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

Gatchalian
(1961)
G.R. No. L-26767 February 22, 1968

P158.25 -given to Manual as balance

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

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

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

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

September 9 1953

no negotiation prior to acquiring the check

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

check is not a personal check of Manuel

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

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

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

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

It is sufficient that the buyer of a note had notice or knowledge that the
note was in some way tainted with fraud

That it is complete and regular on its face

2. NO
Sec. 59
every holder is deemed prima facie to be a holder in due course

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

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:

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

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:

Petitioners 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 nonnegotiable. 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 Stelcos sister corporation, Armstrong Industries, a

MetroBank check from Steelweld Corporation. The check was issued by

Steelwelds 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. Henrys 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 Leons 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 Leons 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. Henrys 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).

meet Chandiramani to turn over the checks and the dollar draft, and the
latter would in turn deliver to the former Phil.

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

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

Petitioner Cely Yang agreed with private respondent Prem Chandiramani to

procure from Equitable Banking Corp. and Far east Bank and Trust Company
(FEBTC) two cashiers 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

Commercial International Bank (PCIB) managers 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 cashiers 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 Managers checks. Two hours after Chandiramani was able to meet
Ranigo, the former delivered to David the two cashiers 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:

(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 Davids case, otherwise he cannot be deemed a holder in
due course.

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. 4195-011652, 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:

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 Davids 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 petitioners 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)

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;

FACTS:

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

CA affirms RTC: in favor of David

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

but Chandiramani did not appear

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

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,

HELD:

and the loss was then reported to the police.

Although negotiable instruments do not constitute legal

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

Chandiramani was able to get hold of the instruments

Chandiramani delivered the 2 cashiers checks to Fernando

payment

checks were crossed

Section 24 of the Negotiable Instruments Law creates a

David at China Banking Corporation branch in San Fernando

City, Pampanga

presumption that every party to an instrument acquired the

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

same for a consideration or for value

deposited in the savings

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

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

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

verify from FEBTC and Equitable as to the genuineness of

Coconut Planters Bank branch in Greenhills

the checks and only accepted the same after being assured
that there was nothing wrong with said checks

He also deposited FEBTC Dollar Draft No. 4771, dated

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

David did not close his eyes deliberately to the nature or the

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

particulars of a fraud allegedly committed by Chandiramani

on the same date.

upon the petitioner, absent any knowledge on his part that

the action in taking the instruments amounted to bad faith

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