De Ocampo & Co. v.
Gatchalian will be shown to the owner as evidence that shes a buyer in good
3 SCRA 596
FACTS:
- Appeal from a judgment of the CFI sentencing Gatchalian et al (the
defendants) to pay De Ocampo (plaintiff) the sum of P600 with legal
interest.
- The action is for recovery of the value of a check for P600 payable
to the plaintiff and drawn by the defendant Gatchalian.
- The complaint alleges that plaintiff received the check in payment
of the indebtedness of Matilde Gonzales; that upon receipt of said
check, plaintiff gave Gonzales P158.25, the difference between the
face value of the check and Gonzales indebtedness.
- The defendants admitted the execution of the check but alleged
that it was issued subject to a condition, which was not fulfilled, and
that plaintiff was guilty of gross negligence in not taking steps to
protect itself.
- At the time of the trial, the parties submitted the following stipulation
of facts:
1. Defendant Anita Gatchalian was interested in looking for a car for
the use of her husband and the family. A car was offered to her by
Manuel Gonzales. That the latter represented himself as being
authorized by De Ocampo Clinic to look for a buyer of said car.
2. Defendant Gatchalian finding the price of the car to her
satisfaction, requested Manuel Gonzales to bring the car the
following day together with the certificate of registration.
3. Manuel Gonzales however, advised Gatchalian that the owner of
the car will not give the COR unless there is a showing that the party
interested in the purchase of the car is ready and willing to make
such purpose. The former asked the latter to give him a check which
faith. That the said check is for safekeeping only and to be returned
to the defendants the following day when hell be bringing the car
and the COR.
4. Upon failure of Manuel to appear the day following the issuance
of the check, defendant issued a Stop Payment Order on the check
with the drawee bank.
5. Both of the defendants did not know personally Manuel but that
defendant Gatchalian is personally acquainted with V.R de Ocampo.
Furthermore, both of the defendants had no agreements as regards
hospitalization of Manuels wife prior to, or obligation or liability with
the Ocampos Clinic on or before September 9, 1953.
6. That Manuel Gonzales having received the check from such
representations, delivered the same to the Ocampo Clinic, in
payment of the fees and expenses arising from hospitalization of his
wife.
7. That in consideration of fees and hospitalization, the plaintiff
accepted the check and issued a receipt representing P158.25 as
balance thereof.
8. The said acceptance was made without inquiry from the
defendants. The plaintiff then filed a complaint for estafa against
Gonzales based on and arising from the acts of the latter in paying
his obligation with the former and receiving the cash balance of the
check.
- The court rendered judgment alluding the facts stipulated above. In
their appeal, the defendants contend that the check is not a
negotiable instrument and that the plaintiff is not a holder in due
course. Gatcchalian had no intention to transfer her property in
the instrument as it was stated that it was for safekeeping merely
and, therefore, there was no delivery required by law for it was done
with condition. Also, plaintiff cannot be a holder in due course
because there was no negotiation prior to plaintiffs possession of the
check; that a holder in due course presupposes a prior party from
whose hands negotiation proceeded and in the case at bar, plaintiff
is the payee and that he acquired the said check with notice of defect
in the title of the holder, Manuel Gonzales.
ISSUE: Whether or not Vicente De Ocampo is a holder in due
course.
HELD: - No. De Ocampo cannot be considered a holder in due
course thus he cannot recover the value of the check. As provided in
Section 52 of the NIL, 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 case at bar, the rule that a possessor is deemed prima facie
a holder in due course does not apply because there was a defect in
the title of the holder (Gonzales) because the instrument is not
payable to him or to bearer. As holders title was defective and
suspicious, it cannot be stated that the payee acquired the check
without knowledge of said defect.
- The fact that Gatchalian has no obligation to De Ocampo and yet
hes named as the payee in the check should have apprised De
Ocampo; that the check did not correspond to Matilde Gonzales
obligation with the clinic because of the fact that it was for P600.00
more than the indebtedness; that why was Manuel in possession of
the check all these gave De Ocampo the duty to ascertain from the
holder Manuel Gonzales what the nature of the latters title to the
check was or the nature of his possession.
- As to the issue of holder in good faith, the stipulation of facts did not
involve good faith hence plaintiff has not acquired the said check in
GF and may not be deemed a holder in due course.
Green v. Lopez
36 Phil 1
- This is an appeal from a judgment for the face value of a negotiable
note, and against the makers, with a declaration of the subsidiary
liability of the payee, from whom the note was purchased and by
whom it was indorsed to the plaintiffs.
FACTS:
- The complaint alleged that the note was indorsed by the payee
(Lopez) to the plaintiff (Green) for value received and the allegation
was conclusively established by the evidence adduced at the trial.
- The indorsement was made for a valuable consideration and that
the purchasers were clearly entitled to judgment for the face value of
the note.
- The makers (defendants) of the note refused to pay alleging that
the plaintiffs were not bona fide holders of the note by indorsement,
in that they had knowledge of the existence of certain equitable
defences which the makers were entitled to set up against the payee
of the note, before they acquired it by indorsement from the payee.
- On the other hand, Green (plaintiff) stated that before purchasing
the note, he sent an employee to call upon the makers of the note to
inquire whether it was a good note which would be paid at maturity
and that upon his return this employee stated that he had been
informed that the note was a good note duly executed by the makers
(defendants) and that it would be paid when due.
ISSUE: Whether or not the defendant can refuse payment of the
note.
HELD: - No. The court ruled that the defendants allegations were
false and that he failed to make himself understood resulting to the
fact that no knowledge of the existence of the equitable defenses
was made known to the plaintiff, the purchaser of the note.
- There was nothing on the face of the note to put the purchasers on
notice of the existence of such equitable defenses. It was entirely
regular in form and came into their possession in the usual course of
business. Under these circumstances, the burden of proof was
manifestly upon the makers of the note to establish the fact of
knowledge of these equitable defences before they could be
permitted to rely upon such defences as against the purchasers.
- Equitable defences of this nature can in no event defeat the right of
the holders of negotiable note by indorsement and for valuable
consideration until and unless knowledge of the existence of such
equitable defences is brought home to them or until it appears that
the holders had such knowledge of the existence of the defects in
the instrument as to charge them with bad faith in acquiring it under
al the attendant circumstances.
Bataan Cigar and Cigarette Factory Inc. v CA
230 SCRA 643
- This is a review of the CAs decision affirming the decision of the
RTC for collection of 3 unpaid checks issued by Bataan Cigar &
Cigarette Factory, Inc. This decision favoured State Investment
House Inc, the private respondent herein.
FACTS:
- Petitioner, Bataan Cigar engaged one of its suppliers, King Tim Pua
George to deliver 2,000 bales of tobacco leaf in October 1978. In
consideration thereof, BCCFI issued crossed checks post dated in
March 1979 in the total amount of P820, 000.
- Relying on the suppliers representation that he would completely
deliver within 3 months, petitioner agreed to purchase additional 2,
500 bales of tobacco leaves despite the formers failure to deliver in
accordance with their earlier agreement.
- Again, petitioner issued postdated crossed checks in the total
amount of P1,100,000.00 payable in September 1979.
- During these times, George King was dealing with SIHI. He sold
several checks bearing his name as the payee at a discount.
- Since George King failed to deliver the leaves, BCCFI issued a stop
payment order on all checks payable to King. Subsequently, stop
payment was also ordered on the checks sold by George King to
SIHI thus the latter instituted a case against BCCFI.
- Trial Court: pronounced SIHI as having a valid claim being a holder
in due course.
ISSUE: Whether or not SIHI, a second indorser, and holder of
crossed checks, is a holder in due course, to be able to collect from
BCCFI.
HELD: - No. SIHI is not a holder in due course insofar as Sec.52(c)
is concerned. Hence, he cannot oblige the BCCFI to pay for the
disputed checks. As provided in Section 52 of the NIL, 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.
- It is settled that 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 faith contrary to Sec. 52 (c) of the NIL, and as such
the consensus of the authority is to the effect that the holder is not a
holder in due course. However, the respondent is still a holder only
but the instrument is subject to defenses as if it were non-negotiable.
Hence, the respondent can collect from the immediate indorser,
George King.
Chan Wan v. Tan Kim
109 Phil 706
FACTS: - Tan Kim and her husband (Chen So) issued 11 checks
payable to cash or bearer to be drawn against their account with
the Equitable Banking Corporation.
- Tan Kim declared without contradiction that the checks had been
issued to two persons named Pinong and Muy for some shoes the
latter had promised to make and were intended as mere receipts.
- In view of such circumstances, the court declined to order payment
for 2 principal reasons: (1) plaintiff failed to prove he was a holder in
due course, and (2) the checks should not have been presented to
the drawee for payment but should have been deposited instead with
the bank mentioned in the crossing.
- 8 of the checks bear across their face parallel traverse lines
between which these words are written: non-negotibale- China
Banking Corporation.
- Inasmuch as Chan Wan did present them for payment himself, the
Manila Court said that there was no proper presentment, and the
liability did not attach to the drawer.
- The deposit of the checks with China Banking Corporation and
subsequent presentation by the latter through the clearing office; but
as drawee and no funds, they were unpaid and returned, and some
of them stamped with Account Closed.
- Chan Wan got hold of these checks (Chan Wan was not able to
explain in court how he got hold of the checks). Chan Wan now
wants to encash the checks but Equitable Bank refused accept the
said checks.
ISSUE: Whether or not Chan Wan is a holder in due course.
HELD: - No. As a general rule, a dishonored check/instrument may
still be negotiated either by indorsement or delivery and the holder
may be a holder in due course provided that he received no notice
regarding the dishonor of the instrument.
- In this case, the checks were already crossed on their face hence
Chan Wan was properly notified of the dishonor of the checks at the
time of his acquisition.

But may Chan Wan still recover?
Yes. 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. The holder may recover directly from the
drawee, in this case Tan Kim and Chen So, unless the drawees have
a valid excuse in refusing payment. The only disadvantage of a
holder who is not a holder in due course is that the negotiable
instrument is subject to defense as if it were non- negotiable. The
case was remanded to the lower court for a proper determination as
to how Chan Wan acquired the checks and to determine if he is
indeed entitled to payment based on some other transactions
involving those checks.
Consolidated Plywood v. IFC Leasing
149 SCRA 448
FACTS:
- The petitioner CPII is a corporation engaged in the logging
business. It had for its program of logging activities for the year 1978
the opening of additional roads and simultaneous logging operations
along Davao Oriental.
- For this purpose, it needed 2 additional units of tractors. Cognizant
of petitioners need and purpose, Atlantic Gulf & Pacific Company of
Manila through its sister and marketing arm, Industrial Products
Marketing, dealing with tractors, offered to sell petitioner corporation
two used tractors. To determine the extent of work and the capacity
of the 2 tractors, the petitioner asked the seller-assignor to inspect
the jobsite.
- After the inspection, the assignor assured the petitioner that the
tractors being offered were fit for the job and gave a 90-day warranty
for performance and parts.
- With said assurance and warranty, and relying on the sellers skills
and judgment, the petitioner through Wee and Vergara, President
and Vice-President, agreed to purchase on instalments the said used
tractors. It paid a down payment of P210, 000. Thereafter, the seller
ussied a sales invoice and a deed of sale with chattel mortgage with
PN was executed.
- With the execution of deed of sale, the seller assigned its rights and
interest in the chattel mortgage in favour of the respondent.
Thereafter, the seller delivered said 2 units to the petitioner
corporation and as agreed upon, the seller stationed on its own
mechanics to supervise the operations of the machines.
- 14 days after, one of the tractors broke down and after another 9
days, the other tractor likewise broke down.
- Petitioner Vergara formally advised the seller of the fact that the
tractors broke down and asked for the warranty. In response, the
seller sent its mechanics to conduct the repairs but the tractors did
not come out to be what they should be after the repairs were done-
no longer serviceable.
- Due to the breaking down of tractors, the project was delayed and
because of that petitioner Vergara advised the seller that the
payments for the installments would likewise be delayed until the
seller completely fulfils its obligation under its warranty.
- Since the tractors were no longer serviceable, petitioner Wee asked
the seller to pull out the units and have them reconditioned and
thereafter, to offer them for sale. The proceeds were to be given to
the respondent and the excess to the seller and corporation.
- No response was received from the seller until the case was filed
by the respondent against the petitioners. The complaint was filed for
the recovery of the principal sum of P1,093,789.91, accrued interest
and costs of suit.
- The petitioners filed their answer praying for the dismissal of the
complaint and asking the trial court to order the respondent to pay
the petitioners damages.
- RTC: Ordered the petitioners to pay the sum of money together
with the accrued interest and costs of suit. The petitioners then filed
before the CA.
- CA: Affirmed in toto the decision of the RTC. The breach of
warranty does not lie in favour of the appellants and against the
plaintiff-appellee who is the assignee of the PN.
ISSUES:
(1) Whether or not the PN in question is a negotiable instrument so
as to bar completely all the defenses available to the petitioner
against the respondent.
(2) Whether or not the respondent (IFC Leasing) is a holder in due
course.
HELD:
(1) No, it is not a negotiable instrument. As provided in Section 1(d)
of the NIL, a PN must be payable to order or bearer. In the disputed
PN, there were no words or order which serve as an expression of
consent that the instrument may be transferred. Thus, the note is
only payable to the name indicated therein.
(2) No. Considering that the PN is not a negotiable instrument then,
therefore, it follows that the respondent is not a holder in due course
but remains as a mere assignee of the note in question. Thus, the
petitioner may raise against the respondent all defenses available to
it as against the seller, Industrial Products Marketing. Lastly, the
respondent failed to present any evidence to prove that it had no
knowledge of any fact, which would justify its act of taking the PN as
not amounting to bad faith.
State Investment House v. IAC
175 SCRA 310
Petitioner seeks a review of the decision of IAC dismissing the
complaint for collection filed by the petitioner against private
respondents Sps. Chua.
FACTS:
- Shortly before September 5, 1980, New Sikatuna Wood Industries
Inc (NSWI) requested for a loan from the Sps.Chua which the latter
agreed to grant to the condition that the former should wait until
December 1980 when he would have the money.
- In view of this, Anita Chua issued 3 crossed checks payable to New
Sikatuna Wood Industries all postdated December 22, 1980
amounting to P299, 450.00.
- Subsequently, NSWI entered into an agreement with herein
petitioner State Investment House (SIH) whereby for and in
consideration of the sum of P1, 047, 402. 91 under the deed of sale,
the former assigned and discounted with petitioner 11 PDCs
including the 3 PDCs issued by Chua to NSWI.
- When the 3 checks issued by private respondent Chua were
allegedly deposited by the petitioner, these checks were dishonoured
by reason of insufficient funds, stop payment and account
closed respectively.
- Petitioner claims that despite demands from the respondent to
make good said checks, the latter failed to pay the same
necessitating the petitioner to file an action for collection. The Sps.
Chua filed a third party complaint against the NWSI for
indemnification. However due to failure of the latter to answer, it was
declared in default.
- RTC: Judgment in favour of the petitioner. Ordering the
respondents to pay jointly and severally the amounts stated therein
(p. 313).
- CA: Reversed the decision of the RTC.
ISSUE: Whether or not the petitioner is a holder in due course.
HELD: - No. The petitioner is not a holder in due course. Though he
submitted that at the time of the negotiation and indorsement of the
checks, he had no knowledge of the transactions between the NSWI
and Sps. Chua, it has the intention of violating the crossing of check
when it actually rediscounted the check even though he knew that it
was a cross check and payable only to the name indicated therein.
- Furthermore, his failure to inquire from the holder, NSWI the
purpose for which the 3 crossed checks were crossed, despite the
warning of the crossing, prevents him from being considered in good
faith in pursuance to Sec. 52 (c) of the NIL and thus, he is not a
holder in due course.
Violago v. BA Finance Corporation
559 SCRA 69
FACTS: - 1983: Avelino Violago, President of Violago Motor Sales
Corporation (VMSC), offered to sell a Toyota Cressida Model
1983 to his cousin, Pedro F. Violago and the latters wife, Florencia.
- Violago explained that he needed to sell it to increase the sales
quota of VVMSC and that the spouses would just have to pay a
down payment of PhP 60.5K while the balance would be financed by
BA Finance.
- The spouses would pay the monthly installments to BA Finance
while Avelino would take care of the documentation and approval of
financing of the car. So, the spouses agreed to purchase the car
from VMSC.
- August 4, 1983: the spouses and Avelino signed a promissory note
under which they bound themselves to pay jointly and severally to
the order of VMSC the amount of PhP 209,601 in 36 monthly
installments of PhP 5,822.25 a month, the first installment to be due
and payable on September 16, 1983.
- Avelino prepared a Disclosure Statement of Loan/Credit
Transportation which showed the net purchase price of the vehicle,
down payment, balance, and finance charges. VMSC then issued a
sales invoice in favor of the spouses with a detailed description of
the Toyota Cressida car.
- In turn, the spouses executed a chattel mortgage over the car in
favor of VMSC as security for the amount of PhP 209,601. VMSC,
through Avelino, endorsed the promissory note to BA
Finance without recourse. After receiving the amount of PhP
209,601, VMSC executed a Deed of Assignment of its rights and
interests under the promissory note and chattel mortgage in favor of
BA Finance. Meanwhile, the spouses remitted the amount of PhP
60,500 to VMSC through Avelino.
- The sales invoice was filed with the LTO. The spouses were
unaware that the same car had already been sold in 1982 to
Esmeraldo Violago, another cousin of Avelino and registered in his
name. Despite the spouses demand for the car and Avelinos
repeated assurances, there was no delivery of the vehicle. Since
VMSC failed to deliver the car, Pedro did not pay any monthly
amortization to BA Finance.
- March 1, 1984: BA Finance filed with the RTC a complaint for
Replevin with Damages against the spouses. The complaint prayed
for the delivery of the vehicle in favour of BA Finance or, if delivery
cannot be effected, for a payment of certain amount. The Sps.
Violago were rendered in default for failure to file an answer.
Dino v. Judal-Loot
618 SCRA 393
- RTC: rendered a decision favoring BA Finance, however, declared
that they are entitled to be indemnified by Avelino.
FACTS: - A syndicate, one of whose members posed as an owner of
- CA: affirmed - promissory note was a negotiable instrument and several parcels of land situated in Lapu-Lapu City, approached
that BA Finance was a holder in due course applying Secs. 8, 24 and petitioner and induced him to lend the group P3,000,000.00 to be
52 of the NIL. secured by a real estate mortgage on the properties.

ISSUE: Whether or not the holder (BA Finance) of an invalid PN may - A member of the group, a woman Vivencia Consing even offered to
be considered a holder in due course. execute a deed of absolute sale covering the properties, instead of
the usual mortgage contract.
HELD: - Yes. In resolving the issue as to whether or not the holder is
a holder in due course, a determination of whether an instrument is a - Enticed and convinced, petitioner issued 3 Metrobank checks
negotiable one must be done. totalling to P3,000,000.00, one of which is a postdated check in the
amount of 1M payable to certain Consing and/or Lobitana.
- As provided in Section 1 of the NIL, the promissory note herein
- Petitioner then discovered that the documents of the properties
disputed is a negotiable since it met all the requisites under this
covered rights over government properties. Realizing that he had
section. That the PN was signed by the petitioners, it contained an
been deceived, he advised Metrobank to stop payment of his
unconditional promise to pay a certain amount on specific dates, that
checks. However, only the payment to Consing was ordered
it is made payable to VMSC and it named the drawees with certainty.
stopped. The other 2 checks were encashed by the payees.
- Furthermore, the CA is correct in holding that BA Finance is a
- Meanwhile, Lobitana negotiated and indorsed the remaining check
holder in due course since it met all the requisites laid down in
to the respondents in exchange for cash in the sum of P948,000.00
Section 52 of the NIL- that the PN is complete and regular upon its
which respondents borrowed from Metrobank and charged against
face, that it was endorsed by the VMSC in favour of the appellee,
their credit line.
that it accepted the note in GF and for value. In addition to that, BA
Finance was never informed before and at the time of indorsement of - Before respondents accepted the check, they first inquired from the
the PN that a prior sale of the vehicle happened. drawee bank, Metrobank Mabolo branch if the subject check was
sufficiently funded to which the bank answered in the affirmative.
- Since BA Finance is a holder in due course, the petitioners cannot
raise the defense of non-delivery of the object and nullity of the sale
against the corporation.
- However, when the respondents deposited the check, the same
was dishonoured by the drawee for the reason Payment Stopped.
Respondents then filed a collection suit against petitioner and
Lobitana. They alleged that they are holders in due course and that
they had no prior information concerning the transaction between the
defendants.
- Peitioner then denied the respondents allegations. Also, Lobitana
denied the allegations and claimed that the transaction leading to the
issuance of the check is a sale of a parcel of land by Consing to
petitioner and that she was made a payee of the check only to
facilitate its discounting.
- Trial Court: ruled in favour of the respondents and declared them
as holders in due course of the check since there was no privity
between the respondents and defendants.
- CA: affirmed the RTCs decision that respondents are holders in
due course with respect to the disputed check. The petitioners
admission that the respondents were never a party to the transaction
led to the respondents lack of knowledge of any infirmity in the
instrument or defect in the title of the person negotiating it.
Therefore, respondents must be excluded from petitioners stop
payment order.
- Petitioner acted in GF in ordering the stoppage of payment of the
subject check and thus, he must not be liable for those amounts.
ISSUE: Whether or not the respondents were holders in due course.
HELD: - No. As provided in Section 52 of the NIL, 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 case of a crossed-check, as in this case, the following
principles must additionally be considered: a crossed check:
(a) may not be encahshed but only deposited in the bank;
(b) may be negotiated only once- to 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.
- Based on the foregoing, respondents had the duty to ascertain the
indorsers, in this case Lobitanas title to the check or the nature of
her possession. This, respondents failed to do so. Mere verification
from the Metrobank whether the check is funded is not tantamount to
determination of Lobitanas title. Hence, respondents are guilty of
gross negligence amounting to legal absence of good faith as
required in Sec. 52 (c) of the NIL. Therefore, the respondents are not
holders in due course. However, they can still collect from the
immediate indorser, in this case, Lobitana.