Nafarrete, P.

| I2023
[G.R. NO. 132403]
HI-CEMENT CORPORATION v. INSULAR BANK OF ASIA AND AMERICA (later PCIB and now,
EQUITABLE-PCI BANK)
[G.R. NO. 132419]
E.T. HENRY & CO. and SPOUSES ENRIQUE TAN and LILIA TAN, Petitioners, v. INSULAR BANK OF ASIA
AND AMERICA (later PCIB and now, EQUITABLE-PCI BANK)
September 28, 2007 | J. Corona

Topic: Holder in Due Course – Holder in Good Faith - Notice; bad faith; effect of suspicious circumstances

Case Summary: Sps. Tan, the controlling stockholders of E.T. Henry had 3 clients: Hi Cement, Riverside and
Kanebo. E.T. Henry was granted “Purchase short-term Recievables” by respondent bank which allowed them to
rediscount the checks they received from their clients. Hi Cements crossed checks with restrictions were later
dishonored and the bank filed a case for collection of sum of money. Hi Cement claims that they are not liable because
the bank is no longer an HIDC for discounting “crossed checks”. The SC held that

Doctrine: Good faith is negated by gross negligent conduct. 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.

Facts:
 Enrique Tan and Lilia Tan (sps. 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.
 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.
 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 
 1979-1981: E.T. Henry was able to re-discount its clients' checks.
 February 1981: 20 checks of Hi-Cement (which were crossed and which bore the restriction “deposit to payee’s
account only”) were dishonored. So were the checks of Riverside and Kanebo.
 Respondent bank filed a complaint for sum of money against E.T. Henry & Co., Sps. Tan, Hi-Cement, and the other
customers. According to the bank, the dishonored checks made them suffer actual damages.
 Hi-Cement argued that
o (1) its GM and treasurer were not authorized to issue the post-dated crossed checks in E.T. Henry's favor;
o (2) the deed of assignment purportedly executed by Hi-Cement assigning them to respondent only bore the
conformity of its treasurer and
o (3) Respondent was not a holder in due course (HIDC) as it should not have discounted them for being “crossed
checks”.
 RTC: E.T. Henry, sps. Tan, Hi-Cement, Riverside and Kanebo, jointly and severally, to pay respondent bank
damages represented by the face value of the postdated checks
 CA Affirmed RTC.
 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 
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 Nafarrete, P. | I2023

Issues + Held:
1. W/N the bank was a holder in due course – NO.
 Respondent bank failed to meet the requisites of a holder in due course, specifically (c) of Section52 of the
NIL.
 It did not show good faith when respondent bank accepted and discounted Hi-Cement’s post-dated
crossed checks from E.T. Henry & Co.
 Good faith herein is negated by gross negligent conduct in dealing with the subjected checks
 Respondent bank was well aware that the said checks were crossed and therefore bore restrictions that
they were for deposit to the payee’s account only
○ In addition, records show that respondent bank completely disregarded a telling sign of irregularity
in the re-discounting of the checks when the general manager did not acquiesce or consent to it.
○ Only the treasurer’s signature appeared on the deed of assignment.
  In Bataan Cigar and Cigarette Factory, Inc.: It is then settled that 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 and as such, the consensus of authority is to the effect that the
holder of the check is not a holder in due course.
 Banks are expected to observe extraordinary diligence in every transaction.

2. W/N Hi-Cement can still be made liable for the Checks – NO.
 The drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due
course. [Atrium Management Corporation v. CA]
 Note: clear that the NIL does not absolutely bar a holder who is not a holder in due course from recovering on
the checks. The Holder may recover from the party who indorsed/encashed the checks "if the latter has no
valid excuse for refusing payment."

Ruling: Affirmed with Modifications.

Dispositive Portion: WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV No. 31600 is
hereby AFFIRMED with MODIFICATION. Accordingly, petitioner Hi-Cement Corporation is discharged from any
liability. Only petitioner E.T. Henry & Co. is ORDERED to pay respondent Insular Bank of Asia and America

Notes: