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FACTS: Bataan Cigar has engaged one of its suppliers, George King, to deliver bales of tobacco leaves.

Petitioner then issued postdated crossed checks in favor of King. This was continued despite the failure
to deliver the bales. Simultaneous to these transactions was the discounting of King of the checks to
State Investment House. Bataan then stopped payment and SIHI tried to collect.

ISSUE: Whether SIHI, a second indorser, a holder of crossed checks, is a holder in due course, to be able
to collect from the drawer, BCCFI?

HELD: The negotiability of the check isnt affected by it being crossed, whether specially or generally. It
may be legally negotiated from one person to another as long as the one who encashes the check with
the drawee bank or if its specially crossed, by the bank mentioned between the parallel lines.

Jurisprudence provides the following effects of crossing a check:

1. The check may not be encashed but only deposited in the bank

2. The check may be negotiated only onceto one who has an account with a bank

3. The act of crossing the check serves the 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.

The check should place the holder in inquiry and upon him devolves the duty to ascertain the indorsers
title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of
gross negligence amount to legal absence of good faith.

In the present case, petitioners defense in stopping payment is as good to SIHI as it is to King because
really the consideration for the checks were

The delivery of the bales of tobacco leaves which King failed to do. There being failure of consideration,
SIHI is not a holder in due course.

STATE INVESTMENT HOUSE V. IAC

FACTS: New Sikatuna requested for a loan from Spouses Chua. Latter issued postdated crossed checks
in favor of former. Thereafter, Sikatuna sold checks to SIHI which upon deposit, checks were
dishonored. The trial court decided the case in favor of SIHI.

ISSUE: Whether or not petitioner is a holder in due course as to entitle it to proceed against private
respondents for the amount stated in the dishonored checks?

HELD:

Jurisprudence provides the following effects of crossing a check:

1. The check may not be encashed but only deposited in the bank

2. The check may be negotiated only onceto one who has an account with a bank
3. The act of crossing the check serves the 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.

The checks in issue were crossed generally and issued payable to New Sikatuna Wood which could only
mean that the drawer has intended the same for deposit only by the rightful person. Apparently, it was
not the payee who presented the same for payment and therefore, there was no proper presentment
and the liability didn't attach to the drawer. Thus, in the absence of due presentment, the drawer didn't
become liable. Consequently, no right of recourse is available to petitioner against the drawer of the
subject checks considering that the petitioner is the proper party authorized to make presentment of
the checks in question.

Nonetheless, the holder could still collect from New Sikatuna if the latter doesn't have a valid excuse
from refusing payment.

Section 52(c) of the Negotiable Instruments Law defines a holder in due course as one who takes the
instrument "in good faith and for value". On the other 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 notice of any x x x defect in the title of the person negotiating it." However, under Section
59 every holder is deemed prima facie to be a holder in due course.

Bataan Cigar and Cigarette Factory, Inc. vs. CA

Facts:

Bataan Cigar and Cigarette Factory, Inc. is a corporation involved in the manufacturing of
cigarettes.
It is engaged to one of its supplier, King Tim Pua George, to deliver 2,000 bales of tobacco
leaf.
In consideration thereof, BCCFI issued post-dated crossed checks amounting to P820,000.00
Despite the suppliers failure to deliver the earlier agreement, petitioner agreed to purchase
additional 2,500 bales of tobacco leaves relying on the suppliers representation that he
would complete the delivery within three months.
Petitioner issued again post-dated crossed checks in the total of P1,100,000.00.
During these times, George King was simultaneously dealing with private respondent State
Investment House, Inc. and sold to the latter at a discount checks post-dated TCBT drawn by
petitioner naming George King as payee to SIHI.
George King failed to deliver the bales of tobacco leaf despite petitioners demand.
BCCFI issued a stop payment order on all checks payable to George King.
SIHI having failed to collect from BCCFI, it instituted the present case.
Trial Court pronounced SIHI as having a valid claim being a holder in due course.
Hence, this petition.

Issue: whether SIHI, a second indorser, a holder of crossed checks, is a holder in due course, to be able
to collect from the drawer, BCCFI?
Held: No.

NIL Sec. 52 provides that 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.

Section 59 of the NIL further states that 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.

As preliminary, a check is defined by law as a bill of exchange drawn on a bank payable on demand. A
check is crossed specially when the name of a particular banker or a company is written between the
parallel lines drawn. It is crossed generally when only the words "and company" are written or nothing is
written at all between the parallel lines. It may be issued so that the presentment can be made only by a
bank.

In the Philippine business setting, we used to be beset with bouncing checks, forging of checks, and so
forth that banks have become quite guarded in encashing checks, particularly those which name a
specific payee.

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of 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.

In the present case, BCCFI's 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.

The foregoing does not mean, however, that respondent could not recover from the checks. The only
disadvantage 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, respondent can collect from the immediate indorser, in this case,
George King.

New Sikatuna Wood Industries, Inc. requested for a loan from private respondent Harris 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-wife, Anita issued 3 crossed checks payable to New
Sikatuna Wood Industries, Inc. all postdated with total value of P299,450.00.
Subsequently, New Sikatuna Wood Industries, Inc. entered into an agreement with herein petitioner
State Investment House, Inc. the former assigned and discounted with petitioner checks including the 3
postdated checks issued by Anita Chua.

When the latter checks were allegedly deposited by petitioner, these were dishonored by reason of
"insufficient funds", "stop payment" and "account closed", respectively.

Petitioner claims that despite demands on private respondent Anita Pea to make good said checks, the
latter failed to pay the same.

SIHI filed an action for collection against the Anita and her husband Harris Chua before the Regional Trial
Court of Manila.

Spouses Chua filed a third party complaint against New Sikatuna Wood Industries, Inc. for
reimbursement and indemnification in the event that they be held liable to petitioner-plaintiff.

The lower court rendered judgment against spouses Chua.

On the third party complaint, third party defendant New Sikatuna Wood Industries, Inc. is ordered to
pay third party plaintiffs Anita Pena Chua and Harris Chua all amounts said defendants' third- party
plaintiffs may pay to the plaintiff on account of this case.

On appeal, the Intermediate Appellate Court reversed the lower court's judgment in the now assailed
decision.

Hence, this petition.

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