State Investment House v.

IAC (1989) Facts: New Sikatuna Wood Industries requested for a load from Chua who issue 3 crossed checks. Then, NSWI entered in an agreement with the State Investment House Inc., under a deed of sale, where the former assigned and discounted 11 postdated checks including the 3 issued by Chua. When the 3 checks were allegedly deposited by SIHI, the checks were dishonored due to insufficient funds, stop payment and account closed. SIHI made demands upon Chua but he failed to do so. Issue: w/n SIHI is a holder in due course so as to recover the amounts in the Checks from Chua, the drawer. Held: NIL does not mention crossed checks but the Court recognized that crossing the check (by 2 parallel lines I the upper left portion of the check may be negotiated only once (to the one who has account with a bank). The act 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. Here, SIHI rediscounted the check knowing that it was a crossed check. His failure to inquire from the holder (NSWI) the purpose of crossing the checks prevents him from being considered in good faith and a holder in due course. Thus, SIHI is subject to personal defenses such as lack of consideration between NSWI and Chua.

Sign up to vote on this title
UsefulNot useful