Professional Documents
Culture Documents
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 - failure = guilty of gross negligence
G.R. No. 93048 March 3, 1994 amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law
Lessons Applicable: Rights of a holder (Negotiable Instruments Law) SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the
checks. However, that SIHI 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-
FACTS: negotiable. Hence, SIHI can collect from the immediate indorser, George
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. Negotiable Instruments Case Digest: Consolidated Plywood Industries, Inc V. IFC Leasing And
July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the total amount of
P820K
Acceptance Corp. (1987)
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 FACTS: Consolidated (buyer pays promossor note) > IPM (seller-assignor who violated warranty) > IFC
1979.
(holder in due course or merely an assignee?)
July 19, 1978: George sold to SIHI at a discount check amounting to P164K, post dated March 31, Consolidated Plywood Industries, Inc (Consolidated) is a corporation engaged in the logging
1979, drawn by BCCFI w/ George as payee.
business
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
For the purpose of opening of additional roads and simultaneous logging operations along the
Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 a stop route of roads, it needed 2 additional units of tractors
payment order for all checks
SIHI failing to claim, filed a claim against BCCFI Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm,
RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial to the case Industrial Products Marketing (IPM) (seller-assignor) offered to sell 2 "Used" Allis Crawler Tractors
ISSUE: W/N SIHI is a holder in due course beign a second indorser and a holder of crossed checks
IPM inspected the job site and assured that the tractors were fit for the job and gave a 90-days
performance warranty of the machines and availability of parts.
HELD: YES. GRANTED. RTC reversed.
Sec. 52 Consolidated purchased on installment.
1. That it is complete and regular upon its face
2. 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
It paid the down payment of P210,000
3. That he took it in good faith and for value
4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or April 5, 1978: IPM issued the sales invoice and the deed of sale with chattel mortgage with
defect in the title of the person negotiating it promissory note was executed
Sec. 59
every holder is deemed prima facie a holder in due course IPM, by means of a deed of assignment, assigned its rights and interest in the chattel mortgage in
favor of IFC Leasing and Acceptance Corp. (IFC)
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.
After 14 days, one of the tractors broke down and after another 9 days, the other tractor too
effect of crossing of a check Because of the breaking down of the tractors, the road building and simultaneous logging
operations were delayed
1. check may not be encashed but only deposited in the bank
2. check may be negotiated only once to one who has an account with a bank
3. act of crossing the check serves as warning to the holder that the check has been issued for a Consolidated unilaterally rescinded the contract w/ IPM
definite purpose - he must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course April 7, 1979: Wee of Consolidated asked IPM to pull out the units and have them reconditioned,
and thereafter to offer them for sale.
The proceeds were to be given to IFC and the excess will be divided between:
ADDITIONAL CASES NEGO Page 1|8
Consolidated's defenses may not prevail against it.chanroblesvirtualawlibrary chanrobles virtual
IPM law library
Consolidated which offered to bear one-half 1/2 of the reconditioning cost Articles 1191 and 1567 of the Civil Code provide that:
IPM didn't do anything ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
IFC filed against Consolidated for the recovery of the principal sum P1,093,789.71, interest and The injured party may choose between the fulfillment and the rescission of the obligation with the
attorney's fees payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
RTC and CA: favored IFC
ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between
withdrawing from the contract and demanding a proportionate reduction of the price, with damages in
breach of warranty if any, is not a defense available to Consolidated either to withdraw from the
either case. (Emphasis supplied)
contract and/or demand a proportionate reduction of the price with damages in either case
ISSUE: W/N IFC is a holder in due course of the negotiable promissory note so as to bar completely all
Consolidated, having unilaterally and extrajudicially rescinded its contract with the seller-assignor,
can no longer sue IPM except by way of counterclaim if IPM sues it because of the rescission
the available defenses of the Consolidated against IPM
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a
HELD: CA reversed and set aside promissory note "must be payable to order or bearer" - in this case it is non-negotiable
Consolidated is a victim of warranrty
= expression of consent that the instrument may be transferred
The Civil Code provides that:
consent is indispensable since a maker assumes greater risk under a negotiable instrument than
ART. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold under a non-negotiable one
may have, should they render it unfit for the use for which it is intended, or should they diminish its
fitness for such use to such an extent that, had the vendee been aware thereof, he would not have When instrument is payable to order
acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent
defects or those which may be visible, or for those which are not visible if the vendee is an expert who, SEC. 8. WHEN PAYABLE TO ORDER. - The instrument is payable to order where it is drawn payable to the
by reason of his trade or profession, should have known them.chanroblesvirtualawlibrary chanrobles order of a specified person or to him or his order. . . .
virtual law library
ART. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the Without the words "or order" or"to the order of, "the instrument is payable only to the person
goods, as follows: designated therein and is therefore non-negotiable.
(1) Where the buyer, expressly or by implication makes known to the seller the particular purpose for
which the goods are acquired, and it appears that the buyer relies on the sellers skill or judge judgment Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable
(whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be instrument but will merely "step into the shoes" of the person designated in the instrument and
reasonably fit for such purpose; will thus be open to all defenses available against the latter
xxx xxx xxx chanrobles virtual law library
ART. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be Even conceding for purposes of discussion that the promissory note in question is a negotiable
annexed by the usage of trade.chanroblesvirtualawlibrary chanrobles virtual law library instrument, the IFC cannot be a holder in due course due to absence of GF for knowing that the
xxx xxx xxx chanrobles virtual law library tractors were defective
ART. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold even
though he was not aware thereof. SEC. 52. WHAT CONSTITUTES A HOLDER IN DUE COURSE. - A holder in due course is a holder who has
This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the taken the instrument under the following conditions: chanrobles virtual law library
hidden faults or defects in the thing sold. (Emphasis supplied). xxx xxx xxx chanrobles virtual law library
GR: extends to the corporation to whom it assigned its rights and interests xxx xxx xxx chanrobles virtual law library
(c) That he took it in good faith and for value
EX: assignee is a holder in due course of the promissory note (d) That the time it was negotiated by him he had no notice of any infirmity in the instrument of deffect in
the title of the person negotiating it
assuming the note is negotiable
Respondent filed with the RTC complaint for sum of money against petitioner. The RTC renders 2. Yes.
judgment ordering BPI to pay Roxas.
It bears emphasis that the disputed check is a cashiers check. The Court held that a cashiers check is
Court of Appeals affirmed the trial courts judgment. really the banks own check and may be treated as a promissory note with the bank as the maker. The
check becomes the primary obligation of the bank which issues it and constitutes a written promise to
pay upon demand. The Court took judicial notice of the "well-known and accepted practice in the
business sector that a cashiers check is deemed as cash." This is because the mere issuance of a
Issue:
cashiers check is considered acceptance thereof.
1. Whether or not respondent is a holder in due course.
2. Whether or not BPI is liable to respondent for the amount of the cashiers check.
In view of the above pronouncements, petitioner bank became liable to respondent from the moment it
issued the cashiers check. Having been accepted by respondent, subject to no condition whatsoever,
petitioner should have paid the same upon presentment by the former.
Ruling:
1. Yes.
Section 52 of the Negotiable Instruments Law provides: STATE INVESTMENT HOUSE V. IAC
SEC. 52. What constitutes a holder in due course. A holder in due course is a holder who has taken the 175 SCRA 310
instrument under the following conditions:
(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; FACTS:
(c) That he took it in good faith and for value; New Sikatuna requested for a loan from Spouses Chua. Latter issued post-dated crossed checks in favor
of former. Thereafter, Sikatuna sold checks
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or to SIHI which upon deposit, checks were dishonored. The trial court decided the case in favor of
defect in the title of person negotiating it. SIHI.
As a general rule, under the above provision, every holder is presumed prima facie to be a holder in due
course. One who claims otherwise has the onus probandi to prove that one or more of the conditions HELD:
required to constitute a holder in due course are lacking. In this case, petitioner contends that the
element of "value" is not present, therefore, respondent could not be a holder in due course. Jurisprudence provides the following effects of crossing a check:
Petitioners contention lacks merit. Section 25 of the same law states: 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
themselves to pay jointly and severally to the order of VMSC the amount of PhP 209,601 in 36
The checks in issue were crossed generally and issued payable to New
Sikatuna Wood which could only mean that the drawer has intended the monthly installments of PhP 5,822.25 a month, the first installment to be due and payable
same for deposit only by the rightful person. Apparently, it was not the payee who on September 16, 1983.
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 reco
urse is available to petitioner against the drawer of the subject checks considering that the petitioner Avelino prepared a Disclosure Statement of Loan/Credit Transportation which showed the net
is the proper party authorized to make presentment of the checks in question.
purchase price of the vehicle, down payment, balance, and finance charges.
Nonetheless, the holder could still collect from New Sikatuna if the latter doesn't have a valid
excuse from refusing payment
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
Lessons Applicable: Promissory notes and checks (Negotiable Instruments Law) VMSC, through Avelino, endorsed the promissory note to BA Finance without recourse. After
1983: Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell
VMSC executed a Deed of Assignment of its rights and interests under the promissory note and
a Toyota Cressida Model 1983 to increase the sales quota to his cousin, Pedro F. Violago and his
chattel mortgage in favor of BA Finance. Meanwhile, the spouses remitted the amount of PhP
wife, Florencia.
60,500 to VMSC through Avelino
spouses would just have to pay a down payment of PhP 60.5K while the balance would be financed
spouses were unaware that the same car had already been sold in 1982 to Esmeraldo Violago,
by BA Finance.
another cousin of Avelino
The spouses would pay the monthly installments to BA Finance while Avelino would take care of
Since VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA Finance.
the documentation and approval of financing of the car.
spouses
Section 52. What constitutes a holder in due course.A holder in due course is a holder who has taken
RTC: favored BA finance , however, declared that they are entitled to be indemnified by Avelino the instrument under the following conditions:
CA: affirmed - promissory note was a negotiable instrument and that BA Finance was a holder in
(a) That it is complete and regular upon its face;
due course
(b) That he became the holder of it before it was overdue, and without notice that it had been
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
negotiable:
(a) the Promissory Note, Exhibit A, is complete and regular; (b) the Promissory Note was
Section 1. Form of Negotiable Instruments. An instrument to be negotiable must conform to the
endorsed by the VMSC in favor of the Appellee; (c) the Appellee, when it accepted the Note, acted
following requirements:
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
(a) It must be in writing and signed by the maker or drawer;
his rights to the BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987,
(b) Must contain an unconditional promise or order to pay a sum certain in money; much later than August 4, 1983, when VMSC assigned its rights over the Chattel Mortgage by the
selling the vehicle to petitioners, a vehicle that was previously sold to Avelinos other cousin,
Esmeraldo
Avelino clearly defrauded petitioners. His actions were the proximate cause of petitioners
loss. He cannot now hide behind the separate corporate personality of VMSC to escape from
liability for the amount adjudged by the trial court in favor of petitioners.
obligation was incurred in the name of the corporation, the petitioner [Arcilla] would still be
personally liable therefor because for all legal intents and purposes, he and the corporation are