Chan Wan v.

Tan Kim Chen So

Facts: Chan Wan collected its bearer instruments in the form of eleven checks from
Equitable Banking Corporation, but were dishonoured due to insufficient funds. As such, she
filed this collection suit. In court, Tan Kim declared that the checks had been issued to
Pinong and Muy for some shoes, however, was only ‘intended as mere receipts’. The court
declined to order payment as Tan Kim was not a holder in due course, and the cross checks
was deposited in the bank not mentioned in the crossing. The bank mentioned in the crossing
is China Banking Corporation.
Issue: Whether Chan Wan is a holder in due course. NO.
Held: The Negotiable Instruments Law regulating the issuance of negotiable checks, the
rights and the liabilities arising therefrom, does not mention "crossed checks". Art. 541 of the
Code of Commerce refers to such instruments. In another case decided upon by this court,
said Bills of Exchange Act because the Negotiable Law, originating from England and
codified in the United States, permits resort thereto in matters not covered by it and local
legislation.
Eight of the checks here in question bear across their face two parallel transverse lines
between which these words are written: non-negotiable — China Banking Corporation.
These checks have, therefore, been crossed specially to the China Banking Corporation, and
should have been presented for payment by China Banking, and not by Chan Wan. Inasmuch
as Chan Wan did present them for payment himself — the Manila court said — there was no
proper presentment, and the liability did not attach to the drawer.
1. On the back of the said checks, endorsements were shown that it had been deposited and
presented to China bank for collection. All the crossed checks have the “clearance”
endorsements of China Bank. But as the Chan Kim has no funds they were unpaid and
returned, some of them has a stamp of “account closed”. How they reach Tan Kim’s
hands, it did not indicate as the trial court surmised – not a finding of fact – that he got
them after returned, as he did not explained such circumstance to the Court. As such, the
lower court held him not to be a holder in due course under the circumstances, since he
knew, upon taking them up, that the checks had already been dishonored.
Atrium Management vs CA
Fact:
Atrium Management Corporation filed with the RTC an action for collection of the proceeds
checks. Hi-Cement Corporation through its corporate signatories, De Leon, issued the checks
in favor of E.T. Henry and Co. Inc., which in turn, endorsed the checks to petitioner Atrium
Management Corporation for valuable consideration. Upon presentment for payment, the
drawee bank dishonored all four checks for the common reason “payment stopped”. The trial
court rendered a decision ordering De Leon, E.T. Henry and Co., Inc and Hi-Cement
Corporation to pay Atrium, jointly and severally, hence this case.
Issue: Whether Atrium is a holder 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 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.
Marcelo Mesina vs CA

FACTS:
Jose Go purchased from Associated Bank a cashier's check for P800,000.00. Unfortunately,
he 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. While
Uy went to the men's room, the check was stolen by his visitor in the person of Alexander
Lim. Upon discovering that the check was lost, Jose Go accomplished a "STOP
PAYMENT" order. Two days later, Associated Bank received the lost check for clearing
from Prudential Bank. After dishonoring the same check twice, Associated Bank received
summons and copy of a complaint for damages of Marcelo Mesina who was in possession of
the lost check and is demanding payment. Petitioner claims that a cashier's check cannot be
countermanded in the hands of a holder in due course.

ISSUE:
Whether or not petitioner can collect on the stolen check on the ground that he is a holder in
due course.

RULING:
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.

**A person who became the holder of a cashier's check as endorsed by the person who stole
it and who refused to say how and why it was passed to him is not a holder in due course.
De Ocampo v. Gatchalian
Considering that amount of the check did not correspond exactly with the obligation of
FACTS: Manuel’s wife to Dr. V. R. de Ocampo; and that the check had two parallel lines in the upper
Gatchalian, was looking for a car for the use of her husband and the family and left hand corner, which practice means that the check could only be deposited but may not be
Manuel Gonzales (Manuel) who was accompanied by Emil Fajardois (personally known to converted into cash — all these circumstances should have put De Ocampo to inquiry as to
Gatchalian) offered her a car. Manuel represented to Gatchalian that he was duly authorized the why and wherefore of the possession of the check by Manuel, and why he used it to pay
by Ocampo Clinic, the owner of the car, to look for a buyer and negotiate for and accomplish his wife’s account. Further, it was the payee’s duty to ascertain from the holder Manuel what
the sale, but which facts were not known to De Ocampo. The next day, Gatchalian requested the nature of the latter’s title to the check was or the nature of his possession. Having failed
Manuel to bring the car the day following together with the certificate of registration of the in this respect, we must declare that De Ocampo, was guilty of gross neglect in not finding
car so that her husband would be able to see same but Manuel told her that unless there is a out the nature of the title and possession of Manuel, amounting to legal absence of good
showing that the party interested in the purchase is ready he cannot bring the certificate of faith, and it may not be considered as a holder of the check in good faith.
registration in lieu of which Gatchalian gave him a check which will be shown to the owner
as evidence of buyer’s good faith in the intention to purchase, it being for safekeeping only Furthermore, in order to show that the defendant had “knowledge of such facts that his action
of Manuel and to be returned. in taking the instrument amounted to bad faith,” it is not necessary to prove that the
Upon receipt of the check from the defendant, Manuel delivered the same to the defendant knew the exact fraud that was practiced upon the plaintiff by the defendant’s
Ocampo Clinic, in payment of the fees and expenses arising from the hospitalization of his assignor, it being sufficient to show that the defendant had notice that there was something
wife. Manuel failed to appear the next day and on his failure to bring the car and its wrong about his assignor’s acquisition of title, although he did not have notice of the
certificate of registration and to return the check, as previously agreed upon, Gatchalian particular wrong that was committed. Thus, it is sufficient that the buyer of a note had notice
issued a “Stop Payment Order” on the check, with the drawee bank. Said “Stop Payment or knowledge that the note was in some way tainted with fraud. It is not necessary that he
Order” was issued without previous notice on De Ocampo not being known to Gatchalian should know the particulars or even the nature of the fraud, since all that is required is
and who furthermore had no reason to know check was already given to the former. knowledge of such facts that his action in taking the note amounted bad faith. Such
Gatchalian then filed with the Office of the City Fiscal of Manila, a complaint for considerations would seem sufficient to justify the ruling that De Ocampo should not be
Estafa against Manuel, however, the latter contended that the check is not a negotiable allowed to recover the value of the check.
instrument, under the facts and circumstances stated in the stipulation of facts, and that De
Ocampo is not a holder in due course. In support of the first contention, it is argued that
Gatchalian had no intention to transfer her property in the instrument as it was for
safekeeping merely and, therefore, there was no delivery required by law (Section 16,
Negotiable Instruments Law); that assuming for the sake of argument that delivery was not
for safekeeping merely, delivery was conditional and the condition was not fulfilled.

ISSUES: Whether De Ocampo can be considered as a holder in due course.

RULING: No, De Ocampo can be considered as a holder in due course.Section 52,

Negotiable Instruments Law, defines holder in due course as 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.
Yang v. Court of Appeals The law gives rise to the presumption of valuable consideration. Petitioner has the burden of
debunking such presumption, which it failed to do so. Her allegation that David received the
FACTS: Petitioner Cely Yang and private respondent Prem Chandiramani entered into an checks without consideration is unsupported and devoid of any evidence.
agreement whereby the latter was to give Yang a PCIB manager’s check in the amount of
P4.2 million in exchange for two (2) of Yang’s manager’s checks, each in the amount of Furthermore, petitioner wasn’t able to show any circumstance which should have placed
P2.087 million, both payable to the order of private respondent Fernando David. Yang and David in inquiry as to why and wherefore of the possession of the checks by Chandimari.
Chandiramani agreed that the difference of P26,000.00 in the exchange would be their profit David wasn’t a privy to the transactions between Yang and Chandimari. Instead, Chandimari
to be divided equally between them. Yang and Chandiramani also further agreed that the and David had the agreement between themselves of the delivery of the checks.
former would secure from FEBTC a dollar draft in the amount of US$200,000.00, payable to
PCIB FCDU, which Chandiramani would exchange for another dollar draft in the same David even inquired with the banks on the genuineness of the checks in issue. At that time,
amount to be issued by Hang Seng Bank Ltd. of Hong Kong. Yang gave the aforementioned he wasn’t aware of any request for the stoppage of payment. Under these circumstances,
cashier’s checks and dollar drafts to her business associate, Albert Liong, to be delivered to David had no obligation to ascertain from Chandimari what the nature of the latter’s title to
Chandiramani by Liong’s messenger, Danilo Ranigo. Ranigo was to meet Chandiramani and the checks was, if any, or the nature of his possession.
would turn over Yang’s cashier’s checks and dollar draft to Chandiramani who, in turn,
would deliver to Ranigo a PCIB manager’s check in the sum of P4.2 million and a Hang
Seng Bank dollar draft for US$200,000.00 in exchange. Chandiramani did not appear at the
rendezvous and Ranigo allegedly lost the two cashier’s checks and the dollar draft bought by
petitioner. It transpired, however, that the checks and the dollar draft were not lost, for
Chandiramani was able to get hold of said instruments, without delivering the exchange
consideration. Chandiramani delivered to respondent Fernando David said instruments. In
exchange, Chandiramani got US$360,000.00 from David. Consequently, Yang asked for the
stoppage of payment of the checks she believe to be lost, relying on the report of her
messenger. The stoppage order was eventually lifted by the banks and the drafts and checks
were able to be encashed. Yang then filed an action for injunction and damages against the
banks, Chandimari and David.

ISSUE: Whether or not David is a holder in due course.

RULING: Every holder of a negotiable instrument is presumed to be a holder in due course.

This is especially true if one is a holder because he is the payee or indorsee of the instrument.
In the case at bar, it is evident that David was the payee of the checks. The prima facie
presumption of him being a holder in due course is in his favor.

Nonetheless, this presumption is disputable. On whether he took the check under the
conditions set forth in Section 52 must be proven. Petitioner relies on two arguments on why
David isn’t a holder in due course—first, because he took the checks without valuable
consideration; and second, he failed to inquire on Chandimari’s title to the checks given to
him.
Stelco Marketing Corporation vs. CA value” against the accommodation party notwithstanding that “such holder, at the time of
taking the instrument, knew him to be only an accommodation party.”
FACTS: Stelco Marketing Corporation sold and delivered bars and wires on seven occasions There is no evidence that STELCO’ possession of the check ever dated back to any
to RYL Construction, Inc. The aggregate price for the purchases was P126,859.61. They time before the instruments presentment and dishonor. There is no evidence whatsoever that
agreed that RYL would pay Cash on Delivery but the latter made no payments for the the check was ever given to it, or indorsed to it in any manner or form in payment of an
construction materials. RYL gave to Armstrong Industries, a sister company and obligation or as security for an obligation, or for any other purpose before it was presented
manufacturing arm of Stelco, a check in the amount of P126,859.61. That check was a for payment.
company check of another corporation, Steelweld Corporation of the Philippines, signed by The record does show that after the check had been deposited and dishonored,
its President, Limson, and its Vice- President, Torres. The check was issued by Limson at STELCO came into possession of it in some way, and was able, several years after the
the behest of his friend, Lim, President of RYL. Romeo Lim had asked Limson for financial dishonor of the check, to give it in evidence at the trial of the civil case it had instituted
assistance, and the latter had agreed to give Lim a check only by way of accommodation, against the drawers of the check (Limson and Torres) and RYL. But possession of a
“only as guaranty but not to pay for anything.” When Armstrong deposited the check at its negotiable instrument after presentment and dishonor, or payment, is utterly inconsequential;
bank, it was dishonored because “drawn against insufficient funds.” When so deposited, the it does not make the possessor a holder for value within the meaning of the law; it gives rise
check bore 2 indorsements, that of “RYL Construction,” followed by that of “Armstrong to no liability on the part of the maker or drawer and indorsers.
Industries.” On account of the dishonored check, Armstrong filed a case against Limson and STELCO cannot be deemed a holder of the check for value. It does not meet two of
Torres for violation of BP 22. They were acquitted on the ground that the check in question the essential requisites prescribed by the statute. It did not become “the holder of it before it
was not issued by the drawer ‘to apply on account for value,’ it being merely for was overdue, and without notice that it had been previously dishonored” and it did not take
accommodation purposes. That judgment however conditioned the acquittal with the the check “in good faith and for value.”
following pronouncement: “This is not however to release Steelweld Corporation from its Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim
liability under Sec. 29 of the Negotiable Instruments Law for having issued it for the negotiated the check, accepted the instrument and attempted to encash it in behalf, and as
accommodation of Romeo Lim.” agent of STELCO.

ISSUE: WON STELCO ever became a holder in due course because it had actual possession
of the dishonored check – NO

HELD: Trial Court’s pronouncement containing reference to said Section 29 did not specify
to whom STEELWELD, as accommodation party, is supposed to be liable; and certain it is
that neither said pronouncement nor any other part of the judgment of acquittal declared it
liable to STELCO.

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 persons negotiating it.
As regards an accommodation party (such as STEELWELD), the fourth condition has
no application. This is because Section 29 preserves the right of recourse of a “holder for
Salas vs CA the maturity of the checks. The checks, however, could not be retrieved as they had already
been negotiated. Before the check’s maturity dates, Moulic withdrew her funds from the
Facts: Juanita Salas (Petitioner) bought a motor vehicle from the Violago Motor Sales drawee bank. Upon presentment of the checks for payment, they were dishonored for
Corporation (VMS) for as evidenced by a promissory note. This note was subsequently insufficiency of funds. SIHI sued to recover the value of the checks.
endorsed to Filinvest Finance & Leasing Corporation (private respondent) which financed
the purchase. Issue: Whether the personal defense of failure or absence of consideration is available, or
Petitioner defaulted in her installments allegedly due to a discrepancy in the engine conversely, whether SIHI is a holder in due course.
and chassis numbers of the vehicle delivered to her and those indicated in the sales invoice,
Held: On their faces, the post-dated checks were complete and regular; SIHI bought the
certificate of registration and deed of chattel mortgage, which fact she discovered when the
checks from the payee (Victoriano) before their due dates; SIHI took the checks in good faith
vehicle figured in an accident.
This failure to pay prompted private respondent to initiate an action for a sum of and for value, albeit at a discounted price; and SIHI was never informed not made aware that
money against petitioner before the Regional Trial Court. the checks were merely issued to payee as security and not for value. Complying with the
requisites of Section 52 of the Negotiable Instruments Law, SIHI is a holder in due course.
Issue: WON private respondent is a holder in due course? As such, it holds the instruments free from any defect of title of prior parties, and from
defenses available to prior parties among themselves. SIHI may enforce full payment of the
Held: YES. The PN was negotiated by indorsement in writing on the instrument itself checks. The defense of failure or absence of consideration is not available as SIHI was not
payable to the Order of Filinvest Finance and Leasing Corporation and it is an indorsement privy to the purpose for which the checks were issued. That the post-dated checks were
of the entire instrument. merely issued as security is not a ground for the discharge of the instrument as against a
Under the circumstances, there appears to be no question that Filinvest is a holder in holder in due course. It is not one of the grounds outlined in Section 119 of the Negotiable
due course, having taken the instrument under the following conditions: [a] it is complete and Instrument Law, for the instrument to be discharged. It must be noted that the drawing and
regular upon its face; [b] it became the holder thereof before it was overdue, and without negotiation of a check have certain effects aside from the transfer of title or the incurring of
notice that it had previously been dishonored; [c] it took the same in good faith and for value; liability in regard to the instrument by the transferor. The holder who takes the negotiated
and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the paper makes a contract with the parties on the face of the instrument. There is an implied
instrument or defect in the title of VMS Corporation. representation that funds or credit are available for the payment of the instrument in the bank
Accordingly, respondent corporation holds the instrument free from any defect of title upon which it is drawn. Consequently, the withdrawal of the money from the drawee bank to
of prior parties, and free from defenses available to prior parties among themselves, and may
avoid liability on the checks cannot prejudice the rights of holders in due course. The drawer,
enforce payment of the instrument for the full amount thereof.  This being so, petitioner
Moulic, is liable to the holder in due course, SIHI.
cannot set up against respondent the defense of nullity of the contract of sale between her and
VMS. Prudencio vs. CA

FACTS: Oct 7 1954: Eulalio and Elisa Prudencios, registered owners of a parcel of land

mortgaged to Philippine National Bank (PNB) to guarantee a loan of P1,000.00 extended to
Domingo Prudencio. 1955: Concepcion & Tamayo Construction Company (Concepcion) had
a pending contract with the Bureau of Public Works (Bureau) for the construction of the
State Investment House vs. CA municipal building in Puerto Princess, Palawan amounting to P36,800.00. In need of funds,
Jose Toribio, Concepcions' relative, and attorney-in-fact of the Company, approached PNB
Facts: Nora B. Moulic issued to Corazon Victoriano checks, as security for pieces of jewelry
to mortgage their property to secure the loan of P10,000.00 w/ PNB. The terms and
sold on commission. Victoriano negotiated the checks to the State Investment House Inc.
(SIHI). Moulic failed to sell the pieces of jewelry, so he returned them to the payee before
conditions of the original mortgage for Pl,000.00 were made integral part of the new
mortgage for P10,000.00 and both documents were registered with the Register of Deeds.

On Dec 23 1955: promissory note covering the loan of P10,000.00 dated Dec 29 1955,
maturing on Apr 27 1956, was signed by Jose Toribio, as attorney-in-fact of the Company,
and by the Prudencios' Deed of Assignment assigning all payments to be made by the Bureau
to the Co. on account of the contract for the construction in favor of the PNB. PNB approved
the Bureau's release of 3 payments directly to Concepcion for material and labor instead of
paying the same to the Bank on account of the contract price totalling P11,234.40 without the
knowledge of the Prudencios' PNB did not apply the initial and subsequent payments to the
Prudencios' debt as provided for in the deed of assignment Jun 30 1956: Concepcion
abandoned their work so Bureau rescinded the construction contract and assumed the work of
completing
 
ISSUE: 
1. W/N the Prudencios' as accomodating party are liable as solidary debtors so real
estate mortgage executed by them CANNOT be cancelled
2. W/N PNB was a holder in due course

HELD:
 1. YES. Section 29 of the Negotiable Instrument Law; Liability of accommodation party. —
An accommodation party is one who has signed the instrument as maker, drawer, acceptor,
or indorser, without receiving value 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. Philippine Bank of Commerce v. Aruego: liability of the
accommodation party remains not only primary but also unconditional to a holder for value
remedy is a matter of concern exclusively between accommodation indorser and
accommodated party

2. NO . payee PNB is an immediate party and, therefore, is NOT a holder in due course and
stands on no better footing than a mere assignee . holder in due course - payee either acquired
the note from another holder or has not directly dealt with the maker thereof
 PNB, in effect, waived payments of the first three releases
 PNB can not be regarded as having acted in good faith which is also one of
the requisites of a holder in due course under Section 52 of the Negotiable Instruments
Law
 It was only when the deed of assignment was shown to the spouses that they
consented to the mortgage and signed the promissory note in the Bank's favor.
Fossum vs. Hermanos a holder in due course, the paper again becomes subject in the payee’s hands to the same
defenses to which it would have been subject if the paper had never passed through the hands
of a holder in due course. The same is true where the instrument is re-transferred to an agent
of the payee.
FACTS: In 1919, the Fernandez Hermanos (FH) contracted with the American Iron
Products Company, Inc. (AIP), for the latter to build a shaft for one of the ships managed by
FH. In consideration thereof, a time draft with the Philippine National Bank (PNB), a
negotiable instrument, was executed by FH in the amount of $2,250.00 payable in 60 days.
But later, FH dishonored the draft because AIP was not able to comply with the
specifications of the shaft ordered by FH. Nevertheless, Charles Fossum, the agent of AIP
here in the Philippines and the person with whom FH was transacting with, was able to
obtain the draft from the bank without consideration (for free). Fossum then instituted an
action against FH to recover the amount covered by the draft. Fossum maintains that he is a
holder in due course; that he inherited that status from the previous holder (PNB, named
payee in the draft); that as such, he is entitled to payment.

ISSUE: Whether or not Fossum is a holder in due course.

HELD: No. In the first place, Fossum, as an agent of AIP, is well aware that the draft is
unenforceable because it has no consideration, the shaft being substandard. AIP did not
comply with its obligation thus the draft was dishonored – and Fossum was well aware of
this as part of the original party. Under Sec. 59 of the Negotiable Instruments Law, there is
indeed a presumption that every holder is a holder in due course, this covers a payee or an
indorsee (for bearer instruments, the bearer). This presumption does not apply to Fossum
because he was not a payee nor an indorsee. He’s not an indorsee because the bank merely
delivered the draft to him and the delivery was even without consideration. But if the
presumption previously applied to PNB, wasn’t that acquired by Fossum? No. The
presumption only covers the present holder, and not the previous holder. When a holder
delivers/indorses the instrument, he loses that presumption. It will then become incumbent
upon the person who received the instrument to prove that the previous holder is a holder in
due course especially in this case when the current holder, Fossum, cannot be granted the
presumption in Sec. 59, which is merely prima facie by the way, because of the fact that he
was an original party fully notified of the failure of the consideration. At any rate, PNB itself
is not a holder in due course due to the timely dishonor of the draft by FH. Further even
assuming PNB is a holder in due course, there is a well-known rule of law that if the original
payee of a note unenforceable for lack of consideration repurchases (in this case, the draft
was not even repurchased, it was merely delivered back) the instrument after transferring it to