PRUDENCIO vs CA

DOCTRINE: HFV - under Section 29 NIL is one who must meet all the requirements of a holder in due course under Section 52
of the same law except notice of want of consideration. If he does not qualify as a holder in due course then he holds the
instrument subject to the same defenses as if it were non-negotiable (Section 58, NIL). GRANTED.
1. Prudencios' (pet/app) are the owners of a lot, which they mortgaged to PNB to guarantee a loan extended to one Domingo
Prudencio.
2. In 1955 the Concepcion Construction Company (company) had a contract with the Bureau of Public Works for the
construction of a municipal building in Palawan. The company needed funds.

Jose Toribio, appellants' relative, and attorney-in-fact of the Company, approached the appellants asking them to
mortgage their property to secure the loan of P10,000.00 which the Company was negotiating with the PNB.

After some persuasion appellants signed the Amendment of Real Estate Mortgage mortgaging their said
property to the PNB to guaranty the loan of P10000 extended to the Company.

The promissory note covering the loan of P10,000.00 was signed by Jose Toribio, as attorney-in-fact of the Company,
and by the appellants.

On the same date that the 'Amendment of Real Estate' was executed, Jose Toribio, attorney-in- fact of the Company,
executed also the 'Deed of Assignment' assigning all payments to be made by the Bureau (to the Company) ( for
the construction of the Puerto Princesa building) in favor of the PNB to be applied to Pet's loan.
3. This assignment of credit to the contrary notwithstanding, the Bureau; (with approval, of the PNB) made three payments
to the Company on account of the contract price.
4. The Bureau's last request for P5,000.00 was denied by the PNB since the loan was already overdue. the remaining balance
of the contract price should be applied to the loan. So the Company abandoned the work, so the Bureau rescinded the
construction contract and assumed the work of completing the building.
5. Appellants wrote the PNB contending that since the PNB authorized payments (by the Bureau) to the Company instead of
on account of the loan guaranteed by the mortgage there was a change in the conditions of the contract without the
knowledge of appellants, which entitled the latter to a cancellation of their mortgage contract.
Failing in their bid to have the real estate mortgage cancelled, appellants filed this action against the PNB, the Company, (which
later expired), Jose Toribio, and the District Engineer of Puerto Princesa, seeking the cancellation of their real estate mortgage.
TC: DENIED. PETITIONERS WERE ordered to pay jointly and severally the partners of the defunct corporation.
CA: affirmed. as accommodation makers, the petitioners' liability is that of solidary co-makers and that since "the amounts
released to the construction company were used therein and, spent for the successful accomplishment of the work the
authorization made by PNB of partial payments to the construction company which was also one of the solidary debtors cannot
constitute a valid defense; PNB had no obligation to notify the petitioners of its authorizing the three payments in favor of
the Company because aside from the fact that the petitioners were not parties to the deed of assignment, there was no
stipulation in said deed making it obligatory on the part of the PNB to notify the petitioners everytime it authorizes payment to
the Company.
BEFORE SC, PETITIONER'S CONTEND: AS accommodation makers, the nature of their liability is only that of mere sureties
instead of solidary co-debtors such that "a material alteration in the principal contract, effected by the creditor without the
knowledge and consent of the sureties, completely discharges the sureties from all liability on the contract of
suretyship"; when respondent PNB did not apply the initial and subsequent payments to the petitioners' debt as provided for in
the deed of assignment, they were released from their obligation as sureties and, therefore, the real estate mortgage executed
by them should have been cancelled.
As accommodation makers, petitioners would be primarily and unconditionally liable on the promissory note to a holder
for value, regardless of whether they stand as sureties or solidary co-debtors since such distinction would be entirely
immaterial and inconsequential as far as a holder for value is concerned. However, it depends on WON PNB is a HFV.
issue: WON PNB can be considered a holder for value under Section 29 NIL such that the petitioners must be necessarily
barred from setting up the defense of want of consideration or some other personal defenses which may be set up
against a party who is not a HDC.NO.
HELD: PNB an immediate party or in privy to the promissory note, that is, it had dealt directly with the petitioners knowing
fully well that the latter only signed as accommodation makers and more important, it was the Deed of Assignment executed
by the Construction Company in favor of PNB which principally moved the petitioners to sign the promissory note also in
favor of PNB.

Under the terms of the above Deed, there are no further conditions which could possibly alter the agreement without
the consent of the petitioners such as the grant of greater priority to obligations other than the payment of the loan due
to the PNB and part of which loan was guaranteed by the petitioners in the amount of P10,000.00.

This, notwithstanding, PNB approved the Bureau's release of three payments directly to the Company instead
of paying the same to the Bank.

This approval was in violation of the Deed of Assignment and without any notice to the petitioners who stood
to lose their property once the promissory note falls due without the same having been paid because the 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.
The PNB knew that the promissory note which it took from the accommodation makers was signed by the
latter because of full reliance on the Deed of Assignment,. Worse, the third payment to the Company in the
amount of P4,293.60 was approved by PNB although the promissory note was almost a month overdue, an act
which is clearly detrimental to the petitioners.
NOT BEING HDC, the petitioners can validly set up their personal defense of release from the real estate
mortgage against PNB.
PNB in authorizing the third payment to the Company after the promissory note became due, in effect,
extended the term of the payment of the note without the consent of the accommodation makers who stand as
sureties to the accommodated party and to all other parties who are not holders in due course or who do not derive
their right from the same, including PNB.
the assignee and the creditor in this case are one and the samethe Bank itself. When the Bank violated the deed
of assignment, it prejudiced itself because its very violation was the reason why it was not paid on time in its
capacity as creditor in the promissory note. It would be unfair to make the petitioners now answer for the debt

Others: The attorney-in-fact tried twice to convince the Prudencios to mortgage their property in order to secure a loan in favor
of the Company but the Prudencios refused. 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. GRANTED.
BPI v Roxas (2007)
Sandoval-Gutierrez, J.
Facts
Gregorio C. Roxas, respondent, is a trader. Sometime in March 1993, he delivered stocks of vegetable oil to spouses Rodrigo
and Marissa Cawili.

As payment therefor, spouses Cawili issued a personal check in the amount of P348,805.50 -> Bounced

Spouses Cawili then assured him that they would replace the bounced check with a cashiers check from BPI

March
31,
1993,
respondent
and
Rodrigo
Cawili
went
to petitioners branch
at Shaw
Boulevard, Mandaluyong City where Elma Capistrano, the branch manager, personally attended to them. Upon
Elmas instructions, the bank teller, prepared BPI Cashiers Check No. 14428 in the amount of P348,805.50,
drawn against the account of Marissa Cawili, payable to respondent ROXAS.

Rodrigo then handed the check to respondent

o
Respondent returned to the same branch the following day -> dishonored
o
Elma informed him that Marissas account was closed on that date
o
Roxas's lawyer advised him to deposit the check in his (respondents) account at Citytrust, Ortigas
Avenue. However, the check was dishonored on the ground Account Closed.
Roxas filed a complaint for sum of money against BPI

BPI specifically denied the allegations in the complaint, claiming that it issued the check by mistake in good faith; that
its dishonor was due to lack of consideration; and that respondents remedy was to sue Rodrigo Cawili who
purchased the check
RTC
ordered
BPI
to
pay,
+
moral
and
exemplary
damages
+
attorneys
fees.
CA affirmed
BPI ascribes to CA the following errors: (1) in finding that respondent is a holder in due course; and (2) in holding that it
(petitioner) is liable to respondent for the amount of the cashier's check.
Issue: Should BPI pay?
Held: YES. Here, there is no dispute that respondent ROXAS received Rodrigo Cawilis cashiers check as payment for
the formers vegetable oil (VALUE). The fact that it was Rodrigo CAWILI who purchased the cashiers check from BPI will not
affect respondent ROXASs status as a holder for value since the check was delivered to him as payment for the vegetable oil
he sold to spouses Cawili.

Petitioner contends that the element of value is not present, therefore, respondent could not be a holder in due
course.

SC: 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 required to constitute a holder in due course are lacking. In this
case,

SEC. 25. Value, what constitutes. Value is any consideration sufficient to support a simple contract. An antecedent
or pre-existing debt constitutes value; and is deemed as such whether the instrument is payable on demand or at a
future time.
o
Walker Rubber Corp. v. Nederlandsch Indische & Handelsbank, N.V.: value in general terms may be some
right, interest, profit or benefit to the party who makes the contract or some forbearance, detriment, loan,
responsibility, etc. on the other side.

Furthermore, it bears emphasis that the disputed check is a cashiers check.

o
International Corporate Bank v. Spouses Gueco: a cashiers check is really the banks own check and may
be treated as a promissory note with the bank as the maker. The check becomes theprimary obligation of
the bank which issues it and constitutes a written promise to pay upon demand .
o
New Pacific Timber & Supply Co. Inc. v. Seeris: 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 cashiers check is considered acceptance thereof
BPI 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. DENIED.
CALTEX VS CA and SECURITY BANK
1. Bank issued 280 certificates of deposit CTDs in favor of Angel dela Cruz (depositor) who deposited with herein defendant the
aggregate amount of P1,120,000.00
2. Angel DELIVERED the said CTD's to plaintiff Caltex in connection with his purchase of fuel products
3. Angel Informed Bank that he lost all the CTD's in dispute! Thus he executed an affidavit of loss, afterwhich, 280 replacement
CTD's were issued in favor of angel.
4. Angel negotiated and obtained a loan from bank; and following this he executed a notarized Deed of Assignment of Time
deposited where Angel surrenders to defendant bank "full control of the indicated time deposits, authorizes said bank to preterminate, set-off and "apply the said time deposits to the payment of whatever amounts may be due
5. CALTEX'S credit mgr went to bank and presented for verifcation the CTD's declared lost by Angel, saying these were
delivered to them (caltex) as security for purchases made by Angel... Bank received a letter from Caltex formally informing it of
its possession of the CTDs in question and of its decision to pre-terminate the same.
7. Bank requested Caltex to send a copy of document evidenceing the guarantee agreement, and details of Angel's
obligation to it, but these werent furnished. So Bank rejected Caltex's demand for payment of THE VALUE OF THE CTDS.
8. Then loan of Angel dela Cruz with the bank matured and fell due! So the bank set-off and applied the time deposits in
question to the payment of the matured loan with BANK. (here, Caltex is still unpaid with the VALUE of the CTDs)
Thus Caltex filed a complaint praying for payment of the value of the CTDs
RTC: dimssissed complaint against bank
CA: Affirmed; non negotiable - the text of the instrument(s) themselves manifest with clarity that they are payable, not to
whoever purports to be the "bearer" but only to the specified person indicated therein, the depositor. In effect, the appellee bank
acknowledges its depositor Angel dela Cruz as the person who made the deposit and further engages itself to pay said
depositor. Bank not liable to Caltex as caltex wasnt the payee.
CTD: This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY
BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days. after date, upon
presentation and surrender of this certificate, with interest at the rate of 16% per cent per annum.
issue 1: WON instruments were negotiable - YES
HELD: The CTDs in question undoubtedly meet the requirements of the law for negotiability. The documents provide that the
amounts deposited shall be repayable to the depositor. And who, according to the document, is the depositor? It is the "bearer."
The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to
him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at
the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so
expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER" stamped on the
space provided for the name of the depositor in each CTD.
The negotiability or non-negotiability of an instrument is determined from the writing, that is, from THE FACE of the instrument
itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. While the
writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of
the parties, yet as they have constituted the writing to be the only outward and visible expression of their meaning, no other
words are to be added to it or substituted in its stead.
This need for resort to extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law and calls for the
application of the elementary rule that the interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity.
ISSUE 2: WON CALTEX CAN RECOVER ON THE CTDs.
HELD: NO. THERE WAS NO NEGOTIATION TO CALTEX; IT WAS MERELY A HOLDER FOR VALUE BY REASON OF HIS
LIEN.
A NEGOTIATION FOR THIS PURPOSE CANNOT BE EFFECTED BY MERE DELIVERY. Consequently, the mere
delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon respondent bank.
Article 2096 REQUIRING THAT the thing pledged and the date of the pledge must appear in a public instrument is a
rule of substantive law prescribing a condition without which the execution of a pledge contract cannot affect third persons
adversely.

A. Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person to another in such
a manner as to constitute the transferee the holder thereof, and a holder may be the payee or indorsee of a bill or note, who is
in possession of it, or the bearer thereof.
In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of
CALTEX in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery
thereof only as SECURITY for the purchases of Angel de la Cruz could at the most constitute petitioner only as a holder for
value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument
since, necessarily, the terms thereof and the subsequent disposition of such security, in the event of non-payment of the
principal obligation, must be contractually provided for.
Unfortunately for CALTEX, although the CTDs are bearer instruments, a valid negotiation thereof for the TRUE PURPOSE and
agreement between CALTEX and ANGEL,requires both delivery and indorsement. BECAUSE THE CTDs were in reality
delivered AS SECURITY for De la Cruz' purchases of its fuel products.
Caltex actually wrote to the banks saying the CTDs were given to them to guarantee Angel's purchases.
DOCTRINE:
WHERE THE HOLDER HAS A LIEN ON THE INSTRUMENT ARISING FROM A CONTRACT he is deemed a holder for value to
the extent of his lien. As such holder of collateral security, he would be a pledgee but the requirements therefor and the effects
thereof, NOT being provided for by the Negotiable Instruments Law, shall be GOVERNED BY THE CIVIL CODE provisions on
pledge of incorporeal rights, which inceptively provide:
Art. 2095.
Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument proving
the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.
Art. 2096.
A pledge shall not take effect against third persons if a description of the thing pledged and the date of the
pledge do not appear in a public instrument.
B. Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court quoted at the
start of this opinion show that petitioner FAILED TO PRODUCE ANY DOCUMENT evidencing any contract of pledge or
guarantee agreement between it and Angel de la Cruz.
Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon
respondent bank. The requirement under Article 2096 aforementioned is not a mere rule of adjective law prescribing the mode
whereby proof may be made of the date of a pledge contract, but a rule of substantive law prescribing a condition without which
the execution of a pledge contract cannot affect third persons adversely. 26C. BANK HAS BETTER RIGHT THAN CALTEX, THUS, IT CAN KEEP THE PROCEEDS OF THE LOAN PAID BY ANGEL
THROUGH CTDS.
THE ASSIGNMENT MADE BY ANGEL IN FAVOR OF BANK WAS EMBODIED IN A PUBLIC INSTRUMENT. With regard to this
other mode of transfer, the Civil Code specifically declares:
Art. 1625.
An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a
public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Whereas CALTEX,never proved the amount of its credit or
extent of lien nor exection of any public instrument.

GONZALES v. RCBC
2006 / Garcia
A subsequent party who caused the defect in the instrument cannot have any recourse against any of the prior
endorsers in good faith.
FACTS
A foreign check for $7,500 was involved.

Drawer: Dr. Don Zapanta (LA, California)

Drawee bank: Wilshire Center Bank (LA, California)

Payee: Eva Alviar (Melvas mother)

The check trail

Payee Eva, melva's mother, endorsed the check. (to rcbc?)

Melva GONZALES, the new accounts clerk in RCBC's head office- Retail Banking department. presented the check
to Olivia Gomez (head of retail banking department), since RCBC gives special accommodations to its employees to
receive the checks value without waiting for the clearance period.

Olivia requested Melva to endorse the check, then Olivia acquiesced to the early encashment of the check and
signed it, but indicated thereon her authority of up to P17,500.00 only.

Olivia told Melva to present the check to another employee Ramos who signed it with an ok annotation.

The check was presented to the supervisor of the Remittance section of the Foreign Department, who authorized
the checks encashment.

Melva received the peso equivalent of P155,270.85.

RCBC tried to collect the amount of the check with the drawee bank IN CALIFORNIA through its correspondent bank, First
Interstate Bank of California. However, on two occasions, the check was dishonored because of END. IRREG or irregular
indorsement. RCBC again sent the check to the drawee bank, but this time the check was returned due to account closed.

RCBC demanded from Melva the payment of the peso equivalent of the check. Melva settled the matter by
agreeing that payment be made thru salary deduction.

Five months later, RCBC sent a demand letter to Eva for the payment of her obligation but RCBC did not receive any
response. A letter was sent to Melva, reminding her of her liability as an indorser of the check and that for her to avoid
litigation she has to fulfill her obligation. A month later, Melva resigned. What had been deducted from her salary was
only P12,822.20 covering ten months.
RCBC filed a complaint for sum of money against Eva, Melva, and Gino (Melvas husband).
Sps. Gonzales filed an Answer with Counterclaim, praying for the dismissal of the complaint as well as damages and fees. Eva,
however, was declared in default for failure to file an answer on time.
The RTC held Eva and Melva liable to pay RCBC P142,648.65 (P155,270.85 less P12,622.20, as salary deduction of Melva)
with interest of 12% per annum starting February 1987 until fully paid, plus attorneys fees and costs. CA affirmed the award
(save for the attorneys fees).
ISSUES & HOLDING
Who caused the dishonor of the check upon its presentment to the drawee bank? RCBC, through the qualified endorsement
of its employee Olivia Gomez
WON RCBC can hold prior endorsers Eva and Melva liable on the instrument. NO. RCBC bears the loss since it was the one
that caused the loss
RATIO: While the foreign drawee bank did not specifically state which among the four signatures found on the dorsal portion of
the check made the check irregularly endorsed, only the signature of Olivia Gomez was a qualified endorsement because
of the phrase up to P17,500.00 only.

Had it not been for this qualified endorsement, there would have been no reason for the dishonor of the check
IN THE CALIFORNIA BANK, and full payment by drawee bank would have taken place as a matter of course.

A subsequent party who caused the defect in the instrument cannot have any recourse against any of the prior
endorsers in good faith.

Eva and Melvas liability to subsequent holders of the foreign check is governed by NIL Sections 65 and 66: Sec. 66.
Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent
holders in due course;

The matters and things mentioned in subds. (a), (b), and (c) of the next preceding section; and

That the instrument is, at the time of his indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case
may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor
be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be
compelled to pay it.

The matters and things mentioned in subdivisions (a), (b) and (c) of Section 65 are the following:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title to it;
c) That all prior parties had capacity to contract;

HOWEVER, this provision cannot be used by the party which introduced a defect on the instrument, such as
RCBC in this case, which qualifiedly endorsed the same, to hold prior endorsers liable on the instrument because
it results in the absurd situation whereby a subsequent party may render an instrument useless and inutile and let
innocent parties bear the loss while he himself gets away scot-free.
NIL Section 66 must be read in the light of the rule in equity requiring that those who come to court should come with
clean hands.

The holder or subsequent endorser who tries to claim under the instrument which had been dishonored for irregular
endorsement must not be the irregular endorser himself who gave cause for the dishonor. Otherwise, a clear injustice
results when any subsequent party to the instrument may simply make the instrument defective and later claim from
prior endorsers who have no knowledge or participation in causing or introducing said defect to the instrument, which
thereby caused its dishonor.

Courts in this jurisdiction are not only courts of law but also of equity, and therefore cannot unqualifiedly apply a
provision of law so as to cause clear injustice which the framers of the law could not have intended to so deliberately
cause.
RCBCs pecuniary liability

Reimbursement of salary deduction + 12% annual legal interest

o
Notwithstanding Melvas apparent acquiescence to such an arrangement
o
SC noted that Melva was a rank-and-file employee (financially dependent upon employer RCBC), so the
court understood how Melva would rather opt for salary deduction rather than lose her job and her entire
salary altogether. Court did not take her apparent acquiescence as an entirely free and voluntary act on her
part

Moral and exemplary damages + attorneys fees (20k each)

SC deemed RCBCs complaint for collection of sum of money as tantamount to harassment, and the fact that
RCBC itself was the one (acting through its employee, Olivia Gomez) which gave reason for the dishonor of
the dollar-check

DISPOSITION: CA decision REVERSED. RCBC complaint DISMISSED for lack of merit.

HI-CEMENT CORP. v. INSULAR BANK OF ASIA AND AMERICA
September 28, 2007
J. Corona
(Holder in Due Course)
FACTS:
Enrique Tan and Lilia Tan (spouses 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.

Among E.T. Henry's customers were petitioner Hi-Cement Corporation (Hi-Cement), Riverside Mills Corporation
(Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo). For their purchases, these corporations issued
postdated checks to E.T. Henry.

Insular Bank of Asia and America (now Equitable PCI-Bank) granted E.T. Henry a credit facility known as "Purchase
of Short Term Receivables." Through this arrangement, E.T. Henry was able to encash, with pre-deducted
interest, the postdated checks of its clients ("re-discounting" of checks). E.T. Henry was required to execute a
promissory note and a deed of assignment for every transaction.
In 1981, 20 checks of Hi-Cement (which were crossed and which bore the restriction "deposit to payees account only")
were dishonored. So were the checks of Riverside and Kanebo.

Crossed check: Any check that is crossed with two parallel lines, either across the whole check or through the top
left hand corner of the check. This symbol means that the check can only be deposited directly into a bank
account and cannot be immediately cashed by a bank or any other credit institution.
Insular Bank (which got the Hi Cement Checks from the spouses, and tried to encash them but bounced) filed a complaint for
sum of money in the CFI of Rizal against E.T. Henry, the spouses Tan, Hi-Cement (including its general manager and its
treasurer as signatories of the postdated crossed checks), Riverside and Kanebo.

Hi-Cements answer:
(1) its general manager and treasurer were not authorized to issue the postdated crossed checks in E.T.
Henry's favor; (RTC, CA, and SC ruled that they were authorized)
(2) the deed of assignment purportedly executed by Hi-Cement assigning them to respondent only bore the
conformity of its treasurer and
(3)
Insular Bank was NOT a holder in due course as it should not have discounted them for
being "crossed checks."

E.T. Henry and the spouses Tan meanwhile claimed that the drawers of the postdated checks failed to honor them due
to the adverse economic conditions prevailing at the time respondent presented them for payment
RTC rendered judgment in favor of Insular Bank and ordered E.T. Henry. CA affirmed the RTC.
ISSUE: WoN Insular Bank is a holder in due course
HELD: NO! The crossing of checks should put the holder on 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 amounting to legal absence of good faithand as such, the consensus of authority is to the effect that
the holder of the check is not a holder in due course. (cited from Bataan Cigar and Cigarette Factory v. CA)

Insular Bank was all too aware that subject checks were crossed and bore restrictions that they were for
deposit to payee's (ET Henrys) account only; hence, they could not be further negotiated to it.

The records likewise reveal that Insular Bank completely disregarded a telling sign of irregularity in the rediscounting of the checks when the general manager did not acquiesce to it as only the treasurer's signature appeared
on the deed of assignment. As a banking institution, it behooved Insular to act with extraordinary diligence
in every transaction. Its business is impressed with public interest, thus, it was not expected to be careless and
negligent, especially so where the checks it dealt with were crossed.
RATIO:

NIL Section 191: "Holder" means the payee or indorsee of a bill or a note, or the person who is in possession of it, or
the bearer thereof.

NIL Section 52: A holder in due course is a holder who has taken the instrument under the following conditions: (a) it is
complete and regular on its face; (b) he became the holder of it before it was overdue, and without notice that it has
previously been dishonored, if such was the fact; (c) he took it in good faith and for value and (d) 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 Bataan Cigar and Cigarette Factory, Inc. (BCCF) v. CA, SC held that the holder of crossed checks was not a holder
in due course.
o
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 [and]; (c) the act of crossing
the checks 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.
So, can Hi-Cement still be made liable for the checks? NO!
o
The checks in question are crossed. This means that the drawer (Hi-Cement) had intended the same for
deposit only by the rightful person, i.e., the payee (ET Henry) named therein.
o
It was not the payee ET Henry who presented the same for payment but Insular Bank. Therefore, there was
no proper presentment, and the liability did not attach to the drawer.

OTHER MATTERS:

Lower courts erred in applying piercing the corporate veil doctrine with regard to ET Henry and spouses Tan. Trial
court failed to provide a clear ground why the doctrine was used. Also, mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.

ET Henrys properties were foreclosed. ET Henry claimed that there was inadequacy in the bid price. SC agreed with
the CA that the "mere inadequacy of the price obtained at the [s]heriffs sale, unless shocking to the conscience, (was)
not sufficient to set aside the sale if there (was) no showing that, in the event of a regular sale, a better price (could) be
obtained."
DISPOSITIVE: CA decision AFFIRMED with MODIFICATION. 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 the face value of the Hi-Cement
checks.

METROBANK V. PHILIPPINE BANK OF COMMUNICATIONS, PIPE MASTER CORP, FILIPINAS ORIENT FINANCE CORP,
TAN JUAN LIAN (2007)
SANDOVAL-GUTIERREZ, J.

2 Consolidated petitions filed by Metrobank and SolidBank against same respondents.

In 1978, Pipe Master Corp applied for check discounting with Filipinas Orient Corp. This was granted.

On July 1, 1978, the Board of Directors of Pipe Master issued a Board Resolution authorizing Yu Kio, in his capacity as
president, and/or Tan Juan Lian, in his capacity as vice-president, to execute, indorse, make, sign, deliver or
negotiate instruments, documents and such other papers necessary in connection with any transaction
coursed through Filipinas Orient for and in behalf of the corporation.

Tan Juan Lian then executed in favor of Filipinas Orient a continuing guaranty that he shall pay at maturity any and all
promissory notes, drafts, checks, or other instruments or evidence of indebtedness for which Pipe Master may become
liable;
o
that the extent of his liability shall not at any one time exceed the sum of P1,000,000.00;
o
and that in the event of default by Pipe Master, Filipinas Orient may proceed directly against him.
1980: under the Check Discounting Agreement Yu Kio (Pipe Masters President) sold to Filipinas Orient four Metropolitan Bank
and Trust Company (Metro Bank) checks amounting to 1M.

In exchange for the four Metro Bank checks, Filipinas Orient issued to Yu Kio four Philippine Bank of
Communications (PBCom) crossed checks totalingP964,303.62, payable to Pipe Master with the statement for
payees account only.
Upon receipt of the PBCom checks, Yu Kio indorsed and deposited in the Metro Bank, in his personal account, three of
the checks valued at P721,596.95.
As to the remaining check amounting to P242,706.67, he deposited it in the Solid Bank Corporation (Solid Bank), also in
his personal account.

Eventually, PBCom paid Metro Bank and Solid Bank the amounts of the checks.

Metro Bank and Solid Bank credited the value of the checks to the personal accounts of Yu Kio.
Filipinas Orient then presented the four MetroBank checks worth total of 1M dishonored by drawee bank, PBCom.

PIPE MASTER refused to pay amounts of checks:

o
Claimed that it never received the proceeds of the PBCom checks as they were delivered and paid to the
wrong party, Yu Kio, who was not the named payee
Filipinas Orient demanded that PBCom restore to its (Filipinas Orients) account the value of the PBCom checks.

PBCom then sought reimbursement from Metro Bank and Solid Bank both banks refused.
Filipinas Orient filed with RTC a complaint for a sum of money against Pipe Master, Tan Juan Lian and/or PBCom.
PIPE MASTER & TAN JUAN LIANs ARGUMENTS:

They did not authorize Yu Kio to negotiate and enter into discounting transaction with Filipinas Orient

Even if Yu Kio was so authorized, Pipe Master never received the proceeds of the checks
Filed a cross-claim against PBCom for gross negligence.
PBCOM, Pipe Master, and Tan filed 3rd-party complaint against MetroBank and SolidBank.
RTC decided AGAINST the Banks. CA Affirmed.

ISSUE: Whether Metro Bank and Solid Bank are liable to respondent Filipinas Orient for accepting the PBCom crossed checks
payable to Pipe Master. YES.
COURT SAYS: PBCom had obligation to ensure checks were deposited in accordance with instructions

The Court took Judicial cognizance of the practice that a check with two parallel lines on the upper left hand corner
means that it could only be deposited and not converted into cash.
o
The crossing of a check with the phrase Payees Account Only is a warning that the check should
be deposited in the account of the payee.
o
It is the collecting bank which is bound to scrutinize the check and to know its depositors before it can make
the clearing indorsement, all prior indorsements and/or lack of indorsement guaranteed.

The four PBCom checks in question had been crossed and issued for payees account only.
o
This could only mean that the drawer, Filipinas Orient, intended the same for deposit only by the
payee, Pipe Master.
o
The effect of crossing a check means that the drawer had intended the check for deposit only by the rightful
person - PIPE MASTER ONLY.
COURT SAYS: BANKS BECAME GENERAL INDORSERS

Petitioner banks accommodated Yu Kio, being a valued client and the president of Pipe Master, and accepted the
crossed checks.

They stamped at the back thereof that all prior indorsements and/or lack of indorsements are
guaranteed. In so doing, they became general endorsers.
o
Under Section 66 of the Negotiable Instruments Law, an endorser warrants that the instrument is genuine
and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to
contract; and that the instrument is at the time of his indorsement valid and subsisting.
o
As such, the BANKS (MetroBank and SolidBank) cannot deny liability.

COURT cites Associated Bank v. CA:

o
The collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior indorsements and is privy to the depositor who negotiated the check

BUT PBCom is NOT LIABLE it mainly relied on the express guarantee made by MetroBank and SolidBank, the
collecting banks, of all prior indorsements
COURT SAYS: MetroBank and SolidBank are NEGLIGENT

Court cites Jai-Alai Corp v. BPI: one who accepts and encashes a check from an individual knowing that the payee is
a corporation does so at his peril.
o
Petitioner banks are liable to respondent Filipinas Orient.
o
Since petitioner banks negligence was the direct cause of the misappropriation of the checks, they
should bear and answer for respondent Filipinas Orients loss, without prejudice to their filing of an
appropriate action against Yu Kio

Court also reiterates the high standard of conduct imposed upon banks in the exercise of their business.
(PETITIONS DENIED. CA AFFIRMED.)
SALAS VS CA
1980, Juanita Salas / pet bought a motor vehicle from the Violago Motor Sales Corporation (VMS for brevity) for P58,138.20 as
evidenced by a promissory note.

This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (private respondent) which
financed the purchase.

Petitioner defaulted in her installments allegedly due to a discrepancy in the engine and chassis numbers of the
vehicle delivered to her and those indicated in the sales invoice, certificate of registration and deed of chattel
mortgage, which fact she discovered when the vehicle figured in an accident on 9 May 1980.

PR Finance Corp instituted Civil case for a sum of money aganst pet before RTC.
RTC: ordering the defendant to pay the plaintiff the sum of P28,414.40 with interest
Pet and PR appealed to CA. Imputing fraud, bad faith and misrepresentation against VMS for having delivered a different
vehicle to petitioner, the latter prayed for a reversal of the trial court's decision so that she may be absolved from the obligation
under the contract.
CA affirmed.
BEFORE SC, PET SAYS:
> IMPUTES alleged fraud, bad faith and misrepresentation of Violago Motor Sales Corporation in the conduct of its business
and which fraud, bad faith and misrepresentation supposedly released petitioner from any liability to private
respondent who should instead proceed against VMS.

> contends that it is not necessary, as opined by the CA, to implead VMS as a party to the case before it can be made to answer
for damages because VMS was earlier sued by her for "breach of contract with damages" before the Regional Trial Court of
Olongapo City; saying court originally ordered petitioner to pay the remaining balance of the installments and petitioner's initial
downpayment of P17,855.70; this was however reversed later on, with the same court ordering defendant VMS instead to
return to petitioner the sum of P17,855.70.
ISSUE: won THE FINANCING CORP can claim on the note made by Petitioner. Yes. It is a HDC and is free from defenses of
the maker.
held:
1. The note is a Negotiable instrument the note contains all the requisites of negotiability, to wit:
For value received, I/We jointly and severally, promise to pay Violago Motor Sales Corporation or order, at its
office in San Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 201/100 ONLY
(P58,138.20)
PAY TO THE ORDER OF FILINVEST FINANCE AND LEASING CORPORATION
VIOLAGO MOTOR SALES CORPORATION
BY: (SIGNED) GENEVEVA V. BALTAZAR
Cash Manager
Thus: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay the amount of
P58,138.20; [c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly for 36 months due and payable
on the 21 st day of each month starting March 21, 1980 thru and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor
Sales Corporation, or order and as such, [e] the drawee is named or indicated with certainty
2. It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and Leasing
Corporation and it is an indorsement of the entire instrument.
3. Filinvest is a holder in due course, having taken the instrument under the following conditions:
[a] it is complete and regular upon its face;
[b] it became the holder thereof before it was overdue, and without notice that it had previously been dishonored;
[c] it took the same in good faith and for value; and
[d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in the title of VMS
Corporation.
Accordingly, respondent corporation holds the instrument free from any defect of title of prior parties, and free from defenses
available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof.
THUS, PET CANNOT SET UP THE DEFENSE OF NULLIITY OF THE CONTRACT OF SALE BETWEEN HER AND VMS.
4. Even IF there was in fact deception made upon her in that the vehicle she purchased was different from that actually
delivered to her, this matter cannot be passed upon in the case before us, where the VMS was never impleaded as a party.
Whatever issue is raised or claim presented against VMS must be resolved in the "breach of contract" case.
Hence, we reach a similar opinion as did respondent court when it held: We can only extend our sympathies to the defendant
(herein petitioner) in this unfortunate incident. Indeed, there is nothing We can do as far as the Violago Motor Sales Corporation
is concerned since it is not a party in this case. To even discuss the issue as to whether or not the Violago Motor Sales
Corporation is liable in the transaction in question would amount, to denial of due process, hence, improper and
unconstitutional. She should have impleaded Violago Motor Sales.

GREAT ASIAN SALES CENTER VS CA 2002

Great Asian is engaged in the business of buying and selling general merchandise, in particular household
appliances.

The board of directors og great asian approved a resolution authorizing its Treasurer and GM Arsenio to
secure a loan from Bancasia (amt not exceeding P1M)

Another board resolution authorized arsenio to secure a discounting line with Bancasia in amt not exc
2M.

Tan chong lim signed 2 surety agreements in favor of bancasia.

Great asian signed 4 DEEDS OF ASSIGNMENTS, ASSIGNING TO BANCASIA 15 post dated checks. These checks
were drawn by clients of Great Asian in payment for appliances and other merchandise.

Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a discount, over three
months, to Bancasia. The Deeds of Assignment uniformly state that Great Asian, "x x x for valuable
consideration received, does hereby SELL, TRANSFER, CONVEY, and ASSIGN, unto the ASSIGNEE,
BANCASIA FINANCE & INVESTMENT CORP., a domestic corporation x x x, the following ACCOUNTS
RECEIVABLES due and payable to it, having an aggregate face value of x x x."

Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the checks.

The drawee banks dishonored the fifteen checks on maturity when deposited for collection by
Bancasia, with any of the following as reason for the dishonor: "account closed", "payment stopped", "account
under garnishment", and "insufficiency of funds". The total amount of the fifteen dishonored checks is
P1,042,005.00.

Eight of the dishonored checks bore the endorsement of Arsenio below the stamped name of "Great
Asian Sales Center", while the rest of the dishonored checks just bore the signature of Arsenio.

Bancasia's lawyer notified Tan Ching of the dishonor and demanded payment. Subsequently, Bancasia
sent a letter to Tan Chong Lin, notifying him of the dishonor of the fifteen checks and demanded
payment. Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks.
Great Asian filed with the then Court of First Instance of Manila a petition for insolvency,
Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin. Bancasia
impleaded Tan Chong Lin because of the Surety Agreements he signed in favor of Bancasia.
TC: ordered the transactions entered into by Arsenio were known to Great Asian. Ordered it to pay plaintiff. CA
affirmed.
before SC: Great Asian further raised the alleged lack of authority of Arsenio to sign the Deeds of Assignment as
well as the absence of consideration and consent of all
issue 1: whether Great Asian authorized Arsenio to sign the Deeds of Assignment. If Great Asian so
authorized Arsenio, then Great Asian is bound by the Deeds of Assignment. YES. The two board
resolutions clearly authorize Great Asian to secure a loan or discounting linefrom Bancasia.The discounting
arrangements entered into by Arsenio under the Deeds of Assignment were the very transactions envisioned in
the two board resolutions of Great Asian to raise funds for its business. Arsenio acted completely within the
limits of his authority under the two board resolutions.
HELD: The first board resolution expressly authorizes Arsenio, as Treasurer of Great Asian, to apply for a "loan
accommodation or credit line" with Bancasia; and explicitly authorizes Arsenio to sign any document, paper or
promissory note, including mortgage deeds to secure the loan or credit line from Bancasia.

The second board resolution expressly authorizes Great Asian to secure a "discounting line" from
Bancasia for not more than P2.0 million.

Armed with the two board resolutions, Arsenio signed the Deeds of Assignment selling, and
endorsing, the fifteen checks of Great Asian to Bancasia.

On the face of the Deeds of Assignment, the contracting parties are indisputably Great
Asian and Bancasia as the names of these entities are expressly mentioned therein as the assignor
and assignee, respectively.
Great Asian claims that Arsenio signed the Deeds of Assignment in his personal capacity because Arsenio signed
above his printed name, below which was the word "Assignor", thereby making Arsenio the assignor.
Great Asian conveniently omits to state that the first paragraph of the Deeds expressly contains the following
words: "the ASSIGNOR, Great Asian Sales Center, a domestic corporation x x x herein represented by its
Treasurer Arsenio Lim Piat, Jr."
ON THE DEEDS OF ASSIGNMENT: instead of waiting for the maturity dates of the fifteen postdated checks,
Great Asian sold the checks to Bancasia at less than the total face value of the checks. In exchange
for receiving an amount less than the face value of the checks, Great Asian obtained immediately much needed
cash. Over three months, Great Asian entered into four transactions of this nature with Bancasia, showing that
Great Asian availed of a discounting line
DISCOUNTING: "discounting line" means a credit facility with a financing company or bank, which allows a
business entity to sell, on a continuing basis, its accounts receivable at a discount. The term "discount" means
the sale of a receivable at less than its face value. The purpose of a discounting line is to enable a
business entity to generate instant cash out of its receivables which are still to mature at future dates.
issue 2: Is Great Asian liable for breach of contract, governed by the provisions of the Civil Code?
yes.
HELD: Great Asians four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate the
suspensive condition that in the event the drawers of the checks fail to pay, Great Asian itself will pay
Bancasia.

Since the common condition in the contracts had transpired, an obligation on the part of Great
Asian arose from the four contracts, and that obligation is to pay Bancasia the full value of the checks,
including the stipulated penalty and attorneys fees.

the happening of which gives rise to Bancasias right to demand payment from Great
Asian. This conditional obligation of Great Asian arises from its written contracts with Bancasia as
embodied in the Deeds of Assignment. Article 1157 CC.

By express provision in the Deeds of Assignment, Great Asian unconditionally obligated

itself to pay Bancasia the full value of the dishonored checks.

In short, Great Asian sold the postdated checks on with recourse basis against itself. This is

an obligation that Great Asian is bound to faithfully comply because it has the force of law as between
Great Asian and Bancasia. Article 1159 of the Civil Code further provides that -"Obligations arising from
contracts have the force of law between the contracting parties and should be complied with in good
faith
Without recourse basis LIABILITY IS BEYOND AN INDORSER: .Great Asian and Bancasia agreed on this
specific with recourse stipulation, despite the fact that the receivables were negotiable instruments
with the endorsement of Arsenio.

The contracting parties had the right to adopt the with recourse stipulation which is separate and
distinct from the warranties of an endorser under the Negotiable Instruments Law.

EFFECT OF WITHOUT RECOURSE: The explicit with recourse stipulation against Great Asian effectively
enlarges, by agreement of the parties, the liability of Great Asian beyond that of a mere endorser of a
negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor to Great Asian, the latter
remains liable to Bancasia because of the with recourse stipulation which is independent of the
warranties of an endorser under the Negotiable Instruments Law.

ENDORSEMENT FOR FINANCING COMPANIES: The purpose of the endorsement is not to make the
assignee finance company a holder in due course because policy considerations militate against
according finance companies the rights of a holder in due course. Otherwise, consumers who purchase
appliances on installment, giving their promissory notes or checks to the seller, will have no defense
against the finance company should the appliances later turn out to be defective.
COURSE OF ACTION BY BANCASIA BREACH OF CONTRACT: As endorsee of Great Asian, Bancasia had the option
to proceed against Great Asian under the Negotiable Instruments Law.

Had it so proceeded, the Negotiable Instruments Law would have governed Bancasias cause of action.
Bancasia, however, did not choose this route. Instead, Bancasia decided to sue Great Asian for
breach of contract under the Civil Code, a right that Bancasia had under the express with
recourse stipulation in the Deeds of Assignment.

COURSE OF ACTION THAT GREAT ASIAN CAN AVAIL: The exercise by Bancasia of its option to sue for
breach of contract under the Civil Code will not leave Great Asian holding an empty bag. Great Asian,
after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian can then proceed
against the drawers who issued the checks.
NO NOTICE BY BANCASIA REQUIRED TO MAKE DRAWERS LIABLE TO GREAT ASIAN

Even if Bancasia failed to give timely notice of dishonor, still there would be no prejudice whatever to
Great Asian.

Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to
expect or require the bank to honor the check, or if the drawer has countermanded payment. In the
instant case, all the checks were dishonored for any of the following reasons: "account
closed", "account under garnishment", insufficiency of funds", or "payment stopped". In the
first three instances, the drawers had no right to expect or require the bank to honor the checks, and in
the last instance, the drawers had countermanded payment.
CHECKS IN THIS CASE ARE FOR SALE, NOT FOR LOAN ACCOMMODATION: Great Asian is, however, correct in
saying that the assignment of the checks is a sale, or more properly a discounting, of the checks and
not a loan accommodation. However, it is precisely because the transaction is a sale or a discounting of
receivables, embodied in separate Deeds of Assignment, that the relevant provisions of the Civil Code are
applicable and not the Negotiable Instruments Law.
At any rate, there is indeed a fine distinction between a discounting line and a loan accommodation. If
the accounts receivable, like postdated checks, are sold for a consideration less than their face value, the
transaction is one of discounting, and is subject to the provisions of the Financing Company Act. The assignee is
immediately subrogated as creditor of the accounts receivable. However, if the accounts receivable are merely
used as collateral for the loan, the transaction is only a simple loan, and the lender is not subrogated as creditor
until there is a default and the collateral is foreclosed.
CONCLUSION: In summary, Great Asians four contracts assigning its fifteen postdated checks to Bancasia
expressly stipulate the suspensive condition that in the event the drawers of the checks fail to pay, Great Asian
itself will pay Bancasia. Since the common condition in the contracts had transpired, an obligation on the part of
Great Asian arose from the four contracts, and that obligation is to pay Bancasia the full value of the checks,
including the stipulated penalty and attorneys fees
STATE INVESTMENT HOUSE VS CA
PR Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, two post-dated Equitable
Banking Corporation checks of (P50,000.00) each, one dated 30 August 1979 and the other, 30 September 1979.

Thereafter, the payee negotiated the checks to petitioner State Investment House. Inc. (STATE).

MOULIC failed to sell the pieces of jewelry, so she returned THE JEWELRIES to the payee before maturity of the checks.

The checks, however, could no longer be retrieved as they had already been negotiated. Consequently, before their maturity dates,
MOULIC withdrew her funds from the drawee bank.

Upon presentment for payment, the checks were dishonored for insufficiency of funds.

On 20 December 1979, STATE allegedly notified MOULIC of the dishonor of the checks and requested that it be paid in cash
instead, although MOULIC avers that no such notice was given her.

STATE sued to recover the value of the checks plus attorney's fees and expenses of litigation.
MOULIC contends that she incurred no obligation on the checks because the jewelry was never sold and the
checks were negotiated without her knowledge and consent.
She also instituted a Third-Party Complaint against Corazon Victoriano, who later assumed full responsibility for the checks.

TC: dismissed the Complaint as well as the Third-Party Complaint, and ordered STATE to pay MOULIC P3,000.00 for attorney's fees.
STATE elevated to the Court of Appeals, CA AFFIRMED; the Notice of Dishonor to MOULIC was made beyond the period prescribed by
the Negotiable Instruments Law and that even if STATE did serve such notice on MOULIC within the reglementary period it would be of no
consequence as the checks should never have been presented for payment.
The sale of the jewelry was never effected; the checks, therefore, ceased to serve their purpose as security for the jewelry.
ISSUE: WON STATE CAN RECOVER FROM THE CHECKS. YES.
HELD: STATE 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; STATE may, therefore, enforce full payment of the checks.
The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument
There is an implied representation that funds or credit are available for the payment of the instrument in the
bank upon which it is drawn. Consequently, the withdrawal of the money from the drawee bank to avoid liability
on the checks cannot prejudice the rights of holders in due course.
MOULIC cannot set up against STATE the defense that there was failure or absence of consideration. MOULIC can only invoke this defense
against STATE if it was privy to the purpose for which they were issued and therefore is not a holder in due course.
RATIO:
The negotiability of the checks is not in dispute. After all, at the pre-trial, the parties agreed to limit the issue to whether or not
STATE was a holder of the checks in due course. Sec. 52 of the Negotiable Instruments Law provides

Sec. 52. What constitutes a holder in due course. 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 was 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.

HELD: A prima facie presumption exists that the holder of a negotiable instrument is a holder in
due course.

Consequently, the burden of proving that STATE is not a holder in due course lies in the person who disputes the presumption. In
this regard, MOULIC failed.

The evidence clearly shows that:

(a) on their faces the post-dated checks were complete and regular:

(b) petitioner bought these checks from the payee, Corazon Victoriano, before their due dates;

(c) petitioner took these checks in good faith and for value, albeit at a discounted price; and,

(d) petitioner was never informed nor made aware that these checks were merely issued to payee as
security and not for value.
Consequently, STATE is indeed a holder in due course.
Re: DEFENSE OF FAILURE OF CONSIDERATION
SC: MOULIC cannot set up against STATE the defense that there was failure or absence of consideration. MOULIC can only invoke this
defense against STATE if it was privy to the purpose for which they were issued and therefore is not a holder in due course.
Re: POST DATED CHECKS MERELY ISSUED AS SECURITY SC: That the post-dated checks were merely issued as security is not a ground for the discharge of the
instrument as against a holder in due course.

For the only grounds are those outlined in Sec. 119 of the Negotiable Instruments Law:Sec. 119. Instrument; how discharged.
A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in
due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the
intentional cancellation thereof by the holder; (d) By any other act which will discharge a
simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument
at or after maturity in his own right

Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the instrument. But, the
intentional cancellation contemplated under paragraph (c) is that cancellation effected by
destroying the instrument either by tearing it up, 5 burning it, 6 or writing the word
"cancelled" on the instrument.

The act of destroying the instrument must also be made by the holder of the instrument intentionally.
Since MOULIC failed to get back possession of the post-dated checks, the intentional cancellation of the said checks is
altogether impossible.

the acts which will discharge a simple contract for the payment of money under paragraph (d) are determined by other existing

legislations since Sec. 119 does not specify what these acts are, e.g., Art. 1231 of the Civil Code 7 which enumerates the modes of
extinguishing obligations. Again, none of the modes outlined therein is applicable in the instant case as Sec.
119 contemplates of a situation where the holder of the instrument is the creditor while its drawer is
the debtor. In the present action, the payee, Corazon Victoriano, was no longer MOULIC's creditor at the time the jewelry was
returned.
Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the
mere expediency of withdrawing her funds from the drawee bank. .

Re: Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC
SC:NO. The need for such notice is not absolute; there are exceptions under Sec. 114 of the Negotiable Instruments Law:
Sec. 114. When notice need not be given to drawer. Notice of dishonor is not required to be given to the
drawer in the following cases: (a) Where the drawer and the drawee are the same person; (b) When the drawee is a
fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument
is presented for payment: (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor
the instrument; (e) Where the drawer had countermanded payment.
She did not retrieve the checks when she returned the jewelry. She simply withdrew her funds from her drawee bank and
transferred them to another to protect herself.
After withdrawing her funds, she could not have expected her checks to be honored. In other words, she was
responsible for the dishonor of her checks, hence, there was no need to serve her Notice of
Dishonor, which is simply bringing to the knowledge of the drawer or indorser of the instrument, either verbally or by writing,
the fact that a specified instrument, upon proper proceedings taken, has not been accepted or has not been paid, and that the party
notified is expected to pay it.
In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not
hindering or hampering transactions in commercial paper.
DOCTRINE of DRAWING AND NEGOTIATION: The drawing and negotiation of a check have certain effects aside from the transfer of
title or the incurring of liability in regard to the instrument by the transferor.

The holder who takes the negotiated paper makes a contract with the parties on the face of the
instrument

There is an implied representation that funds or credit are available for the payment of the instrument
in the bank upon which it is drawn.

Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks
cannot prejudice the rights of holders in due course.

In the instant case, such withdrawal renders the drawer, Nora B. Moulic, liable to STATE, a holder in due
course.
Re: CA held that allowing recovery on the checks would constitute unjust enrichment on the part of STATE Investment House, Inc. This is
error.

The record shows that Mr. Romelito Caoili, an Account Assistant, testified that the obligation of Corazon Victoriano and her
husband at the time their property mortgaged to STATE was extrajudicially foreclosed amounted to P1.9 million; the bid price at
public auction was only P1 million. Thus, the value of the property foreclosed was not even enough to
pay the debt in full.

Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is
entitled to claim the deficiency from the debtor.

The step thus taken by the mortgagee-bank in resorting to an extra-judicial foreclosure was merely to find a proceeding for the
sale of the property and its action cannot be taken to mean a waiver of its right to demand payment for the whole debt. For, while
Act 3135, as amended, does not discuss the mortgagee's right to recover such deficiency, it does not contain any provision either,
expressly or impliedly, prohibiting recovery. In this jurisdiction, when the legislature intends to foreclose the right of a creditor to
sue for any deficiency resulting from foreclosure of a security given to guarantee an obligation, it so expressly provides. For
instance, with respect to pledges, Art. 2115 of the Civil Code 15 does not allow the creditor to recover the deficiency from the sale
of the thing pledged.

it cannot be concluded that the creditor loses his right recognized by the Rules of Court to take action for the recovery of any
unpaid balance on the principal obligation simply because he has chosen to extrajudicially foreclose the real estate mortgage
pursuant to a Special Power of Attorney given him by the mortgagor in the contract of mortgage.

The filing of the Complaint and the Third-Party Complaint to enforce the checks against MOULIC and the VICTORIANO
spouses, respectively, is just another means of recovering the unpaid balance of the debt of the VICTORIANOs.

In fine, MOULIC, as drawer, is liable for the value of the checks she issued to the holder in due course, STATE, without prejudice
to any action for recompense she may pursue against the VICTORIANOs as Third-Party Defendants who had already been
declared as in default. GRANTED.