DE OCAMPO vs.

GATCHALIAN
3 SCRA 596 Mercantile Law Negotiable Instruments Law
Rights of the Holder What Constitutes a Holder in Due Course
Is a payee a holder in due course?
Matilde Gonzales was a patient of the De Ocampo Clinic owned by
Vicente De Ocampo. She incurred a debt amounting to P441.75.
Her husband, Manuel Gonzales designed a scheme in order to pay
off this debt: In 1953, Manuel went to a certain Anita Gatchalian.
Manuel purported himself to be selling the car of Vicente De
Ocampo. Gatchalian was interested in buying said car but Manuel
told her that De Ocampo will only sell the car if Gatchalian shows
her willingness to pay for it. Manuel advised Gatchalian to draw a
check of P600.00 payable to De Ocampo so that Manuel may
show it to De Ocampo and that Manuel in the meantime will hold
it for safekeeping. Gatchalian agreed and gave Manuel the check.
After that, Manuel never showed himself to Gatchalian.
Meanwhile, Manuel gave the check to his wife who in turn gave
the check to De Ocampo as payment of her bills with the clinic.
De Ocampo received the check and even gave Matilde her change
(sukli). On the other hand, since Gatchalian never saw Manuel
again, she placed a stop-payment on the P600.00 check so De
Ocampo was not able to cash on the check. Eventually, the issue
reached the courts and the trial court ordered Gatchalian to pay
De Ocampo the amount of the check.
Gatchalian argued that De Ocampo is not entitled to payment
because there was no valid indorsement. De Ocampo argued tha
he is a holder in due course because he is the named payee.
ISSUE: Whether or not De Ocampo is a holder in due course.
HELD: No. Section 52 of the Negotiable Instruments Law, defines
holder in due course, thus:
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.
The Supreme Court emphasized that if one is such a holder in due
course, it is immaterial that he was the payee and an immediate
party to the instrument. The Supreme Court however ruled that
De Ocampo is not a holder in due course for his lack of good faith.
De Ocampo should have inquired as to the legal title of Manuel to
the said check. The fact that Gatchalian has no obligation to De
Ocampo and yet hes named as the payee in the check hould
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.