WEEK 2

GEMPESAW vs CA “crossed checks NOT restrictive indorsement” Petitioner claims that respondent
drawee Bank should not have honored the checks because they were “crossed checks.” Are “crossed
checks” the same as a restrictive indorsement? No. In restrictive indorsement, the prohibition to
transfer or negotiate must be written in express words at the back of the instrument, so that any
subsequent party may be forewarned that ceases to be negotiable. Crossed checks, on the other hand,
is done by drawing two parallel lines across the face of the check to mean that it cannot be presented
for payment in cash, but can only be deposited in payee’s account. Crossing of checks do not ipso
facto cause the cessation of its negotiable character.

LEONARDI vs CHASE NATIONAL BANK “Chase bank valid set-off” When Chase Bank learned of the
insolvency of Florida bank, it set off as against this indebtedness the credits to the Florida bank on its
books in a sum inclusive of that represented by plaintiff's check. US SC ruled that there was, at the time
defendant set off the credit to the bank on its books, a relationship of debtor and creditor which
existed between the bank and plaintiffs with respect to the amount of the check. Payment to Florida
bank was by means of final solvent credit and agency terminated and relationship of debtor and creditor
ensued between plaintiffs and Florida bank. Defendant was entitled to set off the credit as against the
general indebtedness of the Florida bank to it, in accordance with the agreement between them to that
effect and defendant is not liable to plaintiffs for amount of check.

MBTC vs BA FINANCE “No lone indorsement when payable to 2 or more payees/indorsees” Section 41
of the NIL provides: Where an instrument is payable to the order of two or more payees/indorsees who
are not partners, all must indorse unless the one indorsing has authority to indorse for the others. In the
case at bar, Bitanga alone indorsed the crossed check. Despite this, Metrobank allowed the deposit and
the release of the funds, even in the absence of authority of Bitanga’s co-payee BA Finance. Clearly,
Metrobank was negligent when it allowed the deposit of the crossed check, despite the lone
indorsement of Bitanga.

WEEK 3

STATE INVESTMENT HOUSE, INC (SIHI) vs CA “Where SIHI was a holder in due course” In this case,
respondent Moulic did not retrieve the checks held by SIHI when she returned the jewelry. She simply
withdrew her funds from her drawee bank and transferred them to another to protect herself. The
withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the
rights of holders in due course. The holder who takes the negotiated paper makes a contract with the
parties on the face of the instrument; there is an implied representation that funds or credit are
available for the payment of the instrument in the bank upon which it is withdrawn. SIHI was a holder in
due course:
1. The evidence clearly shows that on their faces the post-dated checks were complete and regular
2. SIHI bought these checks from the payee before their due dates
3. SIHI took these checks in good faith and for value
4. SIHI was never informed nor made aware that these checks were merely issued to payee as
security and not for value.

BATAAN CIGAR vs CA “Where SIHI was NOT a holder in due course” Bataan Cigar issued a stop
payment order on all checks payable to King, who issued the checks to SIHI. SIHI instituted this case after
failing to collect from Bataan Cigar on the checks. In order to preserve the credit worthiness of checks, it
has been pronounced that crossing a check should have the following effects: (1) check may not be
encashed but only deposited in the bank; (2) the check may be negotiated only once, to one who has an
account with a bank; (3) and the act of crossing the check serves as a warning to the holder that the
check has been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise he is not a holder in due course. Here, SIHI is declared guilty of
gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of NIL. In effect, he is
not a holder in due course.

PRUDENCIO vs CA “An immediate party is NOT a holder in due course” GR: A payee may be
considered a holder in due course. HOWEVER, such rule cannot apply with PNB in this case because it is
an immediate party to the promissory note. It dealt directly with the petitioners knowing fully well that
the latter only signed as accommodation makers. More importantly, it was the Deed of Assignment
executed by the Construction Company in favor of PNB which principally moved the petitioners to sign
the promissory note also in favor of PNB.

Also, PNB did not manifest good faith. It knew that the promissory note which it took from the
accommodation makers was signed by the latter because of full reliance on the Deed of Assignment,
which, PNB had no intention to comply with strictly. The approval by PNB for the release of 3 payments
to the company instead of paying the same to the bank was in violation of the Deed of Assignment and
without any notice to the petitioners.

ATRIUM MANAGEMENT CORP vs CA “Atrium aware of infirmity, NOT a holder in due course” One
requisites of being a holder in due course is: 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. In this case, the
checks were crossed checks and specifically indorsed for deposit to payees account only (E.T. Henry).
The facts show that the checks were issued by Hi-Cement to extend financial assistance to E.T. Henry,
and not as payment of petroleum products. From the start, Atrium was aware of this fact. Thus, Atrium
could not be considered a holder in due course.

HI-CEMENT vs INSULAR BANK (IBAA) 20 checks of Hi-Cement (which were crossed and which bore the
restriction “deposit to payee’s account only”) were dishonoured. IBAA file a complaint for sum of money
against Hi-Cement et al. SC ruled that IBAA was NOT a holder in due course. There was an irregularity -
only the treasurer's signature appeared on the deed of assignment. As a banking institution, it behooved
respondent to act with extraordinary diligence in every transaction. Its business is impressed with public
interest, thus, it was not expected to be careless and negligent, specially so where the checks it dealt
with were crossed. Thus, Hi-cement (drawer of the postdated crossed checks) was not liable to IBAA
(the holder who was deemed not a holder in due course).