CHAN WAN, plaintiff-appellant, vs. TAN KIM and CHEN SO, defendants-appellees.

[G.R. No. L-15380. September 30, 1960.]

MATERIAL FACTS:

This suit is to collect eleven checks totalling 4,290. The subject checks were
payable to “cash or bearer” and drawn by defendant Tan Kim upon the Equitable
Banking Corporation, were all presented by Chan Wan for payment to the drawee
bank, they "were all dishonored and returned to him unpaid due to insufficient
funds and/or causes attributable to the drawer.

So there was a hearing and At the hearing of the case, the defendant, Tan kim
declared without contradiction that the checks were actually issued to two
persons named Pinong and Muy for some shoes the former had promised to
make and "were intended as mere receipts"

Because of that, The court declined to order payment in chan wan 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 presented to the
drawee for "payment," but should have been deposited instead with the bank
mentioned in the crossing which is the China Banking Corporation.

Eight of the checks here in question bear across their face two parallel transverse
lines between which these words are written: non- negotiable - China Banking
Corporation. These checks have, therefore, been crossed specially to the China
Banking Corporation, and should have been presented for payment by China
Banking, and not by Chan Wan. Inasmuch as Chan Wan did present them for
payment himself - the Manila court said - there was no proper presentment, and
the liability did not attach to the drawer.

It may be stated in this connection, that defendants asserted a counterclaim, the

court dismissed it for failure of proof, and from such dismissal they did not
appeal.
ISSUE:

Whether or not the plaintiff, Chan Wan is a holder in due course and has the right
to collect on the eleven commercial documents.

RULING:

Answer on the right to collection of the Eight of the Checks are Crossed Checks:

The supreme court agreed to the legal premises and conclusion of the Manila
Court that there was no proper presentment and the liability did not attach to the
drawer. That the drawer in drawing the check engaged that on due presentment,
the check would be paid and if it be dishonored…. He will pay the amount thereof.
Wherefore,in the absence of due presentment, the drawer did not become liable.

However, on the back of the checks, it shows deposit of the checks with China
Banking Corporation and there was subsequent presentation by the latter
through the clearing office; but because the drawee had no funds, they were
unpaid and returned, some of them stamped "account closed. Hence, the lower
court held Chan Wan 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.

Under Section 52 of the NIL, a holder cannot be a holder in due course if he

became the holder of it before it was overdue, and without notice that it has
been previously dishonored, if such was the fact

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. 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 a holder who is not a holder in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable.Now the
SC is concerned what defenses did the defendant Tan Kim prove? Knowing that
The lower court's decision does not mention any, defense pleaded in defendant's
answer, because the lower court thought it is unnecessary to specify, because the
crossing" and presentation incidents sufficed to bar recovery, in his opinion.

Because, 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.

However in this case the Supreme Court said that there is deficiency of important
details on which a fair adjudication of the parties' rights depends. The lower court
does not mention the defense pleaded in the defendant’s answer. 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.

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: chanroblesvirtuallawlibrary

(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.

Sec. 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.