B.A. Green, ET AL vs. M. Lopez, ET AL.

G.R. No. L-11526

January 2, 1917

SUMMARY:

Lopez et al. issued a negotiable note to a payee. Then, it was bought by Green et al from the payee.
However, Lopez et al refuses to pay the negotiable note saying that Green et al were not holders in due
course. The Court held that

Facts:
A negotiable note was issued by LOPEZ ET AL (maker) to a certain payee. After that, this payee
indorsed the note to the present holders, GREEN ET AL. The note indorsed by the payee to GREEN ET AL
said for value received.

LOPEZ ET AL refused to pay the note alleging that GREEN ET AL were not bona fide holders of
the note by indorsement, because they had knowledge of the existence of certain equitable defenses which
the makers were entitled to set up as against the payee of the noted, before they acquired it by indorsement
from the payee.

On the other hand, Green claims that he sent an employee to call upon the makers of the note to
inquire whether it was a good note which would be paid at maturity, and that upon his return this employee
stated that he had been informed by the makers of the note that it was a good note duly executed by them and
that it would be paid when due.

Issue: Whether or not the defendant could refuse payment on the note?- NO

Ruling:

No. The court ruled that the allegations of the defendant were either wholly false or he failed to
make himself understood resulting to the fact that no knowledge of the existence of equitable defenses was
made known to the plaintiff, the purchaser of the note.

There was nothing on the face of the note to put the purchasers on notice of the existence of such
equitable defenses. It was entirely regular in form and came into their possession in the usual course of
business. Under these circumstances the burden of proof was manifestly upon the maker of the note to
establish the fact of knowledge of the equitable defenses before they could be permitted to rely upon such
defenses as against the purchasers.

Equitable defenses of this nature can in no event defeat the right of the holders of a negotiable note
by indorsement and for valuable consideration, until and unless knowledge of the existence of such equitable
defenses is brought home to them, or until it appears that the holders had such knowledge of the existence of
defects in the instrument as to charge them with bad faith in acquiring it under all the attendant
circumstances.

The indorsement was made for a valuable consideration, the purchasers were clearly entitles to
judgment for the face value of the note.
By the decisive weight of authority in this country, where negotiable paper has been put in
circulation, and there is no infirmity or defense between the antecedent parties thereto, a purchaser
of such security is entitled to recover thereon, as against the maker, the whole amount, irrespective
of what he may have paid therefor. (146 U. S., 327.)