Hi-Cement Corp.

v Insular Bank of Asia

DOCTRINE: Section 52:
A holder in due course is a holder who has taken the instrument under the following
conditions:
(a) it is complete and regular on its face;
(b) he became the holder of it before it was overdue, and without notice that it has previously
been dishonored, if such was the fact;
(c) he took it in good faith and for value and
(d) 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.
Absent any of the elements set forth in Section 52, the holder is not a holder in due course.
In the case at bar, the last two requirements were not met.
FACTS:
1. Petitioners Spouses Tan were controlling stockholders of E.T. Henry & Co., a company
that is engaged in the business of processing and distributing bunker fuel
2. Hi-Cement was among the customers of Petitioner Spouses
3. Hi-Cement issued post-dated checks for their purchases from E.T. Henry & Co
4. In 1979, respondent bank, Insular Bank of Asia and America granted E.T. Henry & Co.
a credit facility which enables E.T Henry to encash, with pre-deducted interest, the post-
dated checks of their clients
(side note: in cred discount deducted na pag una palang for example 10% off na kaagad sa amount of money ng check unlike
interest after yung deduction; interest is consideration for use of money in this case consideration for encashing ahead of time
since post dated)

5. Because of this agreement, the petitioner E.T. Henry & Co. was able to re-discount its
client’s checks
(NOTES:
 re-discount  discounting for the 2nd time
 Usually a discount is by agreement, and includes the common situation in which a holder
of a long-term promissory note or material goods will sell it/them for less than face value
in order to get cash now---the difference is the discount.)

6. For every transaction, respondent bank required E.T. Henry to execute a promissory note
and a deed of assignment bearing the conformity of the client (customers of the
Spouses Tan like Hi-cement) to the re-discounting.
7. However, in February 1981, 20 checks of Hi-Cement were dishonored, so with the other
customers of E.T. Henry & Co.
8. Respondent bank filed a complaint for sum of money against E.T. Henry & Co., Sps.
Tan, Hi-Cement, and the other customers
9. According to respondent bank, the dishonored checks made them suffer actual damages
NOTE why actual damages: prior to actual date of the check nawalan na siya ng money regardless if the
funds were available or not nilabas na niya yung money by encashing the post-dated crossed checks)
 10.Hi-Cement argued that:
(1) its general manager and treasurer were not authorized to issue the post-dated
crossed checks in E.T. Henry's favor;
(2) the deed of assignment purportedly executed by Hi-Cement assigning them to
respondent only bore the conformity of its treasurer and
(3) respondent was not a holder in due course as it should not have discounted
them for being "crossed checks."
11. RTC: Ruled in favor of the respondent bank
12. CA: affirmed RTC thus these consolidated petitions
(case #1 Hi Cement v. Insular Bank  Hi Cement disclaims liability for the postdated crossed checks ; #2 E.T
Henry & Sps. Tan v. Insular Bank)
ISSUE: W/N the respondent bank is a holder in due course
HELD: NO
 Respondent bank failed to meet the requisites of a holder in due course, specifically (c) &
(d) of Section 52 of the Negotiable Instruments Law
(c) he took it in good faith and for value and
(d) 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 the instant case, the checks were crossed and specifically indorsed for deposit to payee's
account only. From the beginning, The BANK was aware of the fact that the checks
were all for deposit only to payee's account, meaning E.T. Henry hence, they could
not be further negotiated to it.
 Clearly, then, it could not be considered a holder in due course.
 Good faith herein is negated by gross negligent conduct in dealing with the subjected
checks
 (infirmity) In addition, records show that respondent bank completely disregarded a
telling sign of irregularity in the re-discounting of the checks when the general
manager did not acquiesce or consent to it. Only the treasurer’s signature appeared on
the deed of assignment
 It is then settled that CROSSING OF CHECKS should put the holder on inquiry and
upon him devolves the duty to ascertain the indorser's title to the check or the nature
of his possession  failure to do so = lack of good faith
 Banks are expected to observe extraordinary diligence in ever transaction
 NOTE: We note, however, that in the two aforementioned cases, we made it clear that the
NIL does not absolutely bar a holder who is not a holder in due course from recovering on
the checks. In both, we ruled that it may recover from the party who indorsed/encashed the
checks "if the latter has no valid excuse for refusing payment."

 Case remanded to the trial court for computation of petitioners’ liabilities

Bank of the Philippine Islands v Roxas
DOCTRINE:
As a general rule, under the above provision, every holder is presumed prima facie to be a
holder in due course. One who claims otherwise has the onus probandi (burden of proof) to prove
that one or more of the conditions required to constitute a holder in due course are lacking
Sec 25  Value, what constitutes. — Value is any consideration sufficient to support a simple
contract.
FACTS:
1. Roxas (respondent) delievered vegetable oil to the Cawili spouses. As payment, the Cawili
spouses issued a personal check. But the personal check was dishonoured.
2. The Cawili spouses replaced the dishonoured check with a cashier’s check from the BPI
to be drawned against the account of Mrs. Cawili.
3. Again, the cashier’s check was also dishonoured because Mrs. Cawili’s account closed
on the day.
4. Thus, Roxas filed a complaint to the RTC for the collection of the sum of money
covering the value of the dishonoured, including prayer for damages and cost of suit.
5. BPI argued that the cashier’s check was dishonoured because of lack of consideration.
6. Soon enough, the RTC rendered judgment against BPI and ordered the latter to pay the
sum of money covering the value of the check plus damages and cost of suit.
7. Not satisfied, BPI appealed to the CA but the latter affirmed the RTC.
8. Hence this petition of BPI for Certiorari.
 BPI reasoned that since the element of "value" is not present, therefore, Roxas could not
be a holder in due course.

ISSUE: W/N Roxas a holder in due course (when he held a cashier’s check that was dishonoured
for lack of consideration or value, i.e., the account from which the check should be drawn closed)
HELD: YES.
 As a general rule, every holder is presumed prima facie to be a holder in due course.
One who claims otherwise has the onus probandi to prove that one or more of the
conditions required to constitute a holder in due course are lacking. In this case,
petitioner contends that the element of "value" is not present, therefore, respondent could
not be a holder in due course.
 Section 25 of the NIL states: Value, what constitutes. – Value is any consideration
sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value;
and is deemed as such whether the instrument is payable on demand or at a future time.
 Court ruled in several cases that value "in general terms may be some right, interest, profit
or benefit to the party who makes the contract or some forbearance, detriment, loan,
responsibility, etc. on the other side."
  Here, there is no dispute that respondent received Rodrigo Cawili's cashier's check as
payment for the former's vegetable oil.
 The fact that it was Rodrigo who purchased the cashier's check from petitioner bank will
not affect respondent's (Roxas) status as a holder for value since the check was delivered
to him as payment for the vegetable oil HE SOLD to spouses Cawili.
 Furthermore, it bears emphasis that the disputed check is a cashier's check.
 A cashier’s check is really the bank’s own check and may be treated as a promissory note
with the bank as the maker. The check becomes the primary obligation of the bank which
issues it and constitutes a written promise to pay upon demand. This Court took judicial
notice of the "well-known and accepted practice in the business sector that a cashier’s check
is deemed as cash." This is because the mere issuance of a cashier’s check is considered
acceptance thereof.

WHEREFORE, the petition is DENIED. CA affirmed

Fossum v Fernandez Hermanos

Summary:
The bill of exchange (time draft) was drawn by the American Iron Products Company, Inc.,
in New York, payable sixty days after sight to the order of the Philippine National Bank, and
addressed to Fernandez Hermanos of Manilas drawee.
The said bill of exchange was accepted by Fernandez Hermanos, as appears from the following:
The Philippine National Bank later indorsed the bill of exchange to Charles A. Fossum
FACTS
1. Charles A. Fossum was the resident agent in Manila of the American Iron Products
Company, Inc. (AIPCI), engaged in business in New York City, while Fernandez
Hermanos is a general commercial partnership engaged in business in the Philippines
2. On Feb 10, 1920, Fossum, acting as agent of AIPCI, procured an order from Fernandez
Hermanos, to deliver a tail shaft, to be installed on the ship Romulus. It was stipulated
that the tail shaft would be in accordance with the specifications contained in a
blueprint given to Fossum on or about Dec 18, 1919; and it was further understood that
the shaft should be shipped from New York in March or April 1920.
3. The manufacture and shipment of the shaft was delayed considerably; it arrived in Jan
1921. Meanwhile AIPCI had drawn a time draft for $2250, at 60 days, upon Fernandez
Hermanos, for the price of the shaft, and payable to Philippine National Bank (PNB). It
was presented to Fernandez Hermanos, and was accepted by it on Dec 15, 1920, according
to its tenor.
4. The shaft was found not to be in conformity with the specifications and was incapable
of use for its intended purpose.
 5. Upon discovering this, Fernandez Hermanos refused to pay the draft, and it remained
for a time dishonored in PNB Manila. Later the bank indorsed the draft in blank,
without consideration, and delivered it to, Fossum, who then instituted this action
against Fernandez Hermanos.
6. The RTC held, and it is evident, that the consideration for the draft and for its
acceptance by Fernandez Hermanos has completely failed; and no action whatever can
be maintained on the instrument by AIPCI, or by any other person against whom the
defense of failure of consideration is available.
ISSUE: W/N Fossum is a holder in due course, such that an action can be maintained on the
instrument?

HELD: NO

 Fossum is far from being a holder in due course. He was himself a party to the contract
which supplied the consideration for the draft, albeit acting in a representative capacity.
 Also, he procured the instrument to be indorsed by the bank and delivered to himself
without the payment of value, after it was overdue, and with full notice that, as between
the original parties, the consideration had completely failed.

 Under these circumstances, recovery on the draft is out of the question.


 He calls attention, however, to the familiar rule that a person who is not himself a holder
in due course may yet recover against the person primarily liable where it appears that such
holder derives his title through a holder in due course.

 There is not a line of proof tending to show that the bank itself was ever a holder in
due course. It was incumbent on Fossum to show that the bank was a holder in due course,
and can have no assistance from the presumption expressed in sec 59 of NIL, to the effect
that every holder is deemed prima facie to be a holder in due course.
 This presumption arises only in favor of a person who is a holder in the sense defined in
sec 191 of NIL, that is, a payee or indorsee who is in possession of the draft, or the bearer
thereof.
 Under this definition, in order to be a holder, one must be in possession of the note or the
bearer thereof. (Night & Day Bank vs. Rosenbaum) If this action had been instituted by the
bank itself, the presumption that the bank was a holder in due course would have arisen
from the tenor of the draft and the fact that it was in the bank's possession; but when the
instrument passed out of the possession of the bank and into the possession of Fossum, no
presumption arises as to the character in which the bank held the paper.
 The bank's relation to the instrument became past history when it delivered the
document to Fossum; and it was incumbent upon FOSSUM to show that the bank had in
fact acquired the instrument for value and under such conditions as would constitute it a
holder in due course.

 Moreover, Fossum personally made the contract which constituted the consideration
for the draft. He was therefore a party in fact, if not in law, to the transaction giving origin
to the instrument; and it is difficult to see how he could strip himself of the character to
 agent with respect to the origin of the contract and maintain this action in his own name
where his principal could not.
 An agent who actually makes a contract, and who has notice of all equities emanating
therefrom, can stand on no better footing than his principal with respect to commercial
paper growing out of the transaction. To place him on any higher plane would be
incompatible with the fundamental conception underlying the relation of principal and
agent.
 If the original payee of a note unenforceable for lack of consideration repurchases the
instrument after transferring it to a holder in due course, the paper again becomes subject
in the payee's hands to the same defenses to which it would have been subject if the paper
had never passed through the hands of a holder in due course. The same is true where the
instrument is retransferred to an agent of the payee.
Disposition Decision affirmed

Crisologo-Jose vs Court of Appeals

Facts:

1. Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge
of marketing and sales; and the president of the said corporation was Atty. Oscar Z.
Benares. Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita
Ong, issued check against Traders Royal Bank, payable to defendant Ernestina Crisologo-
Jose.

2. Since the check was under the account of Mover Enterprises, Inc., the same was to be
signed by its president, Atty. Oscar Z. Benares, and the treasurer of the said corporation.

3. However, since at that time, the treasurer of Mover Enterprises was not available, Atty.
Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid check.

4. The check was issued to defendant Ernestina Crisologo-Jose in consideration of the waiver
or quitclaim by said defendant over a certain property which the Government Service
Insurance System (GSIS) agreed to sell to the spouses Jaime and Clarita Ong, with the
understanding that upon approval by the GSIS of the compromise agreement with the
spouses Ong, the check will be encashed accordingly.

5. Since the compromise agreement was not approved within the expected period of time, the
aforesaid check was replaced by Atty. Benares.

6. This replacement check was also signed by Atty. Oscar Z. Benares and by the plaintiff
Ricardo S. Santos, Jr. When defendant deposited this replacement check with her account
at Family Savings Bank, Mayon Branch, it was dishonored for insufficiency of funds. The
petitioner filed an action against the corporation for accommodation party.

Issue: W/N the corporation can be held liable as accommodation party?

Held: No.

 Accommodation party liable on the instrument to a holder for value, although such holder
at the time of taking the instrument knew him to be only an accommodation party, does not
include nor apply to corporations which are accommodation parties.

 This is because the issue or indorsement of negotiable paper by a corporation without

consideration and for the accommodation of another is ultra vires.

 Hence, one who has taken the instrument with knowledge of the accommodation nature
thereof cannot recover against a corporation where it is only an accommodation party.

 If the form of the instrument, or the nature of the transaction, is such as to charge the
indorsee with knowledge that the issue or indorsement of the instrument by the corporation
is for the accommodation of another, he cannot recover against the corporation thereon. By
way of exception, an officer or agent of a corporation shall have the power to execute or
indorse a negotiable paper in the name of the corporation for the accommodation of a third
person only if specifically authorized to do so. Corollarily, corporate officers, such as the
president and vice-president, have no power to execute for mere accommodation a
negotiable instrument of the corporation for their individual debts or transactions arising
from or in relation to matters in which the corporation has no legitimate concern.

 Since such accommodation paper cannot thus be enforced against the corporation,
especially since it is not involved in any aspect of the corporate business or operations, the
inescapable conclusion in law and in logic is that the signatories thereof shall be personally
liable therefor, as well as the consequences arising from their acts in connection therewith.