Negotiable Instruments Case Digest: Vicente R. De Ocampo V. Gatchalian

(1961)

G.R. No. L-26767 February 22, 1968

Lessons Applicable: Rights of the holder (Negotiable Instruments Law)

FACTS:

Sept 8 1953 evening: Anita C. Gatchalian was looking for a car for the use of

her husband and the family and Manuel Gonzales who was accompanied by

Emil Fajardois (personally known to Anita) offered her a car

Manuel Gonzales represented to defendant Anita that he was duly

authorized by Ocampo Clinic, the owner of the car, to look for a buyer and

negotiate for and accomplish the sale, but which facts were not known to

Ocampo

September 9 1953

Anita requested Manuel to bring the car the day following together with

the certificate of registration of the car so that her husband would be able

to see same

Manuel Gonzales told her that unless there is a showing that the party

interested in the purchase is ready he cannot bring the certificate of

registration

Anita gave him a check which will be shown to the owner as evidence

of buyer's GF in the intention to purchase, it being for safekeeping only of

Manuel and to be returned

For the hospitalization of the wife of Manuel, he paid the check to Ocampo

clinic

P441.75 - payment of said fees and expenses

P158.25 -given to Manual as balance

Next Day: Manual did not appear so Anita issued a stop payment order

Anita filed with the Office of the City Fiscal of Manila, a complaint for estafa

against Manuel

Appeal Manuel contends that:

the check is not a negotiable instrument, under the facts and circumstances

stated in the stipulation of facts - no delivery (Section 16, Negotiable

Instruments Law) because only for safekeeping (conditional delivery)

Ocampo is not a holder in due course

no negotiation prior to acquiring the check

check is not a personal check of Manuel

could have inquired why a person would use the check of another to pay his

own debt, Gatchalian being personally acquainted with V. R. de Ocampo

ISSUES:

W/N Ocampo is a holder in due course - NO

W/N prima facie holder in due course applies - NO

HELD:

NO

Sec. 191

holder - payee or indorsee of a bill or note, who is in possession of it, or the

bearer

Sec. 52

holder in due course - holder who has taken the instrument under the ff

conditions:

That it is complete and regular on its face

That he became the holder of it before it was overdue, and without notice

that it had been previously dishonored, it such was the fact.

That he took it in good faith and for value.

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

circumstances

the amount of the check did not correspond exactly with the obligation

of Matilde Gonzales to Dr. V. R. de Ocampo

check had two parallel lines in the upper left hand corner, which practice

means that the check could only be deposited but may not be converted

into cash

It was payee's duty to ascertain from the holder Manuel what the nature of

his title to the check was or the nature of his possession. - failure: guilty of

gross neglect and legal absence of GF

In order to show that the defendant had 'knowledge of such facts that his

action in taking the instrument amounted to BF it is not necessary to prove

that the defendant knew the exact fraud

It is sufficient that the buyer of a note had notice or knowledge that the

note was in some way tainted with fraud

2. NO

Sec. 59

every holder is deemed prima facie to be a holder in due course

a possessor of the instrument is prima facie a holder in due course does not

apply because there was a defect in the title of the holder (Manuel

Gonzales) because the instrument is not payable to him or to bearer.

suspicious circumstance

VICENTE R. DE OCAMPO & CO. v. ANITA GATCHALIAN. G.R. No. L-15126.

November 30, 1961.

FACTS:

Anita Gatchalian was interested in buying a car. Manuel Gonzales offered to

her a car owned by plaintiff. Gonzales claimed that he was authorized by the

plaintiff to sell the car. Gonzales order defendant to issue a cross-check to

comply on showing interest in buying the car. Gonzales promised to return

the check the next day.

When Gonzales never appeared after, defendant issue a stop payment

order on the check. She found out that Gonzales used the check as payment

to plaintiff's clinic for his wife's fees. Plaintiff now demands defendant for

payment of the check, in which defendant refused citing that plaintiff is a

not a holder in due course.

The lower court held that defendant should pay plaintiff.

ISSUE: Whether or not De Ocampo is a holder in due course.

RULING:

The SC held that plaintiff is a not a holder in due course. There were obvious

instances to show that the check was negligently acquired like plaintiff

having no liability with defendant and that the check was crossed. Plaintiff

failed to exercise prudence and caution. Plaintiff should have asked

questions to further inquire upon suspicion.

The presumption of good faith did not apply to plaintiff because the defect

was apparent on the instruments face – it was not payable to defendant or

bearer.

SALAS V. CA

181 SCRA 296

FACTS:

Petitioner bought a car from Viologo Motor Sales Company, which was

secured by a promissory note, which was later on indorsed to Filinvest

Finance, which financed the transaction. Petitioner later on defaulted

in

her installment payments, allegedly due to the fraud imputed by VMS

in

selling her a different vehicle from what was agreed upon. This default in

payment prompted Filinvest Finance to initiate a case against petitione

r. The trial court decided in favor of Filinvest, to which the appellate

court upheld by increasing the amount to be paid.

It is the contention of petitioner that since the agreement between her and

the motor company was inexistent, none had been assigned in favor o

f private respondent.

HELD:

Petitioner’s liability on the promissory note, the due execution and

genuineness of which she never denied under oath, is under the foregoing

factual milieu, as inevitable as it is clearly established.

The records reveal that involved herein is not a simple case of assignment

of credit as petitioner would have it appear, where the assignee merel

y

steps into the shoes of, is open to all defenses available against and c

an enforce payment only to the same extent as, the assignor-vendor.

The instrument to be negotiable must contain the so-called words of

negotiability. There are only 2 ways for an instrument to be payable

to order. There must always be a specified person named in the instrument

and the bill or note is to be paid to the person designated in the instrument

or to any person to whom he has indorsed and delivered the same.

Without the words “or order” or “to the order of”, the instrument is payable

only to the person designated therein and is thus non-

negotiable. Any

subsequent purchaser thereof will not enjoy the advantages of being a

holder in due course but will merely step into the shoes of the perso

n designated in the instrument and will thus be open to the defenses

available against the latter.

In the case at bar, the promissory notes is earmarked with negotiabilit

y and Filinvest is a holder in due course.

Stelco vs CA

Stelco Marketing vs. CA

GR 96160, 17 June 1992, 210 scra 51

--accommodation party

FACTS:

Stelco Marketing Corporation sold structural steel bars to RYL Construction

Inc. RYL gave Stelco’s “sister corporation,” Armstrong Industries, a

MetroBank check from Steelweld Corporation. The check was issued by

Steelweld’s President to Romeo Lim, President of RYL, by way of

accommodation, as a guaranty and not in payment of an obligation. When

Armstrong deposited the check at its bank, it was dishonored because it was

drawn against insufficient funds. When so deposited, the check bore two

indorsements, i.e. RYL and Armstrong. Subsequently, Stelco filed a civil case

against RYL and Steelweld to recover the value of the steel products.

ISSUE:

Whether Steelweld as an accommodating party can be held liable by Stelco

for the dishonored check.

RULING:

Steelweld may be held liable but not by Stelco. Under Section 29 of the NIL,

Steelweld Corp. can be held liable for having issued the subject check for

the accommodation of Romeo Lim. An accommodation party is one who

has singed the instrument as maker, drawer, acceptor, or indorser, without

receiving valued therefor, and for the purpose of lending his name to some

other person. Such a person is liable on the instrument to a holder for value,

notwithstanding such holder, at the time of taking the instrument, knew

him to be only an accommodation party. Stelco however, cannot be

deemed a holder of the check for value as it does not meet two essential

requisites prescribed by statute, i.e. that it did not become “the holder of it

before it was overdue, and without notice that it had been previously

dishonored,” and that it did not take the check “in good faith and for value.”

STATE INVESTMENT HOUSE V. CA

217 SCRA 32

FACTS:

Moulic issued checks as security to Victoriano, for pieces of jewelry to be

sold on commission. Moulic failed to sell the pieces of jewelry, so sh

e returned them to Victoriano. The checks however could not be recovered

by Moulic as these have been discounted already in favor of petitione

r. Consequently, before the maturity dates, Moulic withdrew her funds

from her account. Thereafter, petitioner presented the checks for payment

but these were dishonored. This prompted the petitioner to initiate an

action

against Moulic.

HELD:

A prima facie presumption exists that a holder of a negotiable instrument is

a holder in due course. The burden of proving that State is not a holder in

due course is upon Moulic. In this regard, she failed to do so.

The evidence shows that the dated checks were complete and regular;

petitioner bought the checks from Victoriano before their due dates; it took

the checks in good faith and for value; and it was never informed nor made

aware that these checks were merely issued to payee as security.

Consequently, State is a holder in due course. Moulic cannot set up t

he defense that there was failure or want of consideration. It can only

invoke the defense if State was a privy to the purpose for which they were

issued and therefore is not a holder in due course.

Furthermore, the mere fact that the checks were issued as security is not

sufficient ground to discharge the instrument as against a holder in du

e course.

And also, Moulic was responsible for the dishonor of her checks. She

withdrew her funds from her account and could not have expected he

r checks to be honored by then.

State Investment House Inc. vs. CA

State Investment House Inc. vs. CA

GR No. 101163 January 11, 1993

Bellosillo, J.:

Facts:

Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery

to be sold on commission, two postdated checks in the amount of fifty

thousand each. Thereafter, Victoriano negotiated the checks to State

Investment House, Inc. When Moulic failed to sell the jewellry, she returned

it to Victoriano before the maturity of the checks. However, the checks

cannot be retrieved as they have been negotiated. Before the maturity date

Moulic withdrew her funds from the bank contesting that she incurred no

obligation on the checks because the jewellery was never sold and the

checks are negotiated without her knowledge and consent. Upon

presentment of for payment, the checks were dishonoured for insufficiency

of funds.

Issues:

1. Whether or not State Investment House inc. was a holder of the check in

due course

2. Whether or not Moulic can set up against the petitioner the defense that

there was failure or absence of consideration

Held:

Yes, Section 52 of the NIL provides what constitutes a holder in due course.

The evidence shows that: on the faces of the post dated checks were

complete and regular; that State Investment House Inc. bought the checks

from Victoriano before the due dates; that it was taken in good faith and for

value; and there was no knowledge with regard that the checks were issued

as security and not for value. A prima facie presumption exists that a holder

of a negotiable instrument is a holder in due course. Moulic failed to prove

the contrary.

No, Moulic can only invoke this defense against the petitioner if it was a

privy to the purpose for which they were issued and therefore is not a

holder in due course.

No, Section 119 of NIL provides how an instruments be discharged. Moulic

can only invoke paragraphs c and d as possible grounds for the discharge of

the instruments. Since Moulic failed to get back the possession of the

checks as provided by paragraph c, intentional cancellation of instrument is

impossible. As provided by paragraph d, the acts which will discharge a

simple contract of payment of money will discharge the instrument.

Correlating Article 1231 of the Civil Code which enumerates the modes of

extinguishing obligation, none of those modes outlined therein is applicable

in the instant case. Thus, Moulic may not unilaterally discharge herself from

her liability by mere expediency of withdrawing her funds from the drawee

bank. She is thus liable as she has no legal basis to excuse herself from

liability on her check to a holder in due course. Moreover, the fact that the

petitioner failed to give notice of dishonor is of no moment. The need for

such notice is not absolute; there are exceptions provided by Sec 114 of NIL.

Atrium Management Corporation vs Court of Appeals

353 SCRA 23 – Business Organization – Corporation Law – Ultra Vires Act –

Liability of Corporate Officers

In 1981, Hi-Cement Corporation through Lourdes De Leon (its Treasurer)

and Antonio De Las Alas (its Chairman, now deceased) issued four postdated

checks to E.T. Henry and Co. The checks amount to P2 million. The checks

are crossed checks and are only made payable to E.T. Henry’s account.

However, E.T. Henry still indorsed the checks to Atrium Management

Corporation (AMC). AMC then made sure that the checks were validly

issued by requesting E.T. Henry to get some confirmation from Atrium.

Interestingly, De Leon confirmed the checks and advised that the checks are

okay to be rediscounted by AMC notwithstanding the fact that the checks

are crossed checks payable to no other accounts but that of E.T. Henry. So

when AMC presented the check, it was dishonored because Hi-Cement

stopped payment. Eventually, AMC sued Hi-Cement, E.T. Henry, and De

Leon. The trial court ruled in favor of AMC and made all the respondents

liable.

On appeal, Hi-Cement averred that De Leon’s act in signing the check was

ultra vires hence De Leon should be personally liable for the check. De

Leon, on the other hand, insisted that the checks were authorized by the

corporation.

ISSUE: Whether or not De Leon’s act of signing the check constitutes an

ultra vires act hence making her personally liable.

HELD: No, the act is not ultra vires but De Leon is still personally liable. The

act is not ultra vires because the act of issuing the checks was well within

the ambit of a valid corporate act. De Leon as treasurer is authorized to sign

checks. When the checks were issued, Hi-Cement has sufficient funds to

cover the P2 million.

As a rule, there are four instances that will make a corporate director,

trustee or officer along (although not necessarily) with the corporation

personally liable to certain obligations. They are:

He assents (a) to a patently unlawful act of the corporation, or (b) for bad

faith or gross negligence in directing its affairs, or (c) for conflict of interest,

resulting in damages to the corporation, its stockholders or other persons;

He consents to the issuance of watered down stocks or who, having

knowledge thereof, does not forthwith file with the corporate secretary his

written objection thereto;

He agrees to hold himself personally and solidarily liable with the

corporation; or

He is made, by a specific provision of law, to personally answer for his

corporate action.

In the case at bar, De Leon is negligent. She was aware that the checks were

only payable to E.T. Henry’s account yet she sent a confirmation to Atrium

to the effect that the checks can be negotiated to them (Atrium) by E.T.

Henry. Therefore, she may be held personally liable along with E.T. Henry

(but not with Hi-Cement where she is an officer).

Cely Yang vs. Court of Appeals, et, al. - GR No. 138074 Case Digest

Facts:

Petitioner Cely Yang agreed with private respondent Prem Chandiramani to

procure from Equitable Banking Corp. and Far east Bank and Trust Company

(FEBTC) two cashier’s checks in the amount of P2.087 million each, payable

to Fernando david and FEBTC dollar draft in the amount of US$200,000.00

payable to PCIB FCDU account No. 4195-01165-2. Yang gave the checks and

the draft to Danilo Ranigo to be delivered to Chandiramani. Ranigo was to

meet Chandiramani to turn over the checks and the dollar draft, and the

latter would in turn deliver to the former Phil.

Commercial International Bank (PCIB) manager’s check in the sum of P4.2

million and the dollar draft in the same amount to be issued by Hang Seng

Bank Ltd. of HongKong. But Chandiramani did not appear at the rendezvous

and Ranigo allegedly lost the two cashier’s checks and the dollar draft.

The loss was then reported to the police. It transpired, however that the

checks and the dollar draft were never lost, for Chandiramani was able to

get hold of them without delivering the exchange consideration consisting

of PCIB Manager’s checks. Two hours after Chandiramani was able to meet

Ranigo, the former delivered to David the two cashier’s checks of Yang and,

in exchange, got US $360,000 from David, who in turn deposited them.

Chandiramani also deposited the dollar draft in

PCIG FCDU No. 4194-0165-2.

Meanwhile, Yang requested FEBTC and Equitable to stop payment on the

instruments she believed to be lost. Both Banks complied with her request,

but upon the representation of PCIB, FEBTC subsequently lifted the stop

payment order on FEBTC Dollar Draft No. 4771, thus, enabling the holder

PCIB FCDU Account No. 4194-0165-2 to received the amount of US $ 200,

000.

Issue:

(1) Whether or not David may be considered a holder in due course.

(2) Whether or not the presumption that every party to an instrument

acquired the same for a consideration is applicable in this case.

Held:

(1) Every holder of a negotiable instrument is deemed prima facie a holder

in due course. However, this presumption arises only in favor of a person

who is a holder as defined in Section 191 of the Negotiable Instruments

Law, meaning a “payee or indorsee of a bill or note, who is in possession of

it, or the bearer thereof.”

In the present case, it is not disputed that David was the payee of the checks

in question. The weight of authority sustains the view that a payee may be a

holder in due course. Hence, the presumption that he is a prima facie holder

in due course applies in his favor.

(2) The presumption is that every party to an instrument acquired the same

for a consideration. However, said presumption may be rebutted. Hence,

what is vital to the resolution of this issue is whether David took possession

of the checks under the conditions provided for in Section 52 of the

Negotiable Instruments Law. All the requisites provided for in Section 52

must concur in David’s case, otherwise he cannot be deemed a holder in

due course.

Section 24 of the Negotiable Instruments Law creates a presumption that

every party to an instrument acquired the same for a consideration or for

value. Thus, the law itself creates a presumption in David’s favor that he

gave valuable consideration for the checks in question. In alleging

otherwise, the petitioner has the onus to prove that David got hold of the

checks absent said consideration. However, petitioner failed to discharge

her burden of proof. The petitioner’s averment that David did not give

valuable consideration when he took possession of the checks is

unsupported, devoid of any concrete proof to sustain it. Note that both the

trial court and the appellate court found that David did not receive the

checks gratis, but instead gave Chandiramani US$ 360,000 as consideration

for the said instruments.

Lessons Applicable: Rights of the holder (Negotiable Instruments Law)

FACTS:

December 22, 1987: Cely Yang and Prem Chandiramani entered

into an agreement whereby Yang was to give 2 P2.087M PCIB

managers check in the amount of P4.2 million both payable to the

order of Fernando David. Yang and Chandiramani agreed that the

difference of P26K in the exchange would be their profit to be divided

equally between them.

Yang and Chandiramani also further agreed that the Yang

would secure from FEBTC a dollar draft in the amount of

US$200K, payable to PCIB FCDU Account No. 4195-01165-

2, which Chandiramani would exchange for another dollar

draft in the same amount to be issued by Hang Seng Bank

Ltd. of Hong Kong.

December 22, 1987, Yang procured the ff:

a) Equitable Cashiers Check No. CCPS 14-009467 in the sum of P2,087,000.00, dated December 22, 1987, payable to the

order of Fernando David;

b) FEBTC Cashiers Check No. 287078, in the amount

of P2,087,000.00, dated December 22, 1987, likewise payable

to the order of Fernando David; and

c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New

York, in the amount of US$200,000.00, dated December 22,

1987, payable to PCIB FCDU Account No. 4195-01165-2.

December 22, 1987 1 p.m.: Yang gave the cashiers checks and

dollar drafts to her business associate, Albert Liong, to be

delivered to Chandiramani by Liongs messenger, Danilo

Ranigo

Ranigo was to meet Chandiramani at 2 p.m. at Philippine Trust Bank,

Ayala Avenue, Makati where he would turn over Yangs cashiers

checks and dollar draft to Chandiramani who, in turn, would deliver to

Ranigo a PCIB managers check in the sum of P4.2 million and a

Hang Seng Bank dollar draft for US$200K in exchange

but Chandiramani did not appear

December 22, 1987 4 p.m.: Ranigo reported the alleged loss of the

checks and the dollar draft to Liong. Liong, in turn, informed Yang,

and the loss was then reported to the police.

Chandiramani was able to get hold of the instruments

Chandiramani delivered the 2 cashiers checks to Fernando

David at China Banking Corporation branch in San Fernando

City, Pampanga

In exchange, he got US$360K from David, which he

deposited in the savings

account of his wife, Pushpa; and his mother, Rani

Reynandas, who held FCDU Account No. 124 with the United

Coconut Planters Bank branch in Greenhills

He also deposited FEBTC Dollar Draft No. 4771, dated

December 22, 1987, drawn upon the Chemical Bank, New

York for US$200K in PCIB FCDU Account No. 4195-01165-2

on the same date.

Yang requested FEBTC and Equitable to stop payment on the

instruments she believed to be lost

Both banks complied with her request

Yang filed against David and Chandiramani

CA affirms RTC: in favor of David

ISSUE: W/N David is a holder in due course

HELD:

Although negotiable instruments do not constitute legal

tender, they often take the place of money as a means of

payment

checks were crossed

Section 24 of the Negotiable Instruments Law creates a

presumption that every party to an instrument acquired the

same for a consideration or for value

David took the step of asking the manager of his bank to

verify from FEBTC and Equitable as to the genuineness of

the checks and only accepted the same after being assured

that there was nothing wrong with said 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 that

the action in taking the instruments amounted to bad faith