STATE INVESTMENT HOUSE, INC. vs.

COURT OF APPEALS
FACTS:
Valdez and Sales executed two Comprehensive Surety
Agreements to secure any and all loans of P.O. Valdez, Inc. from the
petitioner State Investment House, Inc. (SIHI), a domestic
corporation engaged in quasi banking.
4 years later SIHI and P.O. Valdez, Inc. entered into an
agreement for discounting with the petitioner the receivables of P.O.
Valdez, Inc. At the time the basic loan agreement was entered into,
P.O. Valdez, Inc. was required to provide collateral security for the
loan. Pursuant to that, P.O. Valdez turned over to SIHI various
certificates of stock of several corporations.
P.O. Valdez executed a Real Estate Mortgage in favor of the
petitioner covering 2 parcels of land located outside Baguio City.
They were also made to execute a Deed of Sale dated covering the
proceeds of a postdated check. Another Deed of Sale was executed
covering the proceeds of a postdated check and a Deed of
Assignment covering P.O. Valdez, Inc.'s construction receivables
from the Development Academy of the Philippines.
When Pedro Valdez' two checks were deposited by SIHI
upon maturity, they bounced for insufficient funds. Despite demands,
respondent corporation failed to pay its obligations to SIHI.
SIHI foreclosed its real estate mortgage on two lots in
Benguet owned by Valdez. They acquired the lots being the highest
bidder in the foreclosure sale. Presumably because the proceeds of
the foreclosure were insufficient to satisfy the debt, SIHI also filed a
collection suit, with a prayer for preliminary attachment. The court,
through then Judge Martinez, issued a writ of preliminary attachment
against Valdez properties. Pursuant thereto, certain real and
personal properties of the defendants were attached.
Tropical Homes, Inc. filed a third-party claim to certain
properties titled in the name of Pedro Valdez. As the sheriff failed to
act on the third-party claim, the claimant filed a motion to lift the
attachment on those properties. It was opposed by the petitioner.
Judge Caneba (who succeeded Justice Martinez) denied the motion.
In the meantime, the defendants filed their answer to the complaint.

They admitted that they obtained loans from the petitioner to finance
their construction projects, some of them located at the UP Campus.
P.O. Valdez, Inc. and Pedro Valdez filed a motion to discharge the
attachment on the ground that there was no fraud in contracting the
loans, and if any fraud existed, it was in the performance of the
obligations. The motion was opposed by the petitioner. It was denied
by the lower court.
Valdez filed a motion for reconsideration. The petitioner
opposed it. Judge Caeba granted the motion for reconsideration
and discharged the preliminary attachment on the properties of
Pedro O. Valdez and Remedios Valdez (the wife) on the ground that
their conjugal properties may not be attached to answer for the debts
of the corporation which has a juridical personality distinct from its
incorporators. It held that "neither P.O. Valdez, Inc. and Pedro O.
Valdez can be faulted nor could they be charged of incurring
fraudulent acts in obtaining the loan agreement." It was the
petitioner's turn to file a motion for reconsideration, but without
success.
SIHI went to the Court of Appeals on a petition for certiorari
and prohibition alleging grave abuse of discretion on the part of the
lower court in lifting the writ of preliminary attachment on the
properties of the Valdez spouses.
The Court of Appeals dismissed the petition, it affirmed,
however, the lower court's finding that there was no fraud in
contracting the debt.
It observed that:
1. With respect to the shares of stock which the respondents pledged
as additional security for the loan, the decline in their value did not
mean that the private respondents entered into the loan transaction
in bad faith or with fraudulent intent. For the private respondents
could not have foreseen how the stocks would fare in the market.
And if the petitioner thought they were worthless at the time, it should
have rejected them as collateral.
2. With respect to the two parcels of land which were mortgaged to
the petitioner, the latter should also have declined to accept them as
collateral if it believed they were worth less than their supposed

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value.
3. With respect to the two postdated checks which bounced, the
Court of Appeals observed that since they were "sold" to the
petitioner after the loan had been granted to private respondents,
their issuance did not fraudulently induce the petitioner to grant the
loan applied for. They were "mere evidence of the private
respondents" standing loan obligation to the petitioner" or "mere
collaterals for the loan granted by the petitioner to the private
respondents"

extended to the corporations, We are constrained to affirm the

finding of the court of Appeals that Valdez's checks are "mere
evidence of the outstanding obligation of P.O. Valdez, Inc. to the
petitioner." The petition was not defrauded by their issuance for the
loans had been contracted and released to P.O. Valdez, Inc. long
before the checks were issued.

ISSUE: Whether the trial court (whom the Court of Appeals

sustained) was correct in lifting the preliminary attachment on the
private respondents' properties.

Bataan Cigar vs. CA

RATIO:
SIHI has failed to submit a copy of its complaint as an annex of its
petition for certiorari. The main thrust of the prayer for preliminary
attachment is the alleged misrepresentation of the debtor P.O.
Valdez, Inc., in the Agreement for Discounting Receivables and in the
deeds of sale of said receivables. The two checks or receivables
issued by Pedro Valdez were payment for "actual sales of its
merchandise and/or personalities made to its customers or otherwise
arising from its other legitimate business transactions" and "that the
receivables . . . were genuine, valid and subsisting and represent
bona fide sales of merchandise and/or personalities made in the
ordinary course of business"
It can hardly be doubted that those representations in petitioner's
printed deeds of sale were false. But false though they were, the
petitioners cannot claim to have been deceived or deluded by them
because it knew, or should have known , that the issuer of the
checks, Pedro O. Valdez, was not a "buyer" of the "merchandise and
personalities made in the ordinary course of business" by P.O.
Valdez, Inc. of which he was the president.
Since the petitioner failed to prove during the hearing of private
respondents' motion to lift the preliminary writ of attachment, that
P.O. Valdez, Inc. received from it independent consideration for the
"sale" of Pedro Valdez' checks to it, apart from the loans previously

Dispositive Portion: WHEREFORE, the petition for certiorari is

denied for lack of merit.
G.R.No. 93048

March 3, 1994

Facts: Bataan Cigar & Cigarette Factory Inc. (Bataan Cigar), a

corporation involved in the manufacture of cigarettes, engaged a
supplier, King Tim Pua George (referred to in the case as George
King) to deliver tobacco leaves. In consideration of the delivery of
the tobacco leaves, Bataan Cigar issued crossed postdated checks
to George King.
During these times, George King was simultaneously dealing
with private respondent State Investment House, Inc. (SIHI). King
postdated checks drawn by Bataan Cigar, naming George King as
payee, to SIHI.
Because King failed to deliver the bales of tobacco leaf as
agreed upon, Bataan Cigar issued a stop payment order on all
checks payable to King.
SIHI instituted this case after failing to collect from Bataan
Cigar on the checks despite efforts.
Issues:
1. WON SIHI, a second indorser, a holder of crossed checks, is a
holder in due course.
(If he is, he will be able to collect from Bataan Cigar.)
Ratio: No, SIHI is not a holder in due course.
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

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deposited in the bank; (b) the check may be negotiated only once
to one who has an account with a bank; (c) and the act of crossing
the check serves as warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has
received the check pursuant to that purpose, otherwise, he is not a
holder in due course.
SIHI vs. IAC, as cited by the Court, said that having the
checks crossed generally could only mean that the drawer had
intended the same for deposit only by the rightful person, i.e. the
payee named therein. Because it was not the payee who presented
the check for payment, there was no proper presentment.
Therefore, liability did not attach to the drawer. It is then settled
that crossing of checks should put the holder on inquiry and the duty
to ascertain the indorser's title to the check or the nature of his
possession devolves upon the holder. Failing to do so, SIHI is
declared guilty of gross negligence amounting to legal absence of
good faith, contrary to Sec. 52(c) of NIL. In effect, he is not a
holder in due course.
In the present case, Bataan Cigars stop-order payment is
justified given that there was failure of consideration from King.
Consequently, SIHI is not a holder in due course and Bataan Cigar
cannot be obliged to pay the checks.
Other Doctrines:
1. Crossed check is one where two parallel lines are drawn across its
face or across a corner thereof. It may be crossed generally or
specially. A check is crossed specially when the name of a particular
banker or a company is written between the parallel lines drawn. It is
crossed generally when only the words "and company" are written or
nothing is written at all between the parallel lines. It may be issued so
that the presentment can be made only by a bank. Veritably the
Negotiable Instruments Law (NIL) does not mention "crossed
checks," although Article 541 of the Code of Commerce refers to
such instruments.
According to commentators, the negotiability of a check is not
affected by its being crossed, whether specially or generally. It may
legally be negotiated from one person to another as long as the one

who encashes the check with the drawee bank is another bank, or if
it is specially crossed, by the bank mentioned between the parallel
lines. This is especially true in England where the Negotiable
Instrument Law originated.
Dispositive Portion: WHEREFORE, finding that the court a quo
erred in the application of law, the instant petition is hereby
GRANTED. The decision of the Regional Trial Court as affirmed by
the Court of Appeals is hereby REVERSED. Cost against private
respondent.
PRUDENCIO V. CA 143 SCRA 7 (1986)
Facts:
Eulalio and Elisa Prudencio are the registered owners of a parcel of
land located in Sampaloc, Manila. The property was mortgaged to
PNB to guarantee a loan of P1,000 extended to one Domingo
Prudencio. Sometime in 1955, Concepcion & Tamayo Construction
Co., through Jose Toribio (Prudencios relative), persuaded the
Prudencios to mortgage their property to secure the loan of P10,000
which the company was negotiating with the PNB. The Prudencios
signed the Amendment of Real Estate Mortgage. The promissory
note covering the P10,000 loan was signed by Toribio. The
Prudencios also signed the portion of the note indicating that they
are requesting the PNB to issue the check covering the loan to the
Company. Jose Toribio executed the Deed of Assignment assigning
all payments made by the Bureau to the company on account of the
Puerto Princesa building project in favor of PNB. The Bureau,
however, conditioned that the payment should be for labor and
materials. The Prudencios wrote PNB that since PNB authorized
payments to the Company where there were changes in the
conditions of the contract without their knowledge, they seek to
cancel the mortgage contract. Failing to cancel the mortgage, they
filed suit to cancel the same.
Issue: Whether the Prudencios were solidary co-debtors or sureties
as a result of being accommodation makers.
Held: In lending his name to the accommodated party, the
accommodation party is in effect a surety. However, unlike in a
contract of suretyship, the liability of the accommodation party
remains not only primary but also unconditional to a holder for value

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such that even if the accommodated party receives an extension of

the period of payment without the consent of the accommodation
party, the latter is still liable for the whole obligation and such
extension does not release him because as far as the holder for
value is concerned, he is a solidary co-debtor. Consequently, the
Prudencios cannot claim to have been released from their obligation
simply because the time of payment of such obligation was
temporarily deferred by PNB without their knowledge and consent.
To be freed of obligation, it is thus necessary to determine if PNB, the
payee of the promissory note, is a holder in due course. Herein, PNB
was an immediate party or in privy to the note, besides that it dealt
directly with the Prudencios knowing fully well that they are
accommodation makers. The general rule that a payee may be
considered a holder in due course does not apply to PNB.
Dispositive Portion: WHEREFORE, the petition is GRANTED. The
decision of the Court of Appeals affirming the decision of the trial
court is hereby REVERSED and SET ASIDE and a new one entered
absolving the petitioners from liability on the promissory note and
under the mortgage contract. The Philippine National Bank is
ordered to release the real estate mortgage constituted on the
property of the petitioners and to pay the amount of THREE
THOUSAND PESOS (P3,000.00) as attorney's fees.
CHAN WAN vs. TAN KIM and CHEN SO
G.R. No. L-15380 September 30, 1960
FACTS:
The case involves eleven checks totalling P4,290.00.
Such checks payable to "cash or bearer" and drawn by
defendant Tan Kim upon the Equitable Banking Corporation, were all
presented for payment by Chan Wan to the drawee bank, but they
"were all dishonored and returned to him unpaid due to insufficient
funds and/or causes attributable to the drawer."
During trial, Tan Kim declared without contradiction that the
checks had been issued to two persons named Pinong and Muy for

some shoes the former had promised to make and "were intended as
mere receipts".
The court declined to order payment for two principal reasons:
(a) plaintiff failed to prove he was a holder in due course, and (b) the
checks being crossed checks should not have been deposited
instead with the bank mentioned in the crossing.
Issue: W/N the plaintiff has a right to collect the eleven commercial
documents.
Held: *Note* The case was remanded to the lower court due to lack
of important details to answer the issue.
The Negotiable Instruments law does not mention crossed checks
but Art. 541 of the Code of Commerce and the bills of Exchange Act
of 1882 refer to such instruments.
SEC. 541. The maker or any legal holder of a check shall be
entitled to indicate therein that it be paid to certain banker or
institution, which he shall do by writing across the face the name of
said banker or institution, or only the words "and company."
The payment made to a person other than the banker or
institution shall not exempt the person on whom it is drawn, if the
payment was not correctly made.
Exchange Act [General and Special Crossing Defined.] (1) Where
a check bears across its face an addition of
(a) The words "and company" or any abbreviation thereof between
two parallel transverse lines, either with or without the words "not
negotiable;" or
(b) Two parallel transverse lines simply, either with or without the
words "not negotiable;" that addition constitutes a crossing, and the
cheque is crossed generally.
(2) Where a cheque bears across its face an addition of the name of
a banker, either with or without the words "not negotiable," that
addition constitutes a crossing, and the cheque is crossed specially
and to that banker.
Eight of the checks here in question bear across their face two
parallel transverse lines between which these words are written: nonnegotiable China Banking Corporation. These checks have,

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therefore, been crossed specially to the China Banking Corporation,

and should have been presented for payment by China Banking, and
not by Chan Wan. In this case there was no proper presentment, and
the liability did not attach to the drawer.
The drawer in drawing the check engaged that "on due
presentment, the check would be paid, and that if it be
dishonored . . . he will pay the amount thereof to the
holder". Wherefore, in the absence of due presentment, the drawer
did not become liable.
Nevertheless we find, on the backs of the checks,
endorsements which apparently show they had been deposited with
the China Banking Corporation and were, by the latter, presented to
the drawee bank for collection
Endorsement found on the checks Cleared through the clearing
office of Central Bank of the Philippines. All prior endorsements
and/or lack of endorsements guaranteed. China Banking
Corporation.
All the crossed checks have the "clearance" endorsement of China
Banking Corporation.
These circumstances would seem to show deposit of the
checks with China Banking Corporation and subsequent
presentation by the latter through the clearing office; but as
drawee had no funds, they were unpaid and returned, some of
them stamped "account closed". How they reached his hands,
plaintiff did not indicate. Most probably, as the trial court surmised,
this is not a finding of fact he got them after they had been thus
returned, because he presented them in court with such "account
closed" stamps, without bothering to explain. Naturally and rightly,
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.
Yet it does not follow as a legal proposition, that simply
because he was not a holder in due course Chan Wan could not
recover on the checks. The Negotiable Instruments Law does not
provide that a holder who is not a holder in due course, may not
in any case, recover on the instrument. (Example: If B purchases
an overdue negotiable promissory note signed by A, he is not a

holder in due course; but he may recover from A, if the latter has no
valid excuse for refusing payment). The only disadvantage of holder
who is not a holder in due course is that the negotiable instrument is
subject to defense as if it were non- negotiable.
There was no defense that Tan Kim provided. But Tan Kim
did admit on cross-examination either that the checks had been
issued as evidence of debts to Pinong and Muy, and/or that they had
been issued in payment of shoes which Pinong had promised to
make for her. Seeming to imply that Pinong had to make the shoes,
she asserted Pinong had "promised to pay the checks for me". Yet
she did not complete the idea, perhaps because she was just
answering cross- questions, her main testimony having referred
merely to their counter-claim.
If it were true that the checks had been issued in payment for
shoes that were never made and delivered, Tan Kim would have a
good defense as against a holder who is not a holder in due course.
Dispositive Portion: Considering the deficiency of important details
on which a fair adjudication of the parties' right depends, we think the
record should be and is hereby returned, in the interest of justice, to
the court below for additional evidence, and such further proceedings
as are not inconsistent with this opinion. With the understanding that,
as defendants did not appeal, their counterclaim must be and is
hereby definitely dismissed. So ordered.

BPI vs. Alfred Berwin & Co.

G.R.No. L-29075
October 2, 1928
Facts:
In a case, BPI won against respondent Alfred Berwin & Co. On the
basis of such case, the latter became a judgment debtor to BPI.
Meanwhile, appellant Anselmo Diaz was indebted to Alfred Berwin &
Co. which had a balance of P 20,000. The debt is evidenced by 2
promissory notes executed in favor of Alfred Berwin & Co. It does not
appear, however, from the record whether such promissory notes are

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still in the hands of Alfred Berwin & Co., or whether they have been
negotiated by the latter.

Atrium v. Court of Appeals

28, 2001

The lower court ordered Anselmo Diaz to pay Alfred Berwin & Co. his
debt so that the latter may fulfill its obligation as judgment debtor to
BPI. However, Anselmo Diaz contends that he cannot be compelled
to pay since the promissory notes, as evidence of the indebtedness,
may no longer be in the possession of Alfred Berwin. He further
argues that if the latter negotiated the same and pays him now, he
would still need to pay the holder in due course of the said
instruments. Thereby making him pay twice.

Facts:
Hi-Cement Corporation through its corporate signatories,
petitioner Lourdes M. de Leon, treasurer, and the late Antonio de las
Alas, Chairman, issued four checks in favor of E.T. Henry and Co.
Inc., as payee. The checks are the collateral to secure the loan which
E.T. Henry offered to Hi-Cement and not payment by the latter of the
hydro-oil which they bought from E.T. Henry. E.T. Henry and Co.,
Inc., in turn, endorsed the four 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. Atrium, thus,
instituted this action after its demand for payment of the value of the
checks was denied.
The trial court rendered a decision ordering Lourdes M. de
Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc. and HiCement Corporation to pay petitioner Atrium, jointly and severally,
the amount of P2 million corresponding to the value of the four
checks, plus interest and attorneys fees.
The Court of Appeals modified the decision, absolving HiCement Corporation from liability and dismissing the complaint as
against it. The appellate court ruled that: (1) Lourdes M. de Leon
was not authorized to issue the subject checks in favor of E.T. Henry,
Inc.; (2) The issuance of the subject checks by Lourdes M. de Leon
and the late Antonio de las Alas constituted ultra vires acts; and (3)
The subject checks were not issued for valuable consideration

Issues: Whether Anselmo Diaz may be compelled to pay the sum of

the promissory notes
Ratio: No.
As it does not appear that Alfred Berwin still holds the notes,
Diaz cannot be compelled to pay the sum of the said promissory
notes to any person save the holder of such documents in due
course, for said person is the one entitled to receive it.
To compel Diaz to pay Alfred Berwin & Co., or the sheriff as a credit
in favor of this corporation would be to expose Anselmo Diaz to the
situation in which, having paid the amount of the promissory notes
without settling the same, a holder in due course may appear and
within all, reason demand its full payment.
Other Doctrines:
1. Only a holder in due course of an instrument is entitled to receive
payment.
Dispositive Portion: Wherefore, the appealed order is revoked, and
let this case be remanded to the lower court with directions to
proceed to further investigation and inquiry in accordance with the
foregoing, without express pronouncement as to costs. So ordered.

G.R. No. 109491

February

Issues:
1. Whether the issuance of the checks was an ultra vires act.
2. Whether Lourdes M. de Leon and Antonio de las Alas were
personally liable for the checks issued as corporate officers and
authorized signatories of the check.
3. Whether or not petitioner Atrium was a holder of the checks in due
course.

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Held:
1. The issuance of the checks was well within the ambit of a valid
corporate act, for it was for securing a loan to finance the activities of
the corporation, hence, not an ultra vires act.
An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and
therefore beyond the power conferred upon it by law.
2. Lourdes M. de Leon and Antonio de las Alas as treasurer and
Chairman of Hi-Cement were authorized to issue the checks.
However, Ms. de Leon was negligent when she signed the
confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of
E.T. Henry for the rediscounting of the crossed checks issued in
favor of E.T. Henry. She was aware that the checks were strictly
endorsed for deposit only to the payees account and not to be
further negotiated. What is more, the confirmation letter contained a
clause that was not true, that is, that the checks issued to E.T. Henry
were in payment of Hydro oil bought by Hi-Cement from E.T. Henry.
3. 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 payees account only. From the
beginning, Atrium was aware of the fact that the checks were all for
deposit only to payees 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 can not recover on the instrument.
Dispositive Portion:
WHEREFORE, the petitions are hereby DENIED. The decision
and resolution of the Court of Appeals in CA-G. R. CV No. 26686,
are hereby AFFIRMED in toto.

Fossum v. Fernandez
G.R. No. L-19461
March 28, 1923]
Facts: Charles A. Fossum, was the resident agent in Manila of the
American Iron Products Company, Inc., a concern engaged in
business in New York City. On February 10, 1920, Fossum, acting as
agent of that company, procured an order from Fernandez
Hermanos, a general commercial partnership engaged in business in
the Philippine Islands, to deliver to said firm a tail shaft, to be
installed on the ship Romulus, then operated by Fernandez
Hermanos, as managers of La Compaa Martima.
It was stipulated that said tail shaft would be in accordance with the
specifications contained in a blueprint which had been placed in the
hands of Fossum on or about December 18, 1919.
Considerable delay seems to have been encountered in the matter of
the manufacture and shipment of the shaft; but in the autumn of 1920
it was dispatched to Manila, having arrived in January, 1921
American Iron Products Company, Inc., had drawn a time draft, at
sixty days, upon Fernandez Hermanos, for the purchase price of the
shaft, the same being in the amount of $2,250, and payable to the
Philippine National Bank. In due course the draft was presented to
Fernandez Hermanos for acceptance, and was accepted by said firm
on December 15, 1920, according to its tenor.
Upon inspection after arrival in Manila the shaft was found not to be
in conformity with the specifications and was incapable of use for the
purpose for which it had been intended. Upon discovering this,
Fernandez Hermanos refused to pay the draft, and it remained for a

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time dishonored in the hands of the Philippine National Bank in

ManilaLater the bank indorsed the draft in blank, without
consideration, and delivered it to the plaintiff, Charles A. Fossum,
who thereupon instituted the present action on the instrument against
the acceptor, Fernandez Hermanos, and the two individuals named
as defendants in the complaint, in the character of members of said
partnership.
Issue: Whether or not the trial court committed an error in judgment
Held: We are of the opinion that the trial judge has committed no
error. The plaintiff himself is far from being a holder of this draft in
due course. In the fact place, he was himself a party to the contract
which supplied the consideration for the draft, albeit he there acted in
a representative capacity. In the second place, he procured the
instrument to be indorsed by the bank and delivered to himself
without the payment of value, after it was overdue, and with full
notice that, as between the original parties, the consideration had
completely failed. Under this circumstance recovery on this draft by
the plaintiff by virtue of any merit in his own position is out of the
question. His attorney, however, calls attention to the familiar rule
that a person who is not himself a holder in due course may yet
recover against the person primarily liable where it appears that such
holder derives his title through a holder in due course.
The difficulty of the plaintiff's position from this point of view is that
there is not a line of proof in the record tending to show as a fact that
the bank itself was ever a holder of this draft in due course. In this
connection it was incumbent on the plaintiff to show, as an
independent claims, i.e., the bank, was a holder in due course; and
upon this point the plaintiff can have no assistance from the
presumption, expressed in section 59 of the Negotiable Instrument
Law, to the effect that every holder is deemed prima facie to be a
holder in due course. The presumption expressed in that section
arise only in favor of a person who is a holder in the sense defined in
section 191 of the same Law, that is, a payee or indorsee who is in
possession of the draft, or the bearer thereof.
it is a well-known rule of law that if the original payee of a note
unenforceable for lack of consideration repurchase the instrument
after transferring it to 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.
Dispositive portion: For the reasons stated the judgment appealed
from must be affirmed, and it is so ordered, with costs against the
appellant.
PINEDA v. DELA RAMA
FACTS:
This is a petition to review on certiorari a decision of CA which
declared Jesus Pineda liable on his promissory note for P9,300.00
and directed him to pay attorney's fees of P400.00 to Jose V. dela
Rama.
Dela Rama is a lawyer whose services were retained by Pineda for
the making of representations with the chairman and general
manager of the National Rice and Corn Administration (NARIC) to
stop or delay the institution of criminal charges against Pineda who
allegedly misappropriated 11,000 cavans of palay deposited at his
ricemill in Concepcion, Tarlac. The NARIC general manager was
allegedly an intimate friend of Dela Rama.
According to Dela Rama, petitioner Pineda has used up all his funds
to buy a big hacienda in Mindoro and, therefore, borrowed the
P9,300.00 subject of his complaint for collection. In addition to filling
the suit to collect the loan evidenced by the matured promissory
note, Dela Rama also sued to collect P5,000.00 attorney's fees as
Pineda's counsel in the case being investigated by NARIC.
CFI of Manila decided the case in favor of petitioner Pineda. The
court believed the evidence of Pineda that he signed the promissory
note for P9,300.00 only because Dela Rama had told him that this
amount had already been advanced to grease the palms of the
'Chairman and General Manager of NARIC in order to save Pineda
from criminal prosecution.
CA reversed the decision of the TC on a finding that Pineda, being a
person of more than average intelligence, astute in business, and
wise in the ways of men would not "sign any document or paper with
his name unless he was fully aware of the contents and important
thereof, knowing as he must have known that the language and

ALFONSO ARAGONES ATILANO BARTOLOME BAUTISTA BESANES CABRALES CASIPIT CASTRO CRUZ DUENAS FERMIN
FERNANDO GARCIA GUEVARA MACALINO MANGCO MELCHOR RAMOS REAS SANTOS VALLO WILWAYCO YAN

practices of business and of trade and commerce call to account

every careless or thoughtless word or deed."
ISSUES: Whether or not CA erred in reversing the decision of the
CFI of Manila which held Pineda not liable for the promissory note he
signed?
HELD/RATIO: YES
1. The Court of Appeals relied on Section 24 of the Negotiable
Instruments Law which reads:
SECTION 24. Presumption of consideration.Every
negotiable instrument is deemed prima facie to have
been issued for a valuable consideration; and every
person whose signature appears thereon to have
become a party thereto for value.
2. The Court of Appeals' reliance on the above provision is
misplaced. The presumption that a negotiable instrument is
issued for a valuable consideration is only primama facie. It
can be rebutted by proof to the contrary.
3. According to Dela Rama, he loaned the P9,300.00 to Pineda
in two installments on two occasions five days apart - first
loan for P5,000.00 and second loan for P4,300.00, both
given in cash. He also alleged that previously he loaned
P3,000.00 but Pineda paid this other loan two days
afterward.
4. These allegations of Dela Rama are belied by the
promissory note itself. The second sentence of the note
reads - "This represents the cash advances made by him in
connection with my case for which he is my attorney-in- law."
5. The terms of the note sustain the version of Pineda that
he signed the P9,300.00 promissory note because he

believed Dela Rama's story that these amounts had

already been advanced by Dela Rama and given as gifts
for NARIC officials.
6. We agree with the trial court which believed Pineda. It is
indeed unusual for a lawyer to lend money to his client whom
he had known for only three months, with no security for the
loan and on interest. Dela Rama testified that he did not
even know what Pineda was going to do with the money he
borrowed from him. The petitioner had just purchased a
hacienda in Mindoro for P210,000.00, owned sugar and rice
lands in Tarlac of around 800 hectares, and had P60,000.00
deposits in three banks when he executed the note. It is
more logical to believe that Pineda would not borrow
P5,000.00 and P4,300.00 five days apart from a man whom
he calls a "fixer" and whom he had known for only three
months.
7. Whether or not the supposed cash advances reached their
destination is of no moment. The consideration for the
promissory note - to influence public officers in the
performance of their duties - is contrary to law and public
policy. The promissory note is void ab initio and no cause of
action for the collection cases can arise from it.
DISPOSITIVE PORTION: WHEREFORE, the decision of the Court
of Appeals is SET ASIDE. The complaint and the counterclaim in
Civil Case No. 45762 are both DISMISSED.
WALKER RUBBER CORPORATION, vs. NEDERLANDSCH
INDISCHE & HANDELSBANK
G.R.No. L-12502 and L-12512 May 29, 1959
Facts: Associated Finance Co., sold to Walker Rubber Corporation
100,000 pounds of camelback rubber for the price of P14,000. For
this obligation, the former drew a draft on the latter for the same
amount payable in 60 days. The goods were mortgaged by

ALFONSO ARAGONES ATILANO BARTOLOME BAUTISTA BESANES CABRALES CASIPIT CASTRO CRUZ DUENAS FERMIN
FERNANDO GARCIA GUEVARA MACALINO MANGCO MELCHOR RAMOS REAS SANTOS VALLO WILWAYCO YAN

Associated Finance Co., Inc. in favor of the Nederlandsch Indische &

Handelsbank.

Ratio: Yes. The bank is a holder of the draft in due course.

Meanwhile, Walker Rubber Corporation and South Sea Surety &

Insurance Co., as surety, executed a performance bond to guarantee
the payment of the obligation.
Upon presentation of said draft to the Nederlandsch Indische &
Handelsbank for discount, said bank addressed a letter on March 15,
1950 to the South Sea Surety & Insurance Co., Inc., requesting
information whether it would consider the said draft as being covered
by its performance bond to which South Sea Surety answered in the
affirmative.
Based on the assurance of the surety that the performance bond
covered the draft, it authorized Luzon Brokerage Co. to deliver to
Associated Finance the camelback rubber.

The bank had lien of mortgage on the 100,000 pounds of

camelback rubber. When the bank parted with the possession
thereof by delivery to the vendee, by reason of the sale, it
relinquished its right over said rubber. Valuable consideration or
value in general terms may be some right, interest, profit or
benefit to the party who makes the contract, or some
forbearance, detriment, loss, responsibility, etc. on the other
side.
The delivery to the vendee of the rubber and the release
thereof from the bank's possession is the consideration for the draft,
and said consideration made the holder thereof, the bank, a holder of
the draft in due course for value.

On the due date of the draft, Walker Rubber refused to pay the draft.
BPI Cebu City Branch to which the draft was referred for collection
returned it to respondent bank, saying that Walker Rubber
dishonored the draft. The latter claimed that its liability has been
released by virtue of an agreement it entered into with Associated
Finance whereby the Associated Finance Co., Inc., assumed and
took delivery of the undelivered balance of camelback rubber and
further assumed the full responsibility of the P14,000 draft thereby
releasing and discharging the Walker Rubber Corporation from the
liability as acceptor of said draft.

Other Doctrines:
2. NIL: 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 such whether the instrument is payable on demand or
at a future time.
Dispositive Portion: We find no error in the judgment appealed
from, and we hereby affirm it, with costs. So ordered.

Herein respondent Bank filed a case against South Sea Surety &
Insurance Company to collect the amount of P14,000 on a
performance bond it jointly and severally executed with Walker
Rubber.
The CFI ordered the surety to pay the bank the amount of the bond
and it ordeed Walker Rubber to reimburse the surety.
Issues:
2. Whether or not the bank is a holder in due course

10

ALFONSO ARAGONES ATILANO BARTOLOME BAUTISTA BESANES CABRALES CASIPIT CASTRO CRUZ DUENAS FERMIN
FERNANDO GARCIA GUEVARA MACALINO MANGCO MELCHOR RAMOS REAS SANTOS VALLO WILWAYCO YAN