Bataan Cigar and Cigarette Factory v, CA and State Investment House,

Inc.
075
GR No. 93048, 1994, Nocon, J.
Digested by Zoe Velasco Law 108 NIL
Topic: Holder in due course
FACTS: BCCFI, engaged with King Tim Pua George, to deliver 2,000 bales of tobacco leaf. BCCFI
issued post dated crossed checks in exchange. Trusting King's words, BCCFI issued another postdated cross check for another purchase of tobacco leaves. During these time, King was dealing
with SIHI. On two separate occasions King sold the post-dated cross checks to SIHI,that was
drawn by BCCFI in favor of King. Because King failed to deliver the leaves, BCFI issued a stop
payment to all the checks, including those sold to SIHI. HELD: SIHI is NOT a holder in due course.
The purpose of cross checks is to avoid those bouncing or encashing of forged checks. Cross checks
have the following effects: it cannot be encashed but only deposited in a bank; it can only be
negotiated on its respective bank once; it serves as a warning to the hiolder that it has been issued
for a defienite purpose thus making SIHI not a holder in due course. Still, SIHI can collect from the
immediate indorser, in this case, George King.

FACTS

BataanCigar&CigaretteFactory,Inc.(BCCFI),acorporationinvolvedinthemanufacturingof
cigarettespurchasedfromKingTimPuaGeorge(GeorgeKing)2,000balesoftobaccoleaftobe
deliveredstartingOctober1978.
o

July13,1978:itissuedcrossedcheckspostdatedsometimeinMarch1979inthetotal
amountofP820K

Georgerepresentedthathewouldcompletedeliveryw/in3monthsfromDec51978
soBCCFIagreedtopurchaseadditional2,500balesoftobaccoleaves,despitethepreviousfailurein
delivery
o

ItissuedpostdatedcrossedchecksinthetotalamountofP1.1Mpayablesometimein
September1979.

July19,1978:GeorgesoldtoSIHIatadiscountcheckamountingtoP164K,postdatedMarch31,
1979,drawnbyBCCFIw/Georgeaspayee.

December 19 and 26, 1978: George sold 2 checksbothintheamountofP100K,post

datedSeptember15&30,1979respectively,drawnby BCCFI w/ George as payee

Uponfailuretodeliver,BCCFI issued on March 30, 1979 and September 14 & 28,

1979 a stop payment order for all checks

SIHIfailingtoclaim,filedaclaimagainstBCCFI

RTC: SIHI=holderinduecourse.NoninclusionofGeorgeaspartyisimmaterialtothecase

ISSUES & HOLDING

WONSIHIisaholderinduecoursebeingasecondindorserandaholderofcrossed
checksNO.

RATIO

Thecrossingofchecksshouldputtheholderoninquiryanduponhimdevolvestheduty
toascertaintheindorser'stitletothecheckorthenatureofhispossessionfailure=guiltyof
grossnegligenceamountingtolegalabsenceofgoodfaith,contrarytoSec.52(c)ofthe
NegotiableInstrumentsLaw

SIHIisnotaholderinduecourse.Consequently,BCCFIcannotbeobligedtopaythe
checks.However,thatSIHIcouldnotrecoverfromthechecks.Theonlydisadvantageofa
holderwhoisnotaholderinduecourseisthattheinstrumentissubjecttodefensesasifit
werenonnegotiable.Hence, SIHI cancollectfromtheimmediateindorser,George
Sec.52
1. Thatitiscompleteandregularuponitsface
2. Thathebecametheholderofitbeforeitwasoverdue,andwithoutnoticethatithadbeen
previouslydishonored,ifsuchwasthefact
3.
That he took it in good faith and for value
4. Thatatthetimeitwasnegotiatedtohimhehadnonoticeofanyinfirmityinthe
instrumentordefectinthetitleofthepersonnegotiatingit
Sec.59

every holder is deemed prima facie a holder in due course

However,whenitisshownthatthetitleofanypersonwhohasnegotiatedthe
instrumentwasdefective,theburdenisontheholdertoprovethatheorsomepersonunder
whomheclaims,acquiredthetitleasholderinduecourse.

effectofcrossingofacheck
checkmaynot be encashed but only deposited in the bank
check may be negotiated only once to one who has an account with
a bank
3.
act of crossing the check serves as warning to the holder that the
check has been issued for a definite purpose - hemustinquireifhehas
receivedthecheckpursuanttothatpurpose,otherwise,heisnotaholderinduecourse
1.
2.

DISPOSITIVE
Wherefore, the decision of the Court
of Appeals is REVERSED.