Section 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 has 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.
STATE INVESTMENT HOUSE INC V CA
FACTS
Private respondent Moulic issued to Victoriano, as security for pieces of jewelry to be sold on
commission, two post-dated Equitable Banking Corporation checks worth P50,000 each. The payee
negotiated the checks to petitioner State Investment House, Inc. (STATE). MOULIC failed to sell the
pieces of jewelry, so she returned them before maturity. The checks could no longer be retrieved because
they had already been negotiated. Moulic withdrew her funds from the drawee bank before maturity date.
Upon presentment for payment, the checks were dishonored for insufficiency of funds. 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
attorneys fees and expenses of litigation.

ISSUE
WON STATE was a holder of the checks in due course YES

HELD
Given Section 52 of the NIL, a prima facie presumption exists that the holder of a negotiable instrument
is a holder in due course. Anyone who disputes such presumption has the burden of proving the same,
and Moulic failed to do so. Evidence shows that:
(a) on their faces the postdated 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 informed nor made aware that these checks were
merely issued to payee as security and not for value.
STATE is indeed a holder in due course. 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. 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.
BATAAN CIGAR & CIGARETTE FACTORY, INC V CA

FACTS
Petitioner, Bataan Cigar and Cigarette Factory, Inc. (BCCFI), a cigarette manufacturer, engaged King
Tim Pua George (George King), to deliver 2,000 bales of tobacco leaf starting October 1978 for which
he was issued post-dated crossed checks (Mar. 1979) worth P820,000. Relying on the suppliers
representation that he would complete delivery within three months from December 5, 1978, petitioner
agreed to purchase additional 2,500 bales of tobacco leaves for which he was issued post-dated crossed
checks worth P1.1M (payable Sept. 1979). During these times, George King was simultaneously dealing
with private respondent SIHI. He sold at a discount a total of three post-dated checks, drawn by petitioner,
naming George King as payee to SIHI. Because he failed to deliver the bales of tobacco leaf despite
petitioners demand, BCCFI issued a stop payment order on all checks payable to George King. Efforts
of SIHI to collect from BCCFI having failed, it instituted the present case, naming only BCCFI as party
defendant.

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

HELD
When it is shown that the title of any person who has negotiated the instrument was defective, the burden
is on the holder to prove that he or some person under whom he claims, acquired the title as holder in
due course. The term crossed check is not mentioned in the NIL but Sec. 541 of the Code refers to such
instruments. The crossing of checks should put the holder on inquiry. He has 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 faith, contrary to Sec. 52(c) of the NIL,
and as such the consensus of authority is to the effect that the holder of the check is not a holder in due
course.

BCCFIs defense in stopping payment is as good to SIHI as it is to George King. The checks were issued
with the intention that George King would supply bales of tobacco leaf. There being failure of
consideration, SIHI is not a holder in due course and BCCFI cannot be obliged to pay the checks.
Respondent may still recover from the checks. The only disadvantage of a holder who is not a holder in
due course is that the instrument is subject to defenses as if it were non-negotiable. Hence, respondent
can collect from the immediate indorser, George King.
Section 57. Rights of holder in due course. A holder in due course 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 against all parties liable thereon.

Section 58. When subject to original defense. In the hands of any holder other than a holder in due
course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder
who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality
affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.
ATRIUM MANAGEMENT CORPORATION V CA

FACTS
Hi-Cement Corp through its corporate signatories, treasurer petitioner De Leon and Chariman De las
Alas, issued checks in favor of E.T. Henry and Co., as payee. E.T. Henry, in turn, endorsed the four
checks to petitioner for valuable consideration. Upon presentment, the drawee bank dishonored all four
checks, reason: payment stopped. Atrium instituted this action after its demand for payment of the value
of the checks was denied.

At the trial, Atrium presented as its witness Syquia who testified that Enrique Tan of E.T. Henry
approached Atrium for financial assistance, offering to discount four RCBC checks worth P2M, issued
by Hi-Cement in favor of E.T. Henry. Atrium agreed to discount the checks, provided it be allowed to
confirm with Hi-Cement that the checks were payment for petroleum products which E.T. Henry delivered
to Hi-Cement. He identified two letters issued by De Leon confirming such fact.

Respondent Hi-Clements witness is Ms. Erlinda Yap who testified that she was the former secretary to
the De Leon, and as such she was familiar with the 4 RCBC checks as the post-dated checks issued by
Hi-Cement to E.T. Henry upon instructions of Ms. de Leon. She testified that E.T. Henry offered to give
Hi-Cement a loan which the subject checks would secure as collateral.

ISSUE
WON De Leon and De las Alas were personally liable for the checks issued as corporate officers and
authorized signatories of the check YES
WON Atrium is a holder in due course NO

HELD
De Leon and De las Alas 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. Moreover,
the confirmation letter contained a false clause: that the checks issued to E.T. Henry were in payment
of Hydro oil bought by Hi-Cement from E.T. Henry. Her negligence resulted in damage to the
corporation, thus, she may be held personally liable.
Though Atrium is not a holder in due course, it does not follow as a legal proposition that the that the
instrument were for deposit only to the account of payee E.T. Henry that it was altogether precluded from
recovering on the instrument. The NIL does not provide that a holder not in due course cannot recover
on the instrument. The disadvantage of Atrium in not being a holder in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable, i.e. absence/failure of consideration.
HI-CEMENT CORPORATION V IBAA

FACTS
Petitioners Spouses Tan were the controlling stockholders of E.T. Henry, a processor & distributor of
bunker fuel. Among E.T. Henrys customers were petitioner Hi-Cement, Riverside and Kanebo. For their
purchases, these corporations issued postdated checks to E.T. Henry. Respondent Insular Bank of Asia
and America (now Equitable PCI-Bank) granted E.T. Henry a credit facility known as Purchase of Short
Term Receivables (rediscounting of checks) where the latter was able to encash, with pre-deducted
interest, its clients post-dated checks. For every transaction, respondent required E.T. Henry to execute
a PN and a deed of assignment bearing the clients conformity to the rediscounting. From 1979-1981,
E.T. Henry utilized the credit facility. In February 1981, 20 crossed checks of Hi-Cement (which bore the
restriction deposit to payees account only), as well as Riverside and Kanebos checks were
dishonored.

ISSUE
WON respondent bank is a holder in due course NO
WON Hi-Cement is liable for the checks NO

HELD
Respondent bank is not a holder in due course for not having acted in good faith when it accepted and
discounted Hi-Cements post-dated crossed checks from E.T. Henry. Good faith becomes
inconsequential amidst proof of respondents grossly negligent conduct in dealing with the subject
checks. Respondent was aware that checks were crossed and bore restrictions that they were for deposit
to payees account only; hence, could not be further negotiated to it. Respondent likewise 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 treasurers signature appeared on the deed of assignment. As a banking
institution, it behooved respondent to act with extraordinary diligence in every transaction since its
business is impressed with public interest, specially where the checks dealt with were crossed.

Both of Hi-Cements general manager and treasurer were authorized to issue the subjects checks.
However, respondent could not be considered a holder in due course. There was no doubt that it was
E.T. Henry that rediscounted Hi-Cements checks and received their value from respondent. Since E.T.
Henry had no justification to refuse payment, it should pay respondent. Furthermore, Hi-Cement could
not also be made solidarily liable with Riverside and Kanebo for the face value of their checks. It had
nothing to do with the checks of these two corporations. Though the language of the trial court decisions
dispositive portion seemed confusing, a reading of the decision in its entirety reveals that the fallo was
for each corporation to be liable solidarily with E.T. Henry and/or the spouses Tan for the respective
values of their checks.
BPI V ROXAS

FACTS
Respondent Gregorio C. Roxas, a trader, delivered stocks of vegetable oil to spouses Cawili for which
the latter issued a personal check worth P348,805.50. However, when respondent tried to encash it, it
was dishonored by the drawee bank. Spouses Cawili then assured him that they would replace the
bounced check with petitioner BPI cashiers check. Respondent and Rodrigo Cawili went to BPI where
the teller, upon manager Elmas instructions, prepared a cashiers check worth P348,805.50 drawn
against Marissa Cawilis account payable to respondent. When the respondent tried to encash it the next
day, it was again dishonored. Elma informed him that Marissas account had been closed. Despite
respondents insistence, the bank officers refused to encash the check and tried to retrieve it from
respondent. His lawyer advised him to deposit the check in his Citytrust account, but it was again
dishonored on the same ground.
ISSUE
WON respondent is a holder in due course YES
WON BPI is liable to respondent for the amount of the cashiers check YES

HELD
BPI erroneously contends that respondent could not be a holder in due course because the element of
value is not present. The said element is present, which is the vegetable oil sold to Cawili. The fact that
it was Rodrigo who purchased the cashiers check from petitioner will not affect respondents status as
a holder for value since the check was delivered to him as payment for the sale.

The disputed check is a cashiers check the banks own check and may be treated as a promissory
note with the bank as the maker. It becomes the primary obligation of the bank which issues it and
constitutes a written promise to pay upon demand. The well-known and accepted practice in the
business sector is that a cashiers check is deemed as cash because the mere issuance of a cashiers
check is considered acceptance thereof. BPI became liable from the moment it issued the said check.
Having been accepted by respondent, s.t. no condition whatsoever, petitioner should have paid the same
upon presentment by the former.
YANG V CA

FACTS
Yang and Chandiramani entered into an agreement the latter was to give Yang a PCIB managers
check worth P4.2 million in exchange for 2 of Yangs managers checks, each worth P2.087 million, both
payable to the order of Fernando David. They agreed to equally split the P26k profit. They further agreed
that the former would secure from FEBTC a $200k dollar draft payable to PCIB FCDU, which
Chandiramani would exchange for another in the same amount to be issued by Hang Seng Bank.

Yang had the instruments delivered to Chandiramani through messenger Ranigo at Philtrust. Ranigo will
turn over the cashiers checks and dollar draft to Chandiramani in exchange for a P4.2M managers
check and a US$200k dollar draft. Chandiramani did not appear and Ranigo allegedly lost the
instruments. The loss was then reported to the police but it turns out they were not lost since
Chandiramani was able to get hold of said instruments without delivering the exchange consideration.
He then delivered to David 3 cashiers checks worth P2.087M each in exchange for US$360k, which the
former deposited in his wife and mothers individual savings accounts. He also deposited to PCIB FCDU
the dollar draft, drawn upon the Chemical Bank, NY for $200k. Upon Yangs request, FEBTC and
Equitable stopped payment on the lost instruments. But upon PCIBs representation, FEBTC lifted the
order on dollar draft enabling the account holder to receive $200k.

ISSUE
WON the CA erred in holding respondent David to be a holder in due course YES

HELD
Wrt consideration, the NIL creates a presumption that every party to an instrument acquired the same
for a consideration or for value. The law itself creates a presumption in Davids favor and it is incumbent
upon petitioner to present convincing/concrete evidence to overthrow the presumption. Petitioner failed
to do so. David gave Chandiramani $360k as consideration for the said instruments.

David was not privy to the transaction between petitioner and Chandiramani. Petitioner admits that David
took the step of ascertaining the genuineness of the checks; he was not aware of any stop payment
order. David had no obligation to ascertain from Chandiramani what the nature of the latters title to the
checks was, if any, or the nature of his possession. Thus, he cannot be held guilty of gross neglect
amounting to legal absence of good faith, absent any showing that there was something amiss about
Chandiramanis acquisition/possession of the checks. David did not close his eyes deliberately to the
nature or the particulars of a fraud allegedly committed by Chandiramani upon the petitioner, absent any
knowledge on his part.
SPOUSES VIOLAGO V BA FINANCE CORP
Handwritten digest
DINO V MARIA LUISA JUDAL-LOOT

FACTS
A syndicate whose members posed as landowners approached and induced petitioner to lend the group
P3M to be secured by a real estate mortgage on the properties. A group member pretending to be one
Vivencia Ompok even offered to execute a Deed of Absolute Sale covering the properties, instead of the
usual mortgage contract. Petitioner then issued three Metrobank checks, one of which is worth P1M
payable to the woman and/or Fe Lobitana. Petitioner discovered that the documents covered rights over
government properties. He advised Metrobank to stop payment of his checks, but the other two checks
were already encashed by the payees. Meanwhile, Lobitana negotiated and indorsed the check to
respondents in exchange for P948,000.00, which respondents borrowed from Metrobank and charged
against their credit line. When respondents deposited the check with Metrobank, it was dishonored by
the drawee bank for reason PAYMENT STOPPED.

ISSUE
WON respondents are holders in due course of the subject Metrobank check as to entitle them to collect
the face value of the check from its drawer or petitioner herein NO

HELD
In the case of a crossed check, other than the requirements under Sec. 52 of the NIL, the ff. principles
must additionally be considered: A crossed check
(a) may not be encashed but only deposited in the bank;
(b) may be negotiated only onceto one who has an account with a bank; and
(c) warns the holder that it has been issued for a definite purpose so that the holder thereof must inquire
if he has received the check pursuant to that purpose;
otherwise, he is not a holder in due course.

Respondents failed in their duty to ascertain the indorsers (Lobitanas) title to the check or the nature of
her possession. Their verification from Metrobank on the funding of the check does not amount to such
kind of determination. Thus, respondents are guilty of gross negligence amounting to legal absence of
good faith. Respondents are not holders in due course.

Payees Lobitana or Consing were not the ones who presented the check for payment; rather, it was
respondents though they were unable to because Payment Stopped. Thus, there was no proper
presentment, liability did not attach to the drawer. Accordingly, no right of recourse is available to
respondents against the drawer of the check (petitioner) since respondents are not the proper party
authorized to make presentment of the subject check. However, the fact that respondents are not holders
in due course does not automatically mean that they cannot recover on the check. The only disadvantage
of not being a holder in due course is that the negotiable instrument is s.t. defenses as if it were non-
negotiable such as absence/failure of consideration. Since there is in fact no valid loan to speak of (bec
of the syndicates fraud), there is no consideration for the issuance of the check. Consequently, petitioner
cannot be obliged to pay the face value of the check. Respondents can collect from the immediate
indorser, i.e., Lobitana.
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.

Section 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.
CLAUDE P BAUTISTA V AUTO PLUS TRADERS

FACTS
Petitioner Claude P. Bautista, as President and Presiding Officer of Cruiser Bus Lines and Transport
Corporation, purchased various spare parts from private respondent Auto Plus Traders, Inc. for which
he issued two post-dated checks. The checks were subsequently dishonored. Private respondent then
executed an affidavit-complaint for violation of BP22.

ISSUE
WON petitioner, as an officer of the corporation, is personally and civilly liable to the private respondent
for the value of the two checks NO
WON petitioner is an accommodation party NO

HELD
One of the checks issued was petitioners personal check since P151,200 was drawn against the current
account of Claude Bautista while the check for P97,500 was drawn against the current account of Cruiser
Bus Lines and Transport Corporation. Petitioner is NOT liable for the value of the checks considering
that petitioner was acquitted of the crime charged and that the debts are clearly corporate debts for which
only Cruiser Bus Lines and Transport Corporation should be held liable. Evidence shows that it is the
bus company that has obligations to Auto Plus Traders, Inc. for tires. There is no agreement that
petitioner shall be held liable for the corporations obligations in his personal capacity.

All that the evidence shows is that petitioner signed a check drawn against his personal account. The
said check corresponds to the value of 24 sets of tires received by Cruiser Bus Lines and Transport
Corporation on August 29, 2000. There is no showing of when petitioner issued the check and in what
capacity. In the absence of concrete evidence it cannot just be assumed that petitioner intended to lend
his name to the corporation. Hence, petitioner cannot be considered as an accommodation party, i.e., a
person who has signed the instrument as maker, drawer, acceptor, or endorser, without receiving value
therefor, and for the purpose of lending his name to some other person.
EUSEBIO GONZALES V PCIB

FACTS
PCIB granted a credit line to Gonzales Credit-On-Hand Loan Agreement (COHLA), in which the
aggregate amount Gonzales PCIB accounts served as collateral for and his availment limit. He drew
from said credit line through the issuance of check. At the institution of the instant case, Gonzales had a
$8715.72 Foreign Currency Deposit. Sps Gonzales obtained a P500k loan. Subsequently, Sps Panlilio
and Gonzales obtained two additional loans from PCIB (P1M & P300k respectively). Each loan, total of
all three is P1.8M, was covered by a PN and secured by a real estate mortgage (REM) over a parcel of
land. The PN specified the parties solidary liability; however, it was the spouses Panlilio who received
the loan proceeds. The monthly interest dues of the loans were paid by the Sps Panlilio but later defaulted
in the payment of the periodic interest dues from their PCIB account which was not maintained with
enough deposits. Gonzales issued a P250k check in favor of Unson drawn against COHLA. However,
upon presentment for payment, it was dishonored by PCIB due to the termination by PCIB of the credit
line for the unpaid periodic interest dues from the loans of Gonzales and the Sps Panlilio. PCIB likewise
froze the FCD account of Gonzales.

ISSUE
WON Gonzales is liable for the 3 PNs covering the PhP 1,800,000 loan he made with the spouses
Panlilio where a REM over a parcel of land constituted as security YES
WON PCIB properly dishonored Gonzales check drawn against the COHLA he had with the bank
NO

HELD
Gonzales admitted that he is an accommodation party which PCIB did not dispute. Moreover, the first
note for PhP 500,000 was signed by Gonzales and his wife as borrowers, while the two subsequent
notes showed the spouses Panlilio sign as borrowers with Gonzales. It is evident that Gonzales signed,
as borrower, the PNs covering the PhP 1.8M loan despite not receiving proceeds. By signing as borrower
and co-borrower on the PNs with the proceeds going to the spouses Panlilio, Gonzales has extended an
accommodation to said spouses. As an accommodation party, Gonzales is solidarily liable with the
spouses Panlilio for the loans. Knowledge, acquiescence, or even demand by Ocampo for an
accommodation by Gonzales to extend the P1.8M loan to the spouses Panlilio does not exonerate
Gonzales from liability on the 3 PNs. Solidary liability is likewise stipulated in the said notes.

While not exonerating his solidary liability, Gonzales has right to be properly apprised of the default or
delinquency of the loan precisely because he is cosignatory of the PNs and of his solidary liability. There
was no proper notice to Gonzales of the default and delinquency of the P1.8M loan. It must be borne in
mind that while both sets of spouses are solidarily liable, Gonzales is only an accommodation party and
as such only lent his name and credit to the spouses Panlilio.
Section 27. When lien on instrument constitutes holder for value. Where the holder has a lien on
the instrument arising either from contract or by implication of law, he is deemed a holder for value to the
extent of his lien.
CALTEX PHILS INC V CA
Handwritten digest
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.
TRAVEL-ON V CA

FACTS
Petitioner Travel-On is a travel agency selling airline tickets on commission basis for and in behalf of
different airline companies. Private respondent Miranda had a revolving credit line with petitioner. He
procured tickets from petitioner on behalf of airline passengers and derived commissions therefrom.

Travel-On filed suit before the CFI to collect on 6 checks issued by private respondent with a total face
amount of P115k. Petitioner averred that it sold and delivered various airline tickets to respondent at a
total price of P278,201.57 while private respondent paid various amounts in cash and in kind, and
thereafter issued the subject post-dated checks which were all dishonored by the drawee banks. It also
alleged that Miranda made a P10k payment reducing his indebtedness to P105k. On the other hand,
respondent admitted having had transactions with Travel-On but he claimed that he had already fully
paid and even overpaid. He argued that he had issued the post-dated checks for purposes of
accommodation. Miranda also contested several tickets alleged to have been erroneously debited to his
account. He claimed reimbursement of his alleged over payments plus damages.

ISSUE
WON the checks were given for a sufficient consideration YES
WON Miranda was indebted to Travel-On under the checks YES

HELD
Pursuant to Section 24 of the NIL, the mere introduction of the instrument sued on in evidence prima
facie entitles the plaintiff to recovery. Further, it is a settled rule that a negotiable instrument is presumed
to have been given or indorsed for a sufficient consideration unless otherwise contradicted and overcome
by other competent evidence. Miranda had the burden of proof to show that Travel-On had indeed issued
the checks without sufficient consideration. Those checks were issued immediately after a letter
demanding payment had been sent to Miranda by Travel-On. The fact that all the checks issued by
private respondent to petitioner were presented for payment by the latter would lead to no other
conclusion than that these checks were intended for encashment. Miranda must be held liable on the 6
checks here involved. They in themselves constituted evidence of indebtedness of private respondent,
evidence not successfully overturned or rebutted by private respondent. Since the checks constitute the
best evidence of private respondent's liability to Travel-On, the amount of such liability is the face amount
of the checks, reduced only by the P10,000.00 which Travel-On admitted in its complaint to have been
previously paid by private respondent.