BATAAN CIGAR and CIGARRETE vs. the COURT OF APPEALS and Bataan Cigar.
Bataan Cigar. There being a failure of consideration, State Investment cannot
STATE INVESTMENT HOUSE Inc. (GR. No. 93048, March 3, 1994)
Facts : Bataan Cigar bought 2,000 and 2,500 bales of tobacco leaves from
Tim King Pua George (George King) on two separate occasions. As payment
for these tobacco leaves, Bataan Cigar issued several crossed checks in favor
of George King.
George King also dealt with State Investment House separately. During these
transactions, George King sold three crossed checks issued by Bataan Cigar
to State Investment at a discount.
George King was unable to deliver the tobacco leaves to Bataan Cigar. This
prompted the latter to issue a stop payment order on the crossed checks,
including the checks sold by George King to State Investment. Having failed
to successfully collect from Bataan Cigar, State Investment filed a complaint
for payment.
The RTC ruled in favor of State Investment ruling that the latter was a holder
in due course and that George King need not be impleaded since he, as the
payee, is not an indispensable party to the case.
Issue : Whether or not State Investment House Inc. is a holder in due course.
Held : No. To be a holder in due course, the holder must take the instruments
under the following conditions :
a. That it is complete and regular upon its face.
b. That he became the holder thereof before it became 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 condition under paragraph C is missing. The crossing of checks should
put the holder on inquiry and upon him devolves the duty to ascertain the
indorsers (George King) title to the check and the nature of his possession.
Applying the foregoing principles to the case at bar, Bataan Cigar can raise
the defense of stopping payment against State Investment and George King
since the checks were issued with the intention that George king would supply
be considered a holder in due course.
The foregoing does not however mean that State Investment cannot recover
on the checks. The only disadvantage of being a holder not in due course is
that the instrument may be subjected to all defenses as if it were non
negotiable. Hence, respondent may recover from the immediate indorser,
George King.
RELEVANCE TO TOPIC :
In this case, the Supreme Court cited another case : State Investment House
Inc. vs. IAC. In the case cited, the SC stated that where a check is crossed,
only the payee can make a valid presentment for payment of the check to
make the drawer liable. So since State Investment was not the payee on the
face of the crossed check, it did not have the authority to have it presented for
payment and as such there was no due presentment which consequently did
not make the drawer liable.
Furthermore, jurisprudence has pointed out that where a check is crossed, it
only has the following effects :
a. The check cannot be enchashed, but only deposited.
b. The check may only be negotiated once.
c. The act of crossing a check serves as a warning to the holder that
the check had been issued for a definite purpose so he must inquire
if he had received the check pursuant to that purpose, otherwise, he
is not a holder in due course.
Important points to remember about crossed checks:
- A check is a bill of exchange drawn on a bank payable on demand.
A crossed check is one where there are two parallel lines across its
face or across one of its corners.
- A check is crossed specially when a particular banking company is
written between the parallel lines. It is crossed generally when the
words and company are written between the parallel lines.
- Although the NIL does not mention of crossed checks, Article 541 of
the Code of Commerce refers to such instruments.
- The crossing of a check, whether specially or generally does not
affect the instruments negotiability as long as the one who encashes
the check with the drawee bank is another bank, or if it is specially
crossed, by the bank indicated between the parallel lines.