Vicente Ocampo & Co vs.

Anita Gatchalian

Matilde Gonzales was a patient of the De Ocampo Clinic owned by Vicente De Ocampo.
She incurred a debt amounting to P441.75. Her husband, Manuel Gonzales designed a
scheme in order to pay off this debt: In 1953, Manuel went to a certain Anita Gatchalian.
Manuel purported himself to be selling the car of Vicente De Ocampo. Gatchalian was
interested in buying said car but Manuel told her that De Ocampo will only sell the car if
Gatchalian shows her willingness to pay for it. Manuel advised Gatchalian to draw a check
of P600.00 payable to De Ocampo so that Manuel may show it to De Ocampo and that
Manuel in the meantime will hold it for safekeeping. Gatchalian agreed and gave Manuel
the check. After that, Manuel never showed himself to Gatchalian.
Meanwhile, Manuel gave the check to his wife who in turn gave the check to De Ocampo as
payment of her bills with the clinic. De Ocampo received the check and even gave Matilde
her change (sukli). On the other hand, since Gatchalian never saw Manuel again, she
placed a stop-payment on the P600.00 check so De Ocampo was not able to cash on the
check. Eventually, the issue reached the courts and the trial court ordered Gatchalian to pay
De Ocampo the amount of the check.
Gatchalian argued that De Ocampo is not entitled to payment because there was no valid
indorsement. De Ocampo argued tha he is a holder in due course because he is the named
payee.
ISSUE: Whether or not De Ocampo is a holder in due course.
HELD: No. Section 52 of the Negotiable Instruments Law, defines holder in due course,
thus:
A holder in due course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) 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.
The Supreme Court emphasized that if one is such a holder in due course, it is immaterial
that he was the payee and an immediate party to the instrument. The Supreme Court
however ruled that De Ocampo is not a holder in due course for his lack of good faith. De
Ocampo should have inquired as to the legal title of Manuel to the said check. The fact that
Gatchalian has no obligation to De Ocampo and yet he’s named as the payee in the check
hould have apprised De Ocampo; that the check did not correspond to Matilde Gonzales’
obligation with the clinic because of the fact that it was for P600.00 – more than the
indebtedness; that why was Manuel in possession of the check – all these gave De
Ocampo the duty to ascertain from the holder Manuel Gonzales what the nature of the
latter’s title to the check was or the nature of his possession.
Juanita Salas vs CA and First Finance and leasing Corp.

Facts: Juanita Salas (Petitioner) bought a motor vehicle from the Violago Motor Sales Corporation
(VMS) for as evidenced by a promissory note. This note was subsequently endorsed to Filinvest
Finance & Leasing Corporation (private respondent) which financed the purchase.
Petitioner defaulted in her installments allegedly due to a discrepancy in the engine and chassis
numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate of
registration and deed of chattel mortgage, which fact she discovered when the vehicle figured in an
accident.

This failure to pay prompted private respondent to initiate an action for a sum of money against
petitioner before the Regional Trial Court.

Issue: WON private respondent is a holder in due course?

Held: YES. The PN was negotiated by indorsement in writing on the instrument itself payable to the
Order of Filinvest Finance and Leasing Corporation and it is an indorsement of the entire instrument.
Under the circumstances, there appears to be no question that Filinvest is a holder in due course,
having taken the instrument under the following conditions: [a] it is complete and regular upon its
face; [b] it became the holder thereof before it was overdue, and without notice that it had previously
been dishonored; [c] it took the same in good faith and for value; and [d] when it was negotiated to
Filinvest, the latter had no notice of any infirmity in the instrument or defect in the title of VMS
Corporation.

Accordingly, respondent corporation holds the instrument free from any defect of title of prior parties,
and free from defenses available to prior parties among themselves, and may enforce payment of
the instrument for the full amount thereof. This being so, petitioner cannot set up against respondent
the defense of nullity of the contract of sale between her and VMS.

Stelco Marketing Corp. vs CA and Steelweld Corp of the Philippines

FACTS:
Stelco Marketing Corporation sold structural steel bars to RYL Construction Inc. RYL
gave Stelco’s “sister corporation,” Armstrong Industries, a MetroBank check from
Steelweld Corporation. The check was issued by Steelweld’s President to Romeo Lim,
President of RYL, by way of accommodation, as a guaranty and not in payment of an
obligation. When Armstrong deposited the check at its bank, it was dishonored
because it was drawn against insufficient funds. When so deposited, the check bore two
indorsements, i.e. RYL and Armstrong. Subsequently, Stelco filed a civil case against
RYL and Steelweld to recover the value of the steel products.

ISSUE:
Whether Steelweld as an accommodating party can be held liable by Stelco for the
dishonored check.

RULING:
Steelweld may be held liable but not by Stelco. Under Section 29 of the NIL, Steelweld
Corp. can be held liable for having issued the subject check for the accommodation of
Romeo Lim. An accommodation party is one who has singed the instrument as maker,
drawer, acceptor, or indorser, without receiving valued therefor, and for the purpose of
lending his name to some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of taking the instrument, knew
him to be only an accommodation party. Stelco however, cannot be deemed a holder
of the check for value as it does not meet two essential requisites prescribed by statute,
i.e. that it did not become “the holder of it before it was overdue, and without notice that
it had been previously dishonored,” and that it did not take the check “in good faith and
for value.”

Bataan Cigar and Cigarette Factory vs CA and State Investment House

FACTS:

Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua George, to deliver 2,000
bales of tobacco leaf. BCCFI issued post dated crossed checks in exchange. Trusting King's words,
BCCFI issued another post-dated cross check for another purchase of tobacco leaves.

During these time, King was dealing with State Investment House Inc.. On two separate occasions
King sold the post-dated cross checks to SIHI, that was drawn by BCCFI in favor of King.

Because King failed to deliver the leaves, BCFI issued a stop payment to all the checks, including
those sold to SIHI.

The RTC held that SIHI had a valid claim of being a holder in due course and to collect the
checks issued by BCCFI.

ISSUE: Whether SIHI is a holder in due course.

RULING:

The SC held that SIHI is not a holder in due course thus granting the petition of BCCFI. The purpose
of cross checks is to avoid those bouncing or encashing of forged checks. Cross checks have the
following effects: it cannot be encashed but only deposited in a bank; it can only be negotiated on its
respective bank once; it serves as a warning to the hiolder that it has been issued for a defienite
purpose thus making SIHI not a holder in due course.

Still, SIHI can collect from the immediate indorser, in this case, George King.

Atrium Management Corp vs CA

In 1981, Hi-Cement Corporation through Lourdes De Leon (its Treasurer) and Antonio De
Las Alas (its Chairman, now deceased) issued four postdated checks to E.T. Henry and Co.
The checks amount to P2 million. The checks are crossed checks and are only made
payable to E.T. Henry’s account. However, E.T. Henry still indorsed the checks to Atrium
Management Corporation (AMC). AMC then made sure that the checks were validly issued
by requesting E.T. Henry to get some confirmation from Atrium. Interestingly, De Leon
confirmed the checks and advised that the checks are okay to be rediscounted by AMC
notwithstanding the fact that the checks are crossed checks payable to no other accounts
but that of E.T. Henry. So when AMC presented the check, it was dishonored because Hi-
 Cement stopped payment. Eventually, AMC sued Hi-Cement, E.T. Henry, and De Leon.
The trial court ruled in favor of AMC and made all the respondents liable.
On appeal, Hi-Cement averred that De Leon’s act in signing the check was ultra vires
hence De Leon should be personally liable for the check. De Leon, on the other hand,
insisted that the checks were authorized by the corporation.
ISSUE: Whether or not De Leon’s act of signing the check constitutes an ultra vires act
hence making her personally liable.
HELD: No, the act is not ultra vires but De Leon is still personally liable. The act is not ultra
vires because the act of issuing the checks was well within the ambit of a valid corporate
act. De Leon as treasurer is authorized to sign checks. When the checks were issued, Hi-
Cement has sufficient funds to cover the P2 million.
As a rule, there are four instances that will make a corporate director, trustee or officer
along (although not necessarily) with the corporation personally liable to certain obligations.
They are:

1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the
corporation, its stockholders or other persons;
2. He consents to the issuance of watered down stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate action.

In the case at bar, De Leon is negligent. She was aware that the checks were only payable
to E.T. Henry’s account yet she sent a confirmation to Atrium to the effect that the checks
can be negotiated to them (Atrium) by E.T. Henry. Therefore, she may be held personally
liable along with E.T. Henry (but not with Hi-Cement where she is an officer).

Cely Yang vs CA PCIB Far East Bank Equitable Bank

Facts:

Petitioner Cely Yang agreed with private respondent Prem Chandiramani to procure from Equitable Banking Corp.
and Far east Bank and Trust Company (FEBTC) two cashier’s checks in the amount of P2.087 million each, payable
to Fernando david and FEBTC dollar draft in the amount of US$200,000.00 payable to PCIB FCDU account No.
4195-01165-2. Yang gave the checks and the draft to Danilo Ranigo to be delivered to Chandiramani. Ranigo was to
meet Chandiramani to turn over the checks and the dollar draft, and the latter would in turn deliver to the former Phil.

Commercial International Bank (PCIB) manager’s check in the sum of P4.2 million and the dollar draft in the same
amount to be issued by Hang Seng Bank Ltd. of HongKong. But Chandiramani did not appear at the rendezvous and
Ranigo allegedly lost the two cashier’s checks and the dollar draft.

The loss was then reported to the police. It transpired, however that the checks and the dollar draft were never lost,
for Chandiramani was able to get hold of them without delivering the exchange consideration consisting of PCIB
Manager’s checks. Two hours after Chandiramani was able to meet Ranigo, the former delivered to David the two
cashier’s checks of Yang and, in exchange, got US $360,000 from David, who in turn deposited them. Chandiramani
also deposited the dollar draft in
PCIG FCDU No. 4194-0165-2.

Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. Both
Banks complied with her request, but upon the representation of PCIB, FEBTC subsequently lifted the stop payment
order on FEBTC Dollar Draft No. 4771, thus, enabling the holder PCIB FCDU Account No. 4194-0165-2 to received
the amount of US $ 200, 000.

Issue:

(1) Whether or not David may be considered a holder in due course.

(2) Whether or not the presumption that every party to an instrument acquired the same for a consideration is
applicable in this case.

Held:

(1) Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption
arises only in favor of a person who is a holder as defined in Section 191 of the Negotiable Instruments Law, meaning
a “payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.”

In the present case, it is not disputed that David was the payee of the checks in question. The weight of authority
sustains the view that a payee may be a holder in due course. Hence, the presumption that he is a prima facie holder
in due course applies in his favor.

(2) The presumption is that every party to an instrument acquired the same for a consideration. However, said
presumption may be rebutted. Hence, what is vital to the resolution of this issue is whether David took possession of
the checks under the conditions provided for in Section 52 of the Negotiable Instruments Law. All the requisites
provided for in Section 52 must concur in David’s case, otherwise he cannot be deemed a holder in due course.

Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the
same for a consideration or for value. Thus, the law itself creates a presumption in David’s favor that he gave
valuable consideration for the checks in question. In alleging otherwise, the petitioner has the onus to prove that
David got hold of the checks absent said consideration. However, petitioner failed to discharge her burden of proof.
The petitioner’s averment that David did not give valuable consideration when he took possession of the checks is
unsupported, devoid of any concrete proof to sustain it. Note that both the trial court and the appellate court found
that David did not receive the checks gratis, but instead gave Chandiramani US$ 360,000 as consideration for the
said instruments.