CHAN WAN v TAN KIM

G.R. No. L-15380, September 30, 1960

FACTS:
Tan Kim issued 11 checks payable to “cash or bearer” to be drawn against their account
with the Equitable Banking Corporation. Chan Wan presented these for payment but , but they
"were all dishonored and returned to him unpaid due to insufficient funds and/or causes
attributable to the drawer."
At the hearing of the case, Chan Wom did not take the witness stand. His attorney,
however, testified only to identify the checks plus the letters of demand upon defendants.

On the other hand, Tan Kim declared without contradiction that the checks had been
issued to two persons named Pinong and Muy for some shoes the former had promised to make
and "were intended as mere receipts".

In view of such circumstances, the court declined to order payment for two principal
reasons: (a) plaintiff failed to prove he was a holder in due course, and (b) the checks being
crossed checks should not have been deposited instead with the bank mentioned in the crossing.

ISSUE:
1. Whether Chan Wan is a holder in due course.
2. Whether Chan Wan has the right to collect.

RULING:
1. No. As a general rule, a dishonored check/instrument may still be negotiated either by
indorsement or delivery and the holder may be a holder in due course provided that he
received no notice regarding the dishonor of the instrument. In this case, the checks were
already crossed on their face hence Chan Wan was properly notified of the dishonor of
the checks at the time of his acquisition.
2. Yes. The Negotiable Instruments Law does not provide that a holder who is not a holder
in due course, may not in any case, recover on the instrument. The holder may recover
directly from the drawee, in this case Tan Kim and Chen So, unless the drawees have a
valid excuse in refusing payment. The only disadvantage of a holder who is not a holder
in due course is that the negotiable instrument is subject to defense as if it were non-
negotiable.

The case was remanded to the lower court for a proper determination as to how Chan Wan
acquired the checks and to determine if he is indeed entitled to payment based on some other
transactions involving those checks.