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Nora B.

Moulic issued to Corazon Victoriano, secutiry for pieces of

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

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