stelco for the
dishonored check.

RULING: Steelweld may be held liable but not by Stelco

There is no evidence whatever that STELCO’s possession of Check ever dated back to
nay time before the instrument’s presentment and dishonor. There is no evidence whatsoever that
the check was ever given to it, or indorsed to it in any manner or form in payment of an
obligation or as security for an obligation, or for any other purpose before it was presented for
payment. On the contrary, the factual finding of the Court of Appeals, which by traditional
precept is normally conclusive on this Court, is that STELCO never became a holder for value
and that “nowhere in the check itself does the name of Stelco Marketing appear as payee,
indorsee or depositor thereof.

Under Section 29 of the NIL, Steelweld Corp. can be held liable for having issued the
subject check for the accommodation of Romeo Lim.  An accommodation party is one who has
singed the instrument as maker, drawer, acceptor, or indorser, without receiving valued therefor,
and for the purpose of lending his name to some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party.   Stelco however, cannot be deemed a
holder of the check for value as it does not meet two essential requisites prescribed by statute, i.e.
that it did not become “the holder of it before it was overdue, and without notice that it had been
previously dishonored,” and that it did not take the check “in good faith and for value.”
 BATAAN CIGAR AND CIGARETTE FACTORY VS. CA
GR No. 93048 March 3, 1994
FACTS:
 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. 
 July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the
total amount of P820K
 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
 It issued post dated crossed checks in the total amount of P1.1M payable
sometime in September 1979. 
 July 19, 1978:  George sold to State Investment House Inc. (SIHI) at a discount check
amounting to P164K, post dated March 31, 1979, drawn by BCCFI w/ George as payee. 
 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
 Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979
a stop payment order for all checks
 SIHI failing to claim, filed a claim against  BCCFI
 RTC: SIHI is holder in due course. Non-inclusion of George as party is immaterial to the
case

ISSUE: WON SIHI, a second indorser, a holder of crossed checks, a holder in due course?
HELD: No. Sec. 52 of the Negotiable Instruments Law (NIL) states what constitutes a holder in
due course, thus:
Sec. 52 – 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.

Sec. 59 provides 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.
Jurisprudence has pronounced that crossing a check should have the following effects:
(a) the check may not be encashed but only deposited in the 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.

It is settled that crossing the 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 NIL.

In the present case, BCCFIs defense in stopping payment is as good to SIHI as it is to George
King. Because, really, 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 checks
 CELY YANG VS. CA
GR No. 138074 Aug. 15, 2003
FACTS:
 Cely Yang agreed with private respondent Prem Chandiramani to procure from Equitable
Banking Corp. and Far east Bank and Trust Company (FEBTC) two cashier’s checks in
the amount of P2.087 million each, payable to Fernando david and FEBTC dollar draft in
the amount of US$200,000.00 payable to PCIB FCDU account No. 4195-01165-2. Yang
gave the checks and the draft to Danilo Ranigo to be delivered to Chandiramani. Ranigo
was to meet Chandiramani to turn over the checks and the dollar draft, and the latter
would in turn deliver to the former Phil.
 Commercial International Bank (PCIB) manager’s check in the sum of P4.2 million and
the dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of HongKong.
But Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two
cashier’s checks and the dollar draft.
 The loss was then reported to the police. It transpired, however that the checks and the
dollar draft were never lost, for Chandiramani was able to get hold of them without
delivering the exchange consideration consisting of PCIB Manager’s checks. Two hours
after Chandiramani was able to meet Ranigo, the former delivered to David the two
cashier’s checks of Yang and, in exchange, got US $360,000 from David, who in turn
deposited them. Chandiramani also deposited the dollar draft in
PCIG FCDU No. 4194-0165-2.
 Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments
she believed to be lost. Both Banks complied with her request, but upon the
representation of PCIB, FEBTC subsequently lifted the stop payment order on FEBTC
Dollar Draft No. 4771, thus, enabling the holder PCIB FCDU Account No. 4194-0165-2
to received the amount of US $ 200, 000.
 Yang lodged a Complaint for injunction and damages against Equitable,
Chandiramani, and David (payee of the subject checks).
 The RTC and CA rendered judgment in favor of defendant Fernando David against the
plaintiff Cely Yang and declaring the former entitled to the proceeds of the two (2)
cashier’s checks.

Issues:
(1) Whether or not David may be considered a holder in due course.
(2) Whether or not the presumption that every party to an instrument acquired the same for a
consideration is applicable in this case.
Ruling:
(1) Yes, every holder of a negotiable instrument is deemed prima facie a holder in due course.
However, this presumption arises only in favor of a person who is a holder as defined in Section
191 of the Negotiable Instruments Law, meaning a “payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof.”
In the present case, it is not disputed that David was the payee of the checks in question. The
weight of authority sustains the view that a payee may be a holder in due course. Hence, the
presumption that he is a prima facie holder in due course applies in his favor.
Petitioner fails to point any circumstance which should have put David on inquiry as to the why
and wherefore of the possession of the checks by Chandiramani. David was not privy to the
transaction between petitioner and Chandiramani. Instead, Chandiramani and David had a
separate dealing in which it was precisely Chandiramani’s duty to deliver the checks to David as
payee. The evidence shows that Chandiramani performed said task to the letter.
Petitioner admits that David took the step of asking the manager of his bank to verify from
FEBTC and Equitable as to the genuineness of the checks and only accepted the same after being
assured that there was nothing wrong with said checks. At that time, David was not aware of any
"stop payment" order. Under these circumstances, David thus had no obligation to ascertain from
Chandiramani what the nature of the latter’s title to the checks was, if any, or the nature of his
possession.
Thus, we cannot hold him guilty of gross neglect amounting to legal absence of good faith,
absent any showing that there was something amiss about Chandiramani’s acquisition or
possession of the checks. David did not close his eyes deliberately to the nature or the particulars
of a fraud allegedly committed by Chandiramani upon the petitioner, absent any knowledge on
his part that the action in taking the instruments amounted to bad faith.
Moreover, the factual circumstances in De Ocampo and in Bataan Cigar are not present in this
case. For here, there is no dispute that the crossed checks were delivered and duly deposited by
David, the payee For here, there is no dispute that the crossed checks were delivered and
duly deposited by David, the payee named therein, in his bank account. In other words, the
purpose behind the crossing of the checks was satisfied by the payee.
(2) The presumption is that every party to an instrument acquired the same for a consideration.
However, said presumption may be rebutted. Hence, what is vital to the resolution of this issue is
whether David took possession of the checks under the conditions provided for in Section 52 of
the Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in
David’s case, otherwise he cannot be deemed a holder in due course.
Section 24 of the Negotiable Instruments Law creates a presumption that every party to an
instrument acquired the same for a consideration or for value. Thus, the law itself creates a
presumption in David’s favor that he gave valuable consideration for the checks in question. In
alleging otherwise, the petitioner has the onus to prove that David got hold of the checks absent
said consideration. However, petitioner failed to discharge her burden of proof. The petitioner’s
averment that David did not give valuable consideration when he took possession of the checks
is unsupported, devoid of any concrete proof to sustain it. Note that both the trial court and the
appellate court found that David did not receive the checks gratis, but instead gave Chandiramani
US$ 360,000 as consideration for the said instruments.
VICENTE R. DE OCAMPO & CO., plaintiff-appellee, vs. ANITA GATCHALlAN, ET
AL., defendants-appellants.
G.R. No. L-15126 | 1961-11-30

FACTS:
 Anita Gatchalian wanted to buy a car. Gatchalian was introduced to Manuel Gonzales, who
represented to defendant Anita C. Gatchalian that he was duly authorized by the owner of the
car, Ocampo Clinic, to look for a buyer of said car and to negotiate for and accomplish said
sale, but which facts were not known to plaintiff.
 When Anita was satisfied with the price of the car, requested Manuel Gonzales to bring the
car the day following together with the certificate of registration of the car. Manuel Gonzales
advised her that the owner of the car will not be willing to give the certificate of registration
unless there is a showing that the party interested in the purchase of said car is ready and
willing to make such purchase and that for this purpose Manuel Gonzales requested
defendant Anita C. Gatchalian to give him, (Manuel Gonzales) a check which will be shown
to the owner as evidence of buyer's good faith in the intention to purchase the said car, the
said check to be for safekeeping only of Manuel Gonzales and to be returned to defendant
Anita C. Gatchalian the following day when Manuel Gonzales brings the car and the
certificate of registration, but which facts were not known to plaintiff.
 Relying on these representations of Manuel Gonzales and with this assurance that said check
will be only for safekeeping and which will be returned to said defendant the following day
when the car and its certificate of registration will be brought by Manuel Gonzales to
defendants, but which facts were not known to plaintiff, defendant Anita C. Gatchalian drew
and issued a check.
 On the failure of Manuel Gonzales to appear the day following and, on his failure, to bring
the car and its certificate of registration and to return the check, defendant Anita C.
Gatchalian issued a 'Stop Payment Order' on the check.
 That plaintiff for and in consideration of fees and expenses of hospitalization and the release
of the wife of Manuel Gonzales from its hospital, accepted the subject check, applying
P441.75 thereof to payment of said fees and expenses and delivering to Manuel Gonzales the
amount of P158.25 representing the balance on the amount of the said check.
 Plaintiff filed an action for recovery of the value of the check. CFI – in favor plaintiff;
ordered defendant to pay the plaintiff. Hence, this appeal.
 The defendants argued that the check is not a negotiable instrument (as it was for safekeeping
merely), and that plaintiff is not a holder in due course (because it acquired the check with
notice of defect in the title of the holder, Manuel Gonzales, and there were circumstances that
brought suspicion about Gonzales' possession and negotiation, which circumstances should
have placed the plaintiff-appellee under the duty to inquire into the title of the holder.)

ISSUE: W/N the plaintiff is a holder in due course.

HELD: NO.
 The stipulation of facts expressly states that plaintiff-appellee was not aware of the
circumstances under which the check was delivered to Manuel Gonzales, but we agree
with the defendants-appellants that the circumstances indicated by them in their briefs,
 such as the fact that appellants had no obligation or liability to the Ocampo Clinic; that
the amount of the check did not correspond exactly with the obligation of Matilde
Gonzales to Dr. V. R. de Ocampo; and that the check had two parallel lines in the upper
left hand corner, which practice means that the check could only be deposited but may
not be converted into cash - all these circumstances should have put the plaintiff-appellee
to inquiry as to the why and wherefore of the possession of the check by Manuel
Gonzales, and why he used it to pay Matilde's account. It was payee's 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. Having failed in this respect, we must declare that plaintiff-
appellee was guilty of gross neglect in not finding out the nature of the title and
possession of Manuel Gonzales, amounting to legal absence of good faith, and it may not
be considered as a holder of the check in good faith, to such effect is the consensus of
authority. 
 PRINCIPLE: It is sufficient that the buyer of a note had notice or knowledge that the
note was in some way tainted with fraud. It is not necessary that he should know the
particulars or even the nature of the fraud, since all that is required is knowledge of such
facts that his action in taking the note amounted to bad faith.
 In the case at bar the rule that a possessor of the instrument is prima facie a holder in due
course does not apply because there was a defect in the title of the holder (Manuel
Gonzales), because the instrument is not payable to him or to bearer. On the other hand,
the stipulation of facts indicated by the appellants in their brief, like the fact that the
drawer had no account with the payee; that the holder did not show or tell the payee why
he had the check in his possession and why he was using it for the payment of his own
personal account - show that holder's title was defective or suspicious, to say the least. As
holder's title was defective or suspicious, it cannot be stated that the payee acquired the
check without knowledge of said defect in holder's title, and for this reason the
presumption that it is a holder in due course or that it acquired the instrument in good
faith does not exist. And having presented no evidence that it acquired the check in good
faith, it (payee) cannot be considered as a holder in due course. In other words, under the
circumstances of the case, instead of the presumption that payee was a holder in good
faith, the fact is that it acquired possession of the instrument under circumstances that
should have put it to inquiry as to the title of the holder who negotiated the check to it.
The burden was, therefore, placed upon it to show that notwithstanding the suspicious
circumstances, it acquired the check in actual good faith. 
 In the case at bar as the payee acquired the check under circumstances which should have
put it to inquiry, why the holder had the check and used it to pay his own personal
account, the duty devolved upon it, plaintiff-appellee, to prove that it actually acquired
said check in good faith. The stipulation of facts contains no statement of such good faith,
hence we are forced to the conclusion that plaintiff payee has not proved that it acquired
the check in good faith and may not be deemed a holder in due course thereof. 
MARCELO A. MESINA, petitioner, vs. THE HONORABLE INTERMEDIATE
APPELLATE COURT, HON. ARSENIO M. GONONG, in his capacity as Judge of
Regional Trial Court - Manila (Branch VIII), JOSE GO, and ALBERT UY, respondents.
G.R. No. 70145 | 1986-11-13

FACTS:
 Respondent Jose Go, on December 29, 1983, purchased from Associated Bank Cashier's
Check No. 011302 for P800,000.00. Unfortunately, Jose Go left said check on the top of the
desk of the bank manager when he left the bank. The bank manager entrusted the check for
safekeeping to a bank official, a certain Albert Uy, who had then a visitor in the person of
Alexander Lim, Uy had to answer a phone call on a nearby telephone after which he
proceeded to the men's room. When he returned to his desk, his visitor Lim was already
gone. When Jose Go inquired for his cashier's check from Albert Uy, the check was not in his
folder and nowhere to be found. The latter advised Jose Go to go to the bank to accomplish a
"STOP PAYMENT" order, which suggestion Jose Go immediately followed. He also
executed an affidavit of loss. Albert Uy went to the police to report the loss of the check,
pointing to the person of Alexander Lim as the one who could shed light on it.
 The records of the police show that Associated Bank received the lost check for clearing on
December 31, 1983, coming from Prudential Bank, Escolta Branch. The check was
immediately dishonored by Associated Bank by sending it back to Prudential Bank, with the
words "Payment Stopped" stamped on it. However, the same was again returned to
Associated Bank on January 4, 1984 and for the second time it was dishonored. Several days
later, respondent Associated Bank received a letter, dated January 9, 1984, from a certain
Atty. Lorenzo Navarro demanding payment on the cashier's check in question, which was
being held by his client. He however refused to reveal the name of his client and threatened
to sue, if payment is not made. Respondent bank, in its letter, dated January 20, 1984, replied
saying the check belonged to Jose Go who lost it in the bank and is laying claim to it.
 Respondent Associated Bank on February 2, 1984 filed an action for Interpleader naming as
respondent, Jose Go and one John Doe, Atty. Navarro's then unnamed client. Respondent
bank moved to amend its complaint, having been notified for the first time of the name of
Atty. Navarro's client and substituted Marcelo A. Mesina for John Doe. Simultaneously,
respondent bank, thru representative Albert Uy, informed Cpl. Gimao of the Western Police
District that the lost check of Jose Go is in the possession of Marcelo Mesina, herein
petitioner. When Cpl. Gimao went to Marcelo Mesina to ask how he came to possess the
check, he said it was paid to him by Alexander Lim in a "certain transaction" but refused to
elucidate further.
 Petitioner filed an Omnibus Motion to Dismiss Ex Abudante Cautela alleging lack of
jurisdiction in view of the absence of an order to litigate, failure to state a cause of action and
lack of personality to sue. 
 RTC – denied motion to dismiss. MR denied. Filed a petition for certiorari with preliminary
injunction with IAC.
 IAC (CA) – dismissed the petition; MR denied. Hence, this appeal.

ISSUE: W/N petitioner can enforce the manager’s check against the bank as a holder in due
course.
HELD: NO.
 Petitioner failed to substantiate his claim that he is a holder in due course and for
consideration or value as shown by the established facts of the case. Admittedly,
petitioner became the holder of the cashier's check as endorsed by Alexander Lim who
stole the check. He refused to say how and why it was passed to him. He had therefore
notice of the defect of his title over the check from the start.
 The holder of a cashier's check who is not a holder in due course cannot enforce such
check against the issuing bank which dishonors the same. If a payee of a cashier's check
obtained it from the issuing bank by fraud, or if there is some other reason why the payee
is not entitled to collect the check, the respondent bank would, of course, have the right to
refuse payment of the check when presented by the payee, since respondent bank was
aware of the facts surrounding the loss of the check in question.
 Moreover, there is no similarity in the cases cited by petitioner since respondent bank did
not issue the cashier's check in payment of its obligation. Jose Go bought it from
respondent bank for purposes of transferring his funds from respondent bank to another
bank near his establishment realizing that carrying money in this form is safer than if it
wherein cash. The check was Jose Go's property when it was misplaced or stolen hence
he stopped its payment. At the outset, respondent bank knew it was Jose Go's check and
no one else since Go had not paid or indorsed it to anyone. The bank was therefore liable
to nobody on the check but Jose Go. The bank had no intention to issue it to petitioner
but only to buyer Jose Go. When payment on it was therefore stopped, respondent bank
was not the one who did it but Jose Go, the owner of the check. Respondent bank could
not be drawer and drawee for clearly, Jose Go owns the money it represents and he is
therefore the drawer and the drawee in the same manner as if he has a current account
and he issued a check against it; and from the moment said cashier's check was lost and
or stolen no one outside of Jose Go can be termed a holder in due course because Jose Go
had not indorsed it in due course. The check in question suffers from the infirmity of not
having been properly negotiated and for value by respondent Jose Go who was already
been said is the real owner of said instrument.
 ATRIUM MANAGEMENT CORPORATION V. COURT OF APPEALS, G.R. NO.
109491, FEBRUARY 28, 2001.

Facts:
 Hi-Cement Corporation through its corporate signatories, petitioner 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 for valuable consideration.
 Enrique Tan of E.T. Henry approached Atrium for financial assistance, offering to discount
four RCBC checks in the total amount of P2 million, issued by Hi-Cement in favor of E.T.
Henry. Atrium agreed to discount the checks, provided it be allowed to confirm with Hi-
Cement the fact that the checks represented payment for petroleum products which E.T.
Henry delivered to Hi-Cement.
 Upon presentment for payment, the drawee bank dishonored all four checks for the common
reason “payment stopped”. As a result thereof, Atrium filed an action for collection of the
proceeds of 4 PDC in the total amount of 2M with RTC Manila. Judgment was rendered in
favor of Atrium ordering Lourdes and Rafael de Leon, E.T. Henry and Co., and Hi-Cement
to pay Atrium the said amount plus interest and attorneys’ fees.
 CA absolved Hi-cement Corporation from liability. It also ruled that since Lourdes was not
authorized to issue the subjects checks in favor of E.T. Henry Inc., the said act was ultra
vires.
Issue: Whether Atrium is a holder in due course.
Ruling: No.
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.” In the
instant case, the checks were crossed checks and specifically indorsed for deposit to payee’s
account only.
From the beginning, Atrium was aware of the fact that the checks were all for deposit only to
payee’s account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in
due course. However, it does not follow as a legal proposition that simply because petitioner
Atrium was not a holder in due course for having taken the instruments in question with notice
that the same was for deposit only to the account of payee E.T. Henry that it was altogether
precluded from recovering on the instrument. The Negotiable Instruments Law does not provide
that a holder not in due course cannot recover on the instrument. The disadvantage of Atrium in
not being a holder in due course is that the negotiable instrument is subject to defenses as if it
were non-negotiable. One such defense is absence or failure of consideration.
 METROPOL VS. SAMBOK

Facts:
 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co.,
Ltd. Payable in 12 equal monthly installments with interest. It is further provided that in
case on non-payment of any of the installments, the total principal sum then remaining
unpaid shall become due and payable with an additional interest.
 Sambok Motors co., a sister company of Ng Sambok Sons negotiated and indorsed the
note in favor of Metropol Financing & investment Corporation. Villaruel defaulted in the
payment, upon presentment of the promissory note he failed to pay the promissory note
as demanded, hence Ng Sambok Sons Motors Co., Ltd. notified Sambok as indorsee that
the promissory note has been dishonored and demanded payment.
 Sambok failed to pay. Ng Sambok Sons filed a complaint for the collection of sum of
money. During the pendency of the case Villaruel died. Sambok argues that by adding the
words “with recourse” in the indorsement of the note, it becomes a qualified indorser,
thus, it does not warrant that in case that the maker failed to pay upon presentment it will
pay the amount to the holder.

Issue: Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable upon the
failure of payment of the maker.
Held: No.
A qualified indorserment constitutes the indorser a mere assignor of the title to the instrument. It
may be made by adding to the indorser’s signature the words “without recourse” or any words of
similar import. Such indorsement relieves the indorser of the general obligation to pay if the
instrument is dishonored but not of the liability arising from warranties on the instrument  as
provided by section 65 of NIL. However, Sambok indorsed the note “with recourse” and even
waived the notice of demand, dishonor, protest and presentment.
Recourse means resort to a person who is secondarily liable after the default of the person who is
primarily liable. Sambok by indorsing the note “with recourse” does not make itself a qualified
indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed
that if Villaruel fails to pay the not the holder can go after it. The effect of such indorsement is
that the note was indorsed without qualification. A person who indorses without qualification
engages that on due presentment, the note shall be accepted or paid, or both as the case maybe,
and that if it be dishonored, he will pay the amount thereof to the holder. The words added by
Sambok do not limit his liability, but rather confirm his obligation as general indorser.