Nora B.
Moulic issued to Corazon Victoriano, secutiry for pieces of
jewelry to be sold on commission 2 post-dated Equitable Banking
Corporation checks (50,000) each dated Aug. 30, 1979 and the other
Sept. 30, 1979. Thereafter the payee negotiated the checks to
petitioner State Investment House Inc.
Moulic failed to sell the pieces of jewelry so she returned them to
payee before maturity of checks. The checks however could no
longer be retrieved as they had already been negotiated.
Consequently before their maturity dates, Moulic withdrew her
funds from drawee bank.
Upon presentment of payment, the checks were dishonored for
insufficiency of funds. On Dec 20 1979, State allegedly notifed
Moulic of dishonor and requested that it be paid in case instead
State sued to recover the value of checks plus attorneys fees and
expenses of litigation.
Moulic : she incurred no obligation on the checks because the
jewelry was never sold and checks were negotiated without her
knowledge and consent.
Trial court dismissed the complaint and ordered state to pay moulic
3,000.
State elevated order of dismissal to CA, but CA affirmed decision
on the ground that the notice of dishonor to moulic was made
beyond the period prescribed by the NIL and even if State did serve
such notice on Moulic within the said period, it would be of no
consequence as the checks should never have been presented for
payment.
The sale of jewelry was never effected, the checks therefore ceased
to serve their prupose as secrity for jewelry.
ISSUE: WON State was a holder of checks in due course
SC:
Not persuaded. The negotiability of the checks is not in dispute.
Indubitably, they were negotiable. After all, at the pre-trial, the
parties agreed to limit the issue to WON State was a holder of
checks in due course
Sec 52.
What constitutes a holder in due courts 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 was 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.
Culled from foregoing, a prima facie presumption exists that the
holder of a negotiable instrument is a holder in due course.
Burden fo proof that state is not a holder lies with moulic.
Evidence shows that
a) On their faces post dated checks regular
b) Petitioner bought these checks from payee, Corazon
Victoriano before due dates
 c) Petitioner took these checks in good faith and for value,
albeit at a discounted price
d) Petitioner was never informed nor made aware that these
checks were merely issued to payee as security and not for
value
cannot prejudice the rights of holders in due course. Such
withdrawal renders the drawer, Nora Moulic, liable to State, a holder
in due course of the checks.

Consequently state is INDEED A HOLDER IN DUE COURSE>

- holds free from any defect of title of prior parties and
from defenses avaliable to prior parties among themselves ; state
may thereore enforce full payment of the checks

Moulic cannot set up against state the defense that there was failure
or absence of consideration. MOULIC can only invoke this defense
against State if it was privy to the purpose of which they were issued
and therefore is not a holer in due course.

Furthermore, the mere fact that the checks were issued as security is
not sufficient gorund to discharge the instrument as against holder in
due course.

The fact that State failed to give notice of dishonor to moulic is not
needed and such is not absolute. Moulics actuations by not
retrieving the checks when she returned the jewelry and simply
withdrew funds from drawee bank to protect herself could nto have
expected her checks to be honored hence there was no need to serve
her notice of dishonor.

The NIL was enacted for purpose of facilitating not hindering or

hampering transactions in commercial paper. There is implied
representation that funds or credit are available for the payment of
the instrument in the bank which it is drawn. IN the instant case, the
withdrawal of money from drawee bank to avoid liability on checks