[ch3-A] Law 108: Negotiable Instruments First Semester A !

008-0" #ro$%
&ogelio '% (ue)e*o [+h3-A]
+,A#-.& III: ,/L0.& IN 01. +/1&S.
[+ases cite* in +am2os]
3#I ' ALF&.0 3.A&4IN 5 +/% 61"!87
~ricky~
NATURE
Appeal by Anselmo Diaz against the CFI of Iloilos order for him to satisfy 2 promissory notes he issued in favor of Alfred Berwin & Co
FACTS
!"he Ban# of the $hilippine Islands %B$I& filed a 'olle'tion suit against Alfred Berwin & Co %ABC& Diaz( ABCs debtor( was given noti'e( when the preliminary atta'hment was ordered(
not to deliver the payment of his debt to ABC "he CFI of Iloilo rendered )udgment in favor of B$I
!"o effe't the e*e'ution of the )udgment( B$I prayed that Diaz be summoned to testify 'on'erning the 'redit of ABC against him Diaz a'#nowledged his indebtedness in the sum of
$2+(+++( the balan'e of 'redit for a greater amount "he $2+(+++ was eviden'ed by two promissory notes he issued in favor of ABC
!It does not appear( however( from the re'ord whether su'h promissory notes are still in the hands of ABC It was not #nown whether ABC is still the holder in due 'ourse of the
promissory notes or whether it had already been alienated
ISSUE
,-. Diaz may be 'ompelled to pay Alfred Berwin & Co( or the sheriff as a 'redit in favor of said 'orporation
HELD: .-
Reasoning Diaz 'annot be 'ompelled to pay the amount of the said promissory notes to any person save the holder of su'h do'uments in due 'ourse( for said person is the one entitled
to re'eive it "o 'ompel Diaz to pay ABC would be to e*pose him to the situation in whi'h( having paid the amount of the promissory notes without settling the same( a holder in due
'ourse may appear and within all reason demand its full payment
! "he fa't that he was given noti'e when the preliminary atta'hment was ordered does not 'hange the situation be'ause the debt was se'ured by negotiable instruments
.otwithstanding su'h noti'e( it was beyond Diazs power to prevent ABC from negotiating the promissory notes
Disposition -rder revo#ed
.L8IN NA-9L 3AN: ' 8/.+:. 61"!07
~joey~
FACTS
!/lgin .ational Brewing Company e*e'uted two demand notes( one for 012 %.ote A& and the other for 023++ %.ote B&( ea'h payable to the ma#ers order and indorsed in blan# in# by it
& by 3 a''ommodation indorsers( in'luding Fran# A 4oe'#e( the 'ompany manager "he a''ommodation indorsers signed on representation that the pro'eeds were to be used to pay
for supplies for the brewery
!Both notes were diverted by 4oe'#e from their intended purpose .ote A was indorsed to /lgin .ational Ban# as 'ollateral se'urity for a note %.ote C& earlier e*e'uted by 4oe'#e as
ma#er( the last renewal of whi'h was made on .ov 22( 5652 for 7 months .ote B was indorsed to the same ban# as payment for 3 other notes earlier e*e'uted by the brewing
'ompany as ma#er and pur'hased by the ban# "he ban# did not #now of the diversion of the two demand notes from their intended purpose
!Brewing 'ompany defaulted Ban# sued all 3 a''ommodation indorsers
!"C ruled in favor of the ban# Appellate 'ourt affirmed
ISSUE
,-. the a''ommodation indorsers are liable to the ban# notwithstanding the diversion of the pro'eeds of the notes
HELD: 8/9
Ratio An indorsee of a negotiable note who has ta#en it( before its maturity( as 'ollateral se'urity for a pre!e*isting debt and without any e*press agreement( is deemed a holder for a
valuable 'onsideration( and that he holds it free from latent defenses on the part of the ma#er
Reasoning
!"he a''ommodation indorsers are liable to the ban# on the notes( although the ban# at the time of ta#ing the instruments #new that they were only a''ommodation parties( if the ban# is
a holder for value( as the notes were indorsed to it before maturity and without noti'e for their restri'ted use and purpose
!As for .ote B( it is 'lear that the ban# is a holder for value "he 'onsideration paid by the ban# for this note was the 'an'ellation and surrender by it of the 3 other notes e*e'uted by the
brewing 'ompany
!.ote A was not delivered to the ban# and a''epted by it as se'urity until De' 5+( 5652 "here is no proof in the re'ord that at the time .ote C was renewed on .ov 22 there was an
agreement that .ote A was to be put up as 'ollateral and in part 'onsideration for the e*tension of .ote C "hus( it is argued by the a''ommodation parties that mere delivery of .ote A(
without agreement for further e*tension of time or other agreement for .ote C( does not ma#e the ban# a bona fide holder for value "his 'ontention is without merit 9ee ratio
Dispositive :udgment affirmed
;.&+,AN-S9 NA-9L 3AN: /F S-% #A1L '
S-A% ;A&IA S18A& +/% 61"1<7
~chriscaps~
FACTS
!9ta ;aria gave netotiable note payable to order of Ameri'an <oist & Derri'# Co %payee&
!$ayee deposited the note in ;er'hants .atl Ban#( w=' gave depositor 'redit representing the prin'ipal & a''rued interest %02(>2?17&
!After this( there were subse@uent deposits and withdrawals "he smallest balan'e during this period was 07(26>+>
!Dis'ounting ban# had no #nowledge of 'laimed defense of ma#er until re'eipt of its letter
!"he Ban# sued the ma#er ;a#er %9ta ;aria& 'laimed that the Ban# is not a holder for value and not a holder in due 'ourse
[ch3-3] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-3]
ISSUE
,-. the Ban# is a holder in due 'ourse
HELD: 8/9
!Antil 5 month after plaintiff had dis'ounted the instrument( it had no #nowledge or suspi'ion of any infirmity
!;ere dis'ounting of the note and pla'ing the amount of said dis'ount to the 'redit of the holder would not then have 'onstituted a transfer for value be'ause the ban# would have parted
with nothing( there would have been a mere boo##eeping entry But if the sum had subse@uently been 'he'#ed out( then value would have passed
!,e should agree with opinion of :usti'e BrewerB "he first debits are to be 'harged against the first 'redits It follows therefore( that the ban# was a bona fide holder for value
NA-9L 3AN: /F +/;;.&+. ' ;/&8AN 61"!17
~edel~
FACTS
!.atl <ay Company %.<C& deposited with .BC a draft and a bill of lading
!9aid items were re'eived by the .BC and were then 'redited to the a''ount of .<C
!/ventually( the draft with the bill of lading atta'hed was forwarded by .BC to the First .ational Ban# of Birmingham %F.BB& for 'olle'tion and remittan'e to .BC and the amount of the
draft was paid by the drawee to F.BB
!$rior to remittan'e %of the pro'eeds of the draft& by the F.BB to .BC( ;organ %a 'reditor of the .<C& instituted atta'hment pro'eedings against .<C and servi'e was sought to be
perfe'ted by the pro'ess of garnishment dire'ted to F.BB
!F.BB( in response to the garnishment( admitted that it held in its possession the pro'eeds of the draft but said that .BC had the right to 'laim said fund .BC then laid 'laim to the
fund
!;organ won at the 'ir'uit 'ourt <en'e( this appeal by .BC
ISSUE
,-. .BC re'eived the draft as a mere 'olle'ting agent or as pur'haser= ,-. .BC is a holder for value
HELD
!.BC was a mere 'olle'tor "F( .BC was not a holder for value F.BB was ordered to pay the pro'eeds of the draft to ;organ
!%CCampos noteB "he ruling in this 'ase represents the minority view that as long as the balan'e in the depositors a''ount e@uals or e*'eeds the amount of the instrument deposited(
the instrument 'annot be 'onsidered withdrawn for the purpose of treating the ban# as holder for value %as per se'27 .ID&&
Reasoning In this 'ase( .BC insists that it was a pur'haser for value and that .<Cs a''ount had never been overdrawn and it had balan'e to its 'redit in e*'ess of the draft(
'ontinuously from the day the said draft was re'eived until the day of the garnishment
!"he Court( however( denied their 'ontention and held that the 'ase of Fredonia v "ommei was not in 'onfli't with their holding In said 'ase( ,hites a''ount had been fully 'he'#ed out
and that the pro'eeds of the note had been fully e*hausted( )ust as in the 'ase at bar( if the proof showed that the .<C had 'he'#ed out its entire balan'e at any time between the
deposit of the draft and the noti'e of garnishment But as had been held( the .<C here had a standing balan'e to its 'redit with the .BC throughout this period in e*'ess of the draft
!Furthermore( the Court thin#s that their position is more )ust and e@uitable in view of the fa't that a ban# has the right to apply all un'he'#ed deposits against the debt due it by the
depositor And they added that this holding 'annot be of serious detriment to ban#s while a 'ontrary view might result in furnishing a weapon to the negotiator of notes and bills against
their 'reditors or persons having a right or e@uity in or against the instruments negotiated
!All the other 'ases 'ited by .BC %ie F-E v Ban# of 2ansas( Dreilling v First .ational Ban# et'& were held to be 'ontrary to the Courts de'ision and to .BCs 'ontention as well
%CBasi'ally( .BC 'annot be 'onsidered as a holder in due 'ourse %as per 9e'32%1&& or as a pur'haser for value in this 'ase sin'e .BC 'redited the amount of the draft to the deposit
a''ount of .<C and .BC failed to show that the amount 'redited was absorbed by e*isting debts or subse@uently 'he'#ed out <ere( .<C had a balan'e on deposit in e*'ess of the
amount of the draft 'ontinuously from the negotiation till the garnishment "F( .BC didnt show that they have given value for the instrument ergo .BC not a holder=pur'haser for value&
1NA:A NA-9L 3AN: ' 31-L.& 61"0<7
~jaja~
FACTS
!<arris drew a 'he'# for 05323 on the Ana#a .ational Ban# payable to the order of Butler and delivered the 'he'# to the payee for value "he payee indorsed the 'he'# in blan# and
negotiated it to Davis who on the ne*t day lost it on the highway( At the re@uest of the indorsee( Davis( the drawer ordered payment stopped by noti'e to the drawee ban# "he stop
order was overloo#ed and the 'he'# was paid by the drawee to ,ard & Fryberg( mer'hants who( within a wee# after the 'he'#s issuan'e to the payee( had ta#en the 'he'# in payment
of goods sold to Fa 'ustomer who was un#nown to them but who was supposed by them to be the ownerG "he original payee( Butler( for the use of his indorsee Davis( the loser of the
'he'#( sued the drawee ban#
ISSUE
,-. ,ard & Fryberg pur'hased the 'he'# for value( in due of 'ourse of trade( and without a'tual #nowledge of the infirmity in the title of the holder
HELD
8/9 "o 'onstitute noti'e of an infirmity in an instrument( or defe't of the title of the person negotiating the same( the person to whom it is negotiated must have had a'tual #nowledge of
the infirmity or defe't( or #nowledge of su'h fa'ts that his a'tion in ta#ing the instrument amounted to bad faith "he pur'haser of a negotiable instrument owes no duty to the former
holders to a'tively in@uire into the title of the party in possession( and that 'ir'umstan'es of suspi'ion and gross negligen'e are not of themselves bad faith( but only eviden'e tending to
establish it
!"here is no doubt( upon this re'ord( that ,ard & Fryberg pur'hased this 'he'# for value( in due 'ourse of trade( and without a'tual #nowledge of the infirmity of the title of the holder It
is e@ually 'lear that there was no bad faith in the transa'tion "he result is( they a'@uired a perfe't title to the 'he'# by their pur'hase( and had the right to 'olle't itH and at the same
time( in 'onse@uen'e of the same fa'ts( Davis lost his title( and is not entitle to re'over its pro'eeds from the ban#
Disposition :udgment of the 'ir'uit 'ourt is reversed( and the suit dismissed
0. /+A;#/ ' 8A-+,ALIAN 61"=17
~ina~
[ch3-+] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-+]
FACTS
!Anita 4at'halian was loo#ing for a 'ar to buy <er friend /mil Fa)ardo brought ;anuel 4onzales to her house be'ause ;anuel had a 'ar to show her ;anuel said he was duly
authorized by -'ampo Clini' to sell the 'ar Anita li#ed the 'ar Anita told ;anuel to bring the 'ar together with the registration the ne*t day( so that AnitaIs husband 'an inspe't it also
;anuel said that the owner would most li#ely not allow him to bring the registration unless thereIs a showing that the party interested in the pur'hase of the 'ar is ready and willing to pay
for it 9o Anita issued a 'he'# for $7++ in -'ampoIs name
!"he ne*t day( ;anuel didnIt 'ome Instead( he went to -'ampo Clini' and paid for her wifeIs outstanding balan'e of $>>5?3 with the 'lini' <e was given $53J23 'ash as su#li
;eanwhile( when ;anuel didnIt 'ome( Anita got suspi'ious and gave the ban# a stop payment order on the 'he'# -'ampo was not aware of the arrangement between ;anuel and
Anita at the time ;anuel gave it to him as payment for wifeIs bills
!-'ampo went after Anita -'ampo won Anita appealed 9he 'ontends that the 'he'# is not a negotiable instrument and that -'ampo is not a holder in due 'ourse
ISSUES
5 ,-. original payee of the 'he'# 'an be'ome a holder in due 'ourse
2 ,-. there was valid negotiation of the 'he'# %basi'ally( ,-. -'ampo had .- .-"IC/ of defe't of holderIs title&
1 ,-. -'ampo is a holder in due 'ourse
HELD
5 8/9 9e' 565 of .ID defines <-DD/K as the payee or indorsee of a bill or note( who is in possession of it( or the bearer thereof ,hile 9e' 32 defines a <DC as a <-DD/K who has
ta#en the instrument under the > 'onditions "herefore( a payee 'an be a <DC
2 8/9 "he 'he'# payable to -'ampo was entrusted to ;anuel "he latter then was the agent of Anita ,hen the agent %;anuel& of drawer %anita& negotiated the 'he'# with the
intention of getting its value from -'ampo( negotitation too# pla'e through no fault of -'ampo( unless it 'an be shown that -'ampo should be 'onsidered as having noti'e of the defe't
in the possession of holder ;anuel
1 .- -'ampo 'anIt be a <DC be'ause although he had no noti'e of defe't in title( he must also have ta#en the instrument in good faith "hese fa'ts should have put him on guard
and in@uired into the title of ;anuelB
a Anita had no obligation or liability to -'ampo Clini'H
b the amount on the 'he'# didnIt 'orrespond e*a'tly to ;anuelIs utangH and
' the 'he'# had two parallel lines in the upper left hand 'orner( whi'h in pra'ti'e means that the 'he'# was for deposit only and 'ant be 'onverted into 'ash
!It wouldIve been easy for -'ampo to in@uire be'ause he #new AnitaIs husband <is failure to do so is gross negle't in not finding out the nature of the title and possession of ;anuel(
whi'h amounts to legal absen'e of good faith <e therefore 'annot be 'onsidered a holder in good faith 9e' 32 re@uires the holder to be in good faith to be 'onsidered a <DC
"herefore( -'ampo 'annot be a <DC
!"he presumption in 9e' 36 that every holder is a <DC 'annot apply in this 'ase be'ause there were suspi'ious 'ir'umstan'es that should have put the person in to in@uiry as to the title
of the holder who negotiated the instrument to him "he test is of the reasonable prudent man and good faith
S-A-. IN'.S-;.N- ,/1S. ' IA+> S#S% +,1A 61"8"7
~chrislao~
FACTS
!.ew 9i#atuna ,ood Industries %.ew 9i#atuna( for brevity& entered into a 'ontra't of loan with Chua ChuaIs wife issued three postdated 'rossed 'he'#s %valued at almost 1++2&
payable to .ew 9i#atuna "his loan was sub)e't to the 'ondition Lif and when the deposits were made to ba'# up the 'he'#sL
!.ew 9i#atuna sold 55 'he'#s in'luding the said 1 'he'#s at a dis'ount to 9tate Investment <ouse 9tate Investment tried to deposit said 'he'#s but the same were dishonored by
reason of Linsuffi'ient fundsL( Lstop paymentL and La''ount 'losedL( respe'tively
-9tate <ouse Investment filed an a'tion for 'olle'tion against 9pouses Chua K"C ruled against the spouses IAC K/M/K9/D <en'e( this petition
ISSUE
,-. 9tate Investment <ouse is a holder in due 'ourse and therefore not sub)e't to the defense of the drawer %9pouses Chua& against the payee %.ew 9i#atuna& due to absen'e of
'onsideration
HELD
NO. IAC 'orre'tly relied on the </DD in -'ampo v 4at'halian as regards the effe'ts of 'rossing a 'he'#B the 'he'# may not be en'ashed but only deposited in the ban#H the 'he'# may
be negotiated only on'eNto one who has an a''ount with a ban#H and the a't of 'rossing the 'he'# serves as a warning to the holder that the 'he'# has been issued for a definite
purpose so that he must in@uire if he has re'eived the 'he'# pursuant to that purpose( otherwise he is not a holder in due course.
!9tate Investment <ouseIs failure to in@uire ro! the holder" Ne# Si$atuna" the %ur%ose or #hich the & chec$s #ere crossed" des%ite the #arnin' o the crossin'" %re(ents
State In(est!ent ro! )ein' considered in 'ood aith and thus it is NOT a holder in due course.
!9in'e it is not a holder in due 'ourse( it is sub)e't to personal defenses( su'h as la'# of 'onsideration between 9pouses Chua and .ew 9i#atuna Ander the fa'ts( the 'he'#s were
postdated and issued only as a loan to .ew 9i#atuna( is and when deposits were made to ba'# up the 'he'#s .o su'h deposits were made( hen'e no loan was ever made "he 1
'he'#s were without 'onsideration
!although 9tate Investment is not a holder in due 'ourse( it doesnIt mean that it 'ould not re'over on the 'he'#s "he only disadvantage is that it is sub)e't to defenses as if the
instruments were non!negotiable
+/NS/LI0A-.0 #L4//0 IN01S-&I.S> IN+ '
IF+ L.ASIN8 AN0 A++.#-AN+. +/&# 61"8?7
~apple~
NATURE
$etition for review on 'ertiorari of a de'ision of the IAC
FACTS
!Consolidated( a 'orporation engaged in the logging business( needed 2 units of tra'tors for its pro)e'ts
[ch3-0] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-0]
!Atlanti' 4ulf & $a'ifi' Company of ;anila #new of the need and thus offered 2 used tra'tors to petitioner through its sister 'ompany and mar#eting arm( Industrial $rodu'ts ;ar#eting
%the Lseller!assignorL&
!$etitioner inspe'ted the tra'tors while seller!assignor assured petitioner!'orporation that the LusedL Allis Crawler "ra'tors whi'h were being offered were fit for the )ob( and gave the
'orresponding warranty of ninety %6+& days performan'e of the ma'hines and availability of parts
!,ith said assuran'e and warranty( and relying on the seller!assignorIs s#ill and )udgment( petitioner!'orporation through petitioners ,ee and Mergara( president and vi'e!president(
respe'tively( agreed to pur'hase on installment said two %2& units of LAsedL Allis Crawler "ra'tors It also paid the down payment of "wo <undred "en "housand $esos %$25+(+++++&
!9eller!assignor issued the sales invoi'e for the two %2& units of tra'tors At the same time( the deed of sale with 'hattel mortgage with promissory note was e*e'uted 9imultaneously
with the e*e'ution of the deed of sale with 'hattel mortgage with promissory note( the seller!assignor( by means of a deed of assignment( assigned its rights and interest in the 'hattel
mortgage in favor of the respondent %IFC Deasing&
!Barely fourteen %5>& days had elapsed after their delivery when one of the tra'tors bro#e down and after another nine %6& days( the other tra'tor li#ewise bro#e down
!Mergara informed seller!assignor and as#ed for prompt a'tion "he seller!assignor sent to the )obsite its me'hani's to 'ondu't the ne'essary repairs( but the tra'tors did not 'ome out to
be what they should be after the repairs were underta#en be'ause the units were no longer servi'eable
!9in'e the tra'tors were no longer servi'eable( ,ee as#ed the seller!assignor to pull out the units and have them re'onditioned( and thereafter to offer them for sale "he pro'eeds were
to be given to the respondent and the e*'ess( if any( to be divided between the seller!assignor and petitioner!'orporation whi'h offered to bear one!half %5=2& of the re'onditioning 'ost
!.o response was re'eived by the petitioner!'orporation and despite several follow!up 'alls( the seller!assignor did nothing with regard to the re@uest
!IFC filed a 'omplaint against Consolidated for the amount of the $.
!"C and IAC granted the 'omplaint
ISSUE
,-. the respondent is a holder in due 'ourse
HELD: .o
%first of all( the instrument here was determined as not being a negotiable instrument be'ause of the la'# of the words of negotiability nevertheless( the 'ourt dis'ussed why the
respondent 'annot be 'onsidered a holder in the 'ourse had the instrument been negotiable&
!A mere perusal of the Deed of 9ale with Chattel ;ortgage with $romissory .ote( the Deed of Assignment and the Dis'losure of Doan=Credit "ransa'tion shows that said do'uments
eviden'ing the sale on installment of the tra'tors were all e*e'uted on the same day by and among the buyer( whi'h is herein petitioner Consolidated $lywood Industries( In'H the seller!
assignor whi'h is the Industrial $rodu'ts ;ar#etingH and the assignee!finan'ing 'ompany( whi'h is the respondent
!"herefore( the respondent had a'tual #nowledge of the fa't that the seller!assignorIs right to 'olle't the pur'hase pri'e was not un'onditional( and that it was sub)e't to the 'ondition
that the tra'tors sold were not defe'tive
!"he respondent #new that when the tra'tors turned out to be defe'tive( it would be sub)e't to the defense of failure of 'onsideration and 'annot re'over the pur'hase pri'e from the
petitioners
!/ven assuming for the sa#e of argument that the promissory note is negotiable( the respondent( whi'h too# the same with a'tual #nowledge of the foregoing fa'ts so that its a'tion in
ta#ing the instrument amounted to bad faith( is not a holder in due 'ourse( and therefore( sub)e't to all defenses whi'h the petitioners may raise against the seller!assignor
!,e subs'ribe to the view of Campos and Campos that a finan'ing 'ompany is not a holder in good faith as to the buyer
!As against the argument that su'h a rule would seriously affe't La 'ertain mode of transa'ting business adopted throughout the 9tate(L a 'ourt in one 'ase statedB It may be that our
holding here will re@uire some 'hanges in business methods and will impose a greater burden on the finan'e 'ompanies ,e thin# the buyer!;r & ;rs 4eneral $ubli'!should have
some prote'tion somewhere along the line ,e believe the finan'e 'ompany is better able to bear the ris# of the dealerIs insolven'y than the buyer and in a far better position to prote't
his interests against uns'rupulous and insolvent dealers If this opinion imposes great burdens on finan'e 'ompanies it is a potent argument in favor of a rule whi'h will afford publi'
prote'tion to the general buying publi' against uns'rupulous dealers in personal property %;utual Finan'e Co v ;artin&
!"he respondent( a finan'ing 'ompany whi'h a'tively parti'ipated in the sale on installment of the sub)e't two Allis Crawler tra'tors( 'annot be regarded as a holder in due 'ourse of said
note It follows that the respondentIs rights under the promissory note involved in this 'ase are sub)e't to all defenses that the petitioners have against the seller!assignor( Industrial
$rodu'ts ;ar#eting For 9e'tion 3J of the .egotiable Instruments Daw provides that Lin the hands of any holder other than a holder in due 'ourse( a negotiable instrument is sub)e't to
the same defenses as if it were non!negotiable L
Disposition $etition granted
SALAS ' +A> Filin)est Finance An* Leasing +or2 61""07
~rach~
NATURE
$etition for review on certiorari
FACTS
!$etitioner :uanita 9alas bought a motor vehi'le from the Miolago ;otor 9ales Corporation %M;9& for $3J(51J2+ as eviden'ed by a promissory note "his note was subse@uently
endorsed to the respondent Filinvest Finan'e & Deasing Corporation whi'h finan'ed the pur'hase
!9alas defaulted in her installments allegedly due to a dis'repan'y in the engine and 'hassis numbers of the vehi'le delivered to her and those indi'ated in the sales invoi'e( 'ertifi'ate
of registration and deed of 'hattel mortgage( whi'h fa't she dis'overed when the vehi'le figured in an a''ident
!Filinvest then filed a 'ase for a sum of money against 9alas K"C ruled in favor of Filinvest and ordered 9alas to pay the plaintiff the sum of $2J(>5>>+ with interest thereon at the rate
of 5>O from -'t 2( 56J+ until the said sum is fully paid
!Both parties appealed to the CA Imputing fraud( bad faith and misrepresentation against M;9 for having delivered a different vehi'le to petitioner( the latter prayed for a reversal so that
she may be absolved from the 'ontra't
!CA merely modified ordering the defendant to pay the plaintiff the sum of $3>(6+J1+ at 5>O per annum from -'t 2( 56J+ until full payment
C $etitioners Arguments
!In the light of the provision of the law on sales by des'ription whi'h she alleges is appli'able( no 'ontra't ever e*isted between her and M;9 and therefore none had been assigned in
favor of private respondent
!It is not ne'essary to implead M;9 as a party to the 'ase be'ause M;9 was earlier sued by her for Lbrea'h of 'ontra't with damagesL before K"C -longapo City 9u'h 'ourt originally
ordered 9alas to pay the remaining balan'e of the motor vehi'le installmentsH this was later reversed by the same 'ourt ordering M;9 instead to return to 9alas the sum of $5?(J33?+
9u'h de'ision is still pending 'onsideration in the CA
CKespondents Comment
!Issues and allegations are a mere rehash of those presented and already passed upon by the CAH )udgment in the Lbrea'h of 'ontra'tL suit 'annot be invo#ed as an authority as it is still
pending in CA
[ch3-.] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-.]
!$etitionerIs liability on the promissory note( the due e*e'ution and genuineness of whi'h she never denied under oath is( under the foregoing fa'tual milieu( as inevitable as it is 'learly
established
ISSUE
5 ,-. the promissory note is a negotiable instrument %whi'h will bar 'ompletely all the available defenses of 9alas against Filinvest&
2 ,-. Filinvest is a holder in due 'ourse
HELD
5 8/9
Ratio "he instrument in order to be 'onsidered negotiable must 'ontain the so!'alled Lwords of negotiability ie( must be payable to LorderL or LbearerL Ander 9e' J of the .egotiable
Instruments Daw( there are only two ways by whi'h an instrument may be made payable to order "here must always be a spe'ified person named in the instrument and the bill or note
is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same ,ithout the words Lor order or Lto the order ofL( the
instrument is payable only to the person designated therein and is therefore non!negotiable Any subse@uent pur'haser thereof will not en)oy the advantages of being a holder of a
negotiable instrument( but will merely Lstep into the shoesL of the person designated in the instrument and will thus be open to all defenses available against the latter
Reasoning Ke@uisites under the law have been 'omplied withB
*a+ it is in writing and signed by the ma#er :uanita 9alasH
*)+ it 'ontains an un'onditional promise to pay the amount of $3J(51J2+H
*c+ it is payable at a fi*ed or determinable future time whi'h is L$5(75>63 monthly for 17 months due and payable on the 25 st day of ea'h month starting ;ar'h 25( 56J+ thru and
in'lusive of Feb 25( 56J1HL
*d+ it is payable to Miolago ;otor 9ales Corporation( or order and as su'h(
*e+ the drawee is named or indi'ated with 'ertainty
!It was negotiated by indorsement in writing on the instrument itself payable to the -rder of Filinvest Finan'e and Deasing Corporation and it is an indorsement of the entire instrument
CC"his is not a simple 'ase of assignment of 'redit as petitioner would have it appear( where the assignee merely steps into the shoes of( is open to all defenses available against and
'an enfor'e payment only to the same e*tent as( the assignor!vendor
2 8/9
Reasoning Filinvest had ta#en the instrument under the ff 'onditionsB
*a+ it is 'omplete and regular upon its fa'eH
*)+ it be'ame the holder thereof before it was overdue( and without noti'e that it had previously been dishonoredH
*c+ it too# the same in good faith and for valueH and
*d+ when it was negotiated to Filinvest( the latter had no noti'e of any infirmity in the instrument or defe't in the title of M;9 Corporation
!Filinvest also holds the instrument free from any defe't of title of prior parties( and free from defenses available to prior parties among themselves( and may enfor'e payment of the
instrument for the full amount thereof "his being so( 9alas 'annot set up against respondent the defense of nullity of the 'ontra't of sale between her and M;9
! /ven assuming that there was de'eption made upon 9alas( this issue 'annot be resolved sin'e M;9 was never impleaded as a party 9CB F,e 'an only e*tend our sympathies to
9alas in this unfortunate in'identG
Disposition Assailed de'ision is hereby AFFIK;/D
+/;;.&+IAL +&.0I- +/&# '
/&AN8. +/1N- ;A+,IN. 4/&:S 61"@07
~cha~
NATURE
Appeal from )udgment
FACTS
!-range County ;a'hine ,or#s %-C;,& was in the mar#et for a Ferra'ute press /rma' Company %/rma'& offered to sell to -C;, a Ferra'ute press for 03# %whi'h /rma' would buy
from a supplier& Commer'ial Credit Corp %CCC& was as#ed to finan'e the transa'tion( and CCC agreed to do so after an assignment of the 'ontra't of sale between -C;, and /rma'
was made in favor of CCC
!before the assignment( /rma' obtained similar finan'ing from CCC and CCC had some blan# forms supplied to /rma' -ne of these forms entitled FIndustrial Conditional 9ales
Contra'tG is the agreement between /rma' %to sell the press& and -C;, %to buy the press&
!the said 'ontra't stated the ff %reB deferred payments&B
Fthe balan'e shown to be due hereunder %eviden'ed by my note of even date to your order& is payable in 52 e@ual 'onse'utive installments of 0133+6 ea'h( the first installment payable
one month from date hereof 9aid note is a negotiable instrument separate and apart from this 'ontra't( even though at the time of e*e'ution it may be temporarily atta'hed hereto by
perforation or otherwiseG
!Datter part of the 'ontra't %in a deta'hable portion&B
F"his 'ontra't may be assigned and=or said note may be negotiated without noti'e to me and when assigned and=or negotiated shall be free from any defense( 'ounter'laim or 'ross
'omplaint by meG
Pa dotted or perforated line 'ould be deta'hed from it At the time the president of -C;, signed the 'ontra't and note( he raised a @uestion regarding the said portion below the line
but was told that it was )ust Fpart of the do'umentG
!-C;, paid 05(3523+ to /rma' /rma' assigned the 'ontra't and endorsed the note to CCC CCC gave /rma' a 'he'# for 0>(275 in return At the time the 'ontra't was delivered to
CCC( the note had not been deta'hed /rma' deposited the 'he'# to its ban# and sent the said 'he'# to the supplier of the Ferra'ute press that would be sold to -C;, <owever(
when the 'he'# was presented by the supplier( it was dishonored "he supplier did not deliver the Ferra'ute press /rma' did not pay CCC
!CCC filed 'omplaint vs -C;, and /rma' for the 0>(275 it paid for the assignment /rma' did not pay -C;, demands 05(3523+ from /rma' and de'laratory relief from CCC
!"CB for CCC against /rma'( for -C;, against CCC %9o CCC had no 'laims against -C;,& CCC not a holder in due 'ourse be'ause %5& it #new at the time it paid /rma' for the
assignment that /rma' did not own the press it sells( and %2& #new that the press was not delivered to -C;,
!Arguments of CCCB %5& the note is negotiable in form( status not 'hanged be'ause of original physi'al atta'hment to( nor later deta'hment from( the sales 'ontra'tH does not lose status
be'ause it was given in 'onne'tion with a 'onditional sales 'ontra'tH %2& the 'hara'ter of an otherwise negotiable note is not destroyed by reason of simultaneous assignment of a
'onditional sales 'ontra't to the endorsee of the noteH %1& the note is a separate and distin't instrument negotiable in formH -C;, is estopped from asserting failure of 'onsideration
be'ause it #new the purpose and legal effe't of the note
[ch3-F] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-F]
!Arguments of -C;,B %5& CCC did not a'@uire the instrument in good faith and for value and had noti'e of infirmities in the instrument and the defe't in the title of /rma'H %2& the
'onditional sales 'ontra't and the atta'hed note must be 'onstrued as 'onstituting a single do'ument "he sales 'ontra't is assignable but not negotiable( so sub)e't to defensesP%1&
CCC was an original party to the original transa'tion so it too# title sub)e't to all e@uities or defenses e*isting in its favor against /rma'
ISSUE
,-. CCC is a holder in due 'ourse %and so 'an re'over from CCC Q the ma#er&
HELD: .-
Ratio. ,hen a finan'e 'ompany a'tively parti'ipates in a transa'tion of this type from its in'eption( 'ounseling and aiding the future vendor!payee( it 'annot be regarded as a holder in
due 'ourse of the note given in the transa'tion and the defense of failure of 'onsideration may properly be maintained
Reasoning. CCC supplied /rma' with the forms and was twi'e 'onsulted by telephone as to the impeding deal It #new all of the details of the transa'tion Indeed( finan'ing was
applied for be'ause /rma' did not have the money to buy the ma'hinery whi'h -C;, desired to obtain "hroughout the entire transa'tion( CCC dealt 'hiefly with /rma'( the future
payee( rather than with -C;,( the future ma#er CCC advan'ed money to /rma' with the understanding that the agreement and the note would be assigned or endorsed to it
immediately In a very real sense( the finan'e 'ompany was a moving for'e in the transa'tion from its very in'eption and a'ted as a party to it ;oreover( Commer'ial Credit #new the
finan'ial status of /rma'
!-C;, never obtained the press for whi'h it bargained and( as against CCC( there is no more obligation upon it to pay the note than there is to pay the installments spe'ified in the
'ontra't
Disposition :udgment affirmed
,A; ' ;.&I-- 61"1!7
~monch~
FACTS
!/va ;erritt e*e'uted a note for 01++ to 9outhern <ospital Assn "he latter assigned it before maturity to Asa Brunson( who later sold it to /C <am for 05++
!<am sued ;erritt to re'over from the note ;erritt 'laims it was obtained from her thru fraud <am 'laims that he had no noti'e of su'h fraud and was therefore a holder in due 'ourse
ISSUE
,-. <am was a holder in due 'ourse
HELD: 8/9
Ratio A large dis'ount does not( by itself( 'onstitute noti'e of fraud
Reasoning
-"he 'ourt said that while it 'an be seen that from ;erritts testimony that the note was obtained from her fraudulently( there was no eviden'e to show that <am had noti'e of su'h
!"he fa't that the note was sold to <am for only 05++ does not 'onstitute as noti'e of fraud 9u'h fa't( standing alone( does not deprive him of prote'tion from the law <owever( the
'ourt also notes that su'h large dis'ount 'ould be of great weight if was supported by some other eviden'e
Disposition :udgment reversed
[ch3-8] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-8]
#.NN/.& ' 013/IS S-A-. 3AN: 61"!=7
~kiyo~
FACTS
!"he ,yoming Dive 9to'# Doan Company sold shares of its 'apital sto'# by fraud to $ennoyer( paid for by the latters two notes payable to the order of the seller( dated :une 25( 562+
and payable 7 months later -n :uly 22( the payee negotiated them to Dubois whi'h paid with its own notes( 'ertifi'ate of deposit %C-D&( payable to ,yoming 6 months from date -n
De' 15( ,yoming negotiated the C-D to the First .ational Ban# of Cody %F.BC&( as 'ollateral se'urity for a loan After e*e'ution and issuan'e( the ma#er learned of the fraud( and
refused to pay upon maturity Dubois had no noti'e of the defense of fraud at the time of issuan'e( but did at the time it dis'harged the C-D by payment Dubois sued $ennoyer
$ennoyer 'laimed Dubois was not a holder in due 'ourseH hen'e the latters personal defense of fraud was available
HELD
!$ennoyer 'ites 9e' 3> arguing that the Dubois was a holder in due 'ourse as it had noti'e of fraud before it paid anything on the C-D Dubois is unaffe'ted by the statute if( when it
a'@uired the notes( Fit paid the full amount thereofG ,hen Dubois gave the C-D for the notes ( it too# the notes for FvalueGH if it was under an obligation to pay the C-D when due( its
right to prote'tion as a holder in due 'ourse was the same as if it had paid in money It may be argued that upon noti'e of fraud( Dubois may have prote'ted itself by en)oining transfer or
impounding the C-D "he Court believes that sin'e $ennoyer put the notes into 'ir'ulation and 'ontended they were pro'ured by fraud( bringing pro'eedings for su'h a purpose was his
duty "o avoid the effe'ts of 9e' 3>( Dubois was re@uired to prove that the C-D had been negotiated and that it had paid or had be'ome liable to pay someone other than the payee
Dubois eviden'e was suffi'ient to establish that the F.BC( to whom the C-D was paid( was the indorsee and holder whi'h is a prima fa'ie showing that it is a holder in due 'ourse
F/S-.& ' A81S-ANNA +/LL% 5 -,./L/8I+AL S.;INA& /F &/+: ISLAN0> ILL% 61"3!7
~athe~
FACTS
!<op#ins e*e'uted and delivered to Aurelius!9wanson %payee& their negotiable instrument se'ured by mortgage 9wanson assigned the note and mortgage to Foster not by
indorsement but by assignment in a separate instrument duly re'orded Foster redelivered the note and mortgage to 9wanson as 'ustodian 9wanson subse@uently assigned the note
and mortgage to Augustanna Augustanna had no a'tual #nowledge that the note and mortgage had therefore been assigned to Foster 9wanson be'ame ban#rupt Foster sued
Augustanna
HELD
-Do'trine of 'onstru'tive noti'e does not apply to Foster Augustanna had no a'tual #nowledge of the assignment to Foster Augustanna was a pur'haser of the note not the mortgage
It is well!settled rule that where a mortgage given to se'ure a negotiable $.( the note imparts its negotiable 'hara'ter to the mortgagee( and both are bought within the purview of the
statutes( and the mortgage is a mere in'ident to the note( and an indorsement of the note automati'ally assigns the mortgage( and the attempted assignment of the mortgage without the
transfer of the debt it se'ures is a nullity
!"he do'trine of 'onstru'tive noti'e is appli'able only to person who is dealing with the land itself( whi'h is not the 'ase here
;IL.S +I- 3AN: ' AS:IN 61"<?7
~giulia~
FACTS
!4eorge As#in paid his losses in a game of bla'# )a'# to :, Clar# by 2 'he'#s( one for 053+ and another for 05(+++ /a'h were signed by As#in as drawer( payable to Clar#Is order and
drawn on the Ban# of Ba#er( ;ontana As#in signed his own name and inserted the numerals in lead pen'il( and Clar# filled the remaining blan#s
!Dater( As#in was sued on one of the 'he'#s %the date was 'hanged&( but at the time it was negotiated( it 'alled for 03(+++ "he 'ourt found that a 'asual e*amination of the 'he'#
dis'losed that it had been 'hanged after having been written "he words and figures showing the amount are written with a different pen'il than the balan'e of the writing "here were
obvious signs of erasure of the words and figures originally o''upying su'h spa'es
!"he )ury found for the plaintiff Defendant appealed
HELD
-"he ultimate @uestion of ,-. plaintiff was a holder in due 'ourse must be determined by the )ust( su'h determination to be based upon its findings as to whether( %5& the 'ler# was( in
fa't materially altered subse@uent to its e*e'ution and delivery( and %2& if so( was su'h alteration so manifest and visible as to reasonable impart noti'e to plaintiff of an irregularity in the
'he'#
-Alterations and erasures of written instruments were presumed to have been made at or prior to the time of their e*e'ution <owever( when an alteration or erasure appears suspi'ious
on its fa'e( it demands e*planation
!"he ruling of the "C eviden'e a presumption by the 'ourt that plaintiff was a holder in due 'ourse It should have been 'onsidered that Clar# was not a depositor in plaintiff ban# and
had no a''ount thereH that the 'he'# was written in pen'ilH that the teller who 'ashed the 'he'# was not a'@uainted with the defendant or his signature and he was ignorant of the nature
of Clar#Is business( asso'iations( ba'#ground or finan'ial responsibilityH the insisten'e of Clar# in obtaining the 'ash immediatelyH and the apparent alterations of the 'he'#
!"C erred in refusing eviden'e offered to prove that in 'ashing the 'he'# as it did plaintiff ban# departed from the usual 'ourse of business adopted and usually adhered to by the
plaintiff
!For these reasons( Court held that the eviden'e was insuffi'ient to sustain the verdi't and )udgment( whi'h are 'ontrary to law( and a new trial must be had to present the de'isive
issues
Dispositive "he )udgment is reversed( and the 'ause remanded for new trial
3&/NS/N ' S-.-S/N 61"307
~ajang~
FACTS
[ch3-,] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-,]
!Bronsons agent( ;ears( effe'ted the e*'hange of Bronsons land in Flint with a farm ;ears( fraudulently represented that there was an 0J++ mortgage on the land( whi'h he said(
Bronson should assume 9o Bronson made a note made of even date for 0J++ payable in three years and se'ured by a mortgage "he name of the payee and the mortgagee were left
blan# It was agreed that ;ears was authorized to fill the blan#s with the name of Anion "rust 9avings Ban#
!;ears re'eived the papers( and turned them over to defendant ;rs 9tetson Instead of writing the name of the ban# as payee( ;ears wrote ;rs 9tetsons name ;rs 9tetson as#ed
him if he had a right to do so( and he said he had 'oz he was a notary publi' 9o ;rs 9tetson paid ;ears 0J++
"here is no @uestion that the papers were fraudulently obtained by ;ears and that ;rs 9tetson #new that the name on the note was )ust written by ;ears at the time she paid him the
money
ISSUE
,-. ;rs 9tetson is a holder in due 'ourse free from all e@uities and defenses that 'ould be set up against her and 'ould thus 'olle't from Bronson
HELD
.- At first glan'e( it 'an be said that ;rs 9tetson is a holder in due 'ourse ;ears was given parol authority to fill in the blan# <e e*'eeded his authority in writing the name of the
;rs 9tetson ;ears had apparent authority and ;rs 9tetson was ignorant of the limitation
!It has been held that the one who entrusts an in'omplete instrument to another is bound by anyone who relies in good faith on the genuineness of the instrument although the person
entrusted with 'ompleting and delivering the instrument e*'eeded his authority
!<owever( the 'ourt turns with relu'tan'e from this <arrington .at .an# v Beslin ruled that( Fin order however that any su'h instrument may be enfor'ed( it !ust )e illed u% strictl,
in accordance #ith the authorit, 'i(en and #ithin reasona)le ti!e.G "hus( ;rs 9tetson 'annot be held to be a holder in due 'ourse "C reversed
3LISS ' +ALIF/&NIA +/-/# #&/01+.&S 61"<?7
~glaisa~
FACTS
!"he California Co!op $rodu'ers was organized to pro'ess and ship agri'ultural produ'ts through the use of the shipping terminal fa'ilities 4rowers of agri'ultural produ'ts were to be
soli'ited to use the fa'ilities of the 'orporation in the mar#eting of their produ'ts ;ar#eting 'ontra'ts were entered into by the 'ooperative with many produ'ers
!Agri'ultural produ'ers e*e'uted non!bearing negotiable notes( payable to the 'o!operative( in ten annual installments( with no a''eleration 'lause "he 'o!operative agreed to furnish
fa'ilities
!9hidler( ,in'hester and 4albreath ea'h e*e'uted one of the notes "he three ma#ers defaulted in the payment of the first installment
!Dater( while the note is still unpaid( the 'o!operative negotiated the notes to Bliss to se'ure payment of the 'o!operatives note( held by Bliss
!"he 'o!operative( by reason of insolven'y and ban#rupt'y( was unable to 'ontinue to perform its obligation in its 'ontra'ts with the produ'ers( in'luding the ma#ers of the three notes
!"he 'o!operative defaulted in payment to Bliss Bliss sued the ma#ers on their notes
ISSUE
,-. Bliss was a holder in due 'ourse
HELD
!"he transferee of an installment note is not a holder in due 'ourse as to any part of the note when the transfer has been made after the maturity of one or more but less than all of the
installments
!-n the issue of ,-. Bliss had noti'e of the 'o!operatives failure to pay the first installment( the findings are unsatisfa'tory
!-n the issue of the 'o!operatives defense of failure of 'onsideration %its failure to perform its obligations under the 'ontra'ts&( Court said that it is a good defense to an a'tion on an
instrument by one not a holder in due 'ourse
!"he Court ordered the 'ase to be retried upon the issue of noti'e of non!payment of first installment at the time of transfer and that )udgment be made a''ording to the views e*pressed
TRA-NOR" dissent:
!It is unne'essary to remand the 'ase sin'e the finding and eviden'e show that Bliss too# the notes without noti'e that the first installment had not been paid
!A holder 'annot be a holder in due 'ourse as to installments that were overdue when he a'@uired the note( but that he 'an be a holder in due 'ourse as to future installments( whi'h are
not overdue unless their maturity dates have been a''elerated
!"he mere fa't that one or more installments of an installment note are unpaid when the note is negotiated does not 'onvey #nowledge to the transferee of a defense against the noteH
nor does it reveal su'h #nowledge of 'ir'umstan'es that it 'an be said that the holder of the note shut his eyes to the fa'ts and in bad faith sought to avoid the #nowledge of a defense
!A noti'e of default in the payment of an installment of prin'ipal dis'onne'ted from other fa'ts does not prevent the transferee from being a holder in due 'ourse
!"he in@uiry may reveal that default is fully e*plained by 'ir'umstan'es and it 'onstitutes no warning that the ma#er has defense with regard to installments to mature in the future "hus(
it may appear that prompt payment has been waived and that the delay with regard to one or more past due installments does not e*'eed the delay in the payment of other installments
that have been paid in the past
!"he rule set forth in the ma)ority opinion that a pur'haser of an installment note who has #nowledge that a past due installment was unpaid when he a'@uired the note Fis put on in@uiry
and there may be some defenses against it andP 'annot be a holder in due 'ourseG 'annot be re'on'iled with the provisions of the Aniform .egotiable Instruments A't
3A&3/1& ' FIN:. 61"!<7
~tito romy~
NATURE
$etition for Certiorari
FACTS
!In :anuary 55( 5653( Fin#e issued a negotiable note for 01(+++ payable on or before ten years from the date of the note "he stated interest rate was si* per'ent per annum payable
annually on :anuary 55 of ea'h year "he note was li#ewise se'ured by a real estate mortgage
!In ;ar'h( 565J( the note was endorsed and the mortgage was assigned to Barbour At the time of the endorsement( a notation on the note stated that interest thereon was up to
-'tober 5( 565? Barbour at some point filed an a'tion for the fore'losure of the mortgage "he lower 'ourt ruled for Barbour But Fin#e alleged that Barbour is not a holder in due 'ourse
based on the fa't that the non!payment of interest amounted to a dishonor of the note and that Barbour had noti'e of this as the same is 'learly indi'ated on the note via the notation
9u'h being the 'ase( Barbour is sub)e't to any defense Fin#e might have against the original
[ch3-I] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-I]
ISSUE
,-. Barbour was a holder in due 'ourse of both the note and mortgage
HELD
8/9
Ratio "he mere fa't that interest due is unpaid( the prin'ipal not being due( does not render the note dishonored It is also a settled rule of the )urisdi'tion that a mortgage is merely an
a''ident to the note whi'h it se'ures <en'e the transfer of the debt se'ured by the mortgage 'arries with it the se'urity As Barbour is a holder in due 'ourse of the note( she is also a
holder in due 'ourse of the mortgage
!"he 'ourt )ust stated that this 'on'lusion is in a''ord with the great weight of authority and is in a''ord with the spirit and intent of the .ID %there was no dis'ussion on how the
'on'lusion is in a''ord with the spiritP&
Dispositive :udgment affirmed
L. 01. ' FI&S- NA-9L 3AN: /F :ASS/N 618837
~owen~
FACTS
!$ayee of a draft indorsed it to /dison( against whom the drawer( the defendant ban#( had an offset /dison indorsed the draft to :ordan on ;ar'h J( 5JJ2 Q > months and 21 days after
the draft be'ame due
ISSUE
,-. the draft is overdue and dishonored
HELD
8/9
Ratio Indorsers subse@uent to /dison too# it sub)e't to the same offset to whi'h it was sub)e't in his hands
Reasoning
!"he term FoverdueG in a demand bill of e*'hange %as in this 'ase& is applied when a bill has 'ome into the hands of the indorser so long after its issue as to 'harge him with noti'e of
dishonor( and thus sub)e't it in his hands to the defenses whi'h the drawer had against it in the hands of the assignor
!4eneral rule is that a bill( note or 'he'#( payable on demand( must be presented for payment within reasonable time( having in view ordinary business usages and the purposes whi'h
paper of that 'lass is intended to subserve But( without any e*planation of the reason( this draft whi'h is outstanding nearly 3 months after its date( the trial 'ourt is fully )ustified in
holding it overdue and dishonored when :ordan too# it( so as to 'harge it in his hands( or the hands of those who hold under him( with any defense or set!off whi'h the drawer had
against it in the hands of /dison
I0A,/ S-A-. 3AN: ' ,//#.& S18A& +/ 61"!"7
~maia~
FACTS <ooper 9ugar made a note payable to ,right for 01+(+++ %note detailsB issued on 9ept 3( 5656( payable in 7 mos& ,right then indorsed the note in blan# on 9ept 2( 562+ %5
year after& -n the same date( he renewed a personal note that was held by .ational City Ban# of 9alt Da#e %.CB9D&( also for 01+(+++ ,right also forwarded the note made by <ooper
to .CB9D but allegedly for a different purpose
!<owever( the 'ashier of .CB9D altered the renewal note %5& by erasing the name of his ban# as payee and inserting that of a ban# in $o'atello( Idaho( %2& by 'hanging the interest rate
from 7O to ?O pa( and %1& by adding a re'ital that the note %issued by <ooper& was deposited as 'ollateral se'urity for the renewal note <e then transferred the note to the $o'atello
Ban# for 01+(+++ In -'t 55( 562+( the $o'atello Ban# sold the 2 notes to Idaho 9tate Ban# %plaintiff&
!Idaho 9tate Ban# %I9B& now 'laims as holder of the note %made by <ooper& from <ooper and ,right( the same note being the 'ollateral to the renewal note
ISSUE
5 ,-. Idaho 9tate Ban# may 'laim on the renewal note made by ,right
2 ,-. Idaho 9tate Ban# may 'laim on the note made by <ooper from ,right as an indorser
HELD
5 .-( but this does not mean that ,right is freed from the prin'ipal obligation whi'h gave rise to the renewal note
-n alterations on the renewal note made by ,right
Ratio ,hen a mere inspe'tion of the instrument shows that it has been altered( a pur'haser is not a holder in due 'ourse be'ause su'h note is not regular on its fa'e
Reasoning Q I9B is not a holder in due 'ourse of the altered renewal note It follows then that su'h note was avoided in the hands of I9B
ObiterB it is further alleged by ,right %as a defendant& that not only is IB9 pre'luded from re'overy on the altered renewal note( but that su'h alteration absolved him ultimately of the
prin'ipal obligation for whi'h the renewal note was given
!the 'ourt re)e'ted this 'ontention and said that although the alteration was indeed material and intentionally made( there is no finding that ,rights renewal note was altered with
fraudulent intention ,hile a material alteration of a note is a defense to an a'tion on the instrument itself( in order that su'h an alteration may be a bar to re'overy on the original debt( it
must appear that the alteration was made with fraudulent intent "hus( ,right remains liable on the original obligation to I9B independent of the altered renewal note
2 8/9
Ratio ,hen ,right indorsed the note and delivered it to .CB9D after its maturity date( su'h note as to ,right be'ame a demand note As a demand note it did not be'ome overdue as
to ,right until a reasonable length of time after it was indorsed by him
Reasoning .e*t in issue is the liability of ,right as an indorser of the note made by <ooper ,right posits that the note was overdue at the time it rea'hed the hands of IB9( thus IB9
may not be 'onsidered as a holder in due 'ourse to su'h note -n the other hand( IB9 insists that the note was not overdue when re'eived by it( relying on the provision F where an
instrument is issued( a''epted( or indorsed when it is overdue( it is( as regards the person so issuing( a''epting( or indorsing it( payable on demandG
!the interpretation of the above!@uoted provision 'an only mean one thingB see the ratio above
!'iting the <arvard Daw KeviewB Fthe instrument ta#es a new lease of life with respe't to an indorser after maturity( and his e@uitable defenses are not let in until a reasonable time after
he indorses( although the paper is apparently overdue P A 'ontra't after maturity has a spe'ial maturity of its own( ie a reasonable time after e*e'ution( and bona fide pur'hasers
within that time will be prote'ted from all e@uities of the party who signed( even e@uitable defensesG
[ch3-A] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-A]
!in this 'ase( when ,right indorsed the note after its maturity( he gave the note a se'ond maturity date as to him( namely( a reasonable time( after the transfer I9B be'ame su'h holder
within that reasonable time( and as regards ,right( IB9 re'eived the note free from any e@uities of ,right founded upon the mere fa't that the note appeared to be overdue
Disposition ,right is liable to IB9( must honor the note %sin'e he indorsed it after the maturity( thus effe'tively made the note Fon demandG as between him and IB9&
01NN ' /9:..F.. 6181=7
~dahlia~
FACTS
: and " Dunn drew a bill of e*'hange on Ki'#etts( "horne( 4eorge & Co dated :une 56( 5J51 and due :uly 56(5651 for R5+++ payable to the order of : 9in'lair and issued to the payee
for value -n :une 2+( 5J51( the payee presented the bill to the drawee for a''eptan'e but the bill was then dishonored by non!a''eptan'e .o noti'e of dishonor by non!a''eptan'e
was given to the drawer 9ubse@uently and on :uly 51(5651( the payee negotiated the bill to the plaintiff ;ary -I2eefe( who had no #nowledge of the prior dishonor by non!a''eptan'e
"he drawee again dishonored the bill "he indorsee immediately gave noti'e of dishonor to the drawer "he indorsee sued the drawer "here was )udgment for the plaintiff
ISSUE
,-. the drawer is liable to the indorsee%who had no #nowledge of the prior dishonor& given that the payee did not give the drawer a noti'e of dishonor
HELD
,hen party holding a bill of e*'hange re'eives noti'e of its dishonor( he is bound to 'ommuni'ate this to the drawer But a bill of e*'hange is .-" a void se'urity in the hands of an
inno'ent indorsee who has no #nowledge that the bill has ever been dishonored be'ause a former holder has omitted to give noti'e to the drawer that the bill has ever been refused
a''eptan'e"he drawer is liable to the inno'ent indorsee <e issued it in an imperfe't state and 'annot )ustly 'omplain of the negle't of any indorsee who ta#es the bill in his state(
having no #nowledge of any 'ir'umstan'e to vitiate it( and loo#ing merely at the names upon it
-&I#,/N/FF ' S4..N. 61"137
~bry_sj~
FACTS
!:, 9weeney Constru'tion Company drew its 'he'# on the A9 .ational Ban# of $ortland -regon for A9D 2(26>?> %a,a)le to the order of DA. ;ADC</FF "he 'he'# was drawn
and delivered on or about ;ar'h 23( 5655 but was .OSTDATED A.RIL /0" /1//.
!;al'heff negotiated it to "KI$<-.-FF before April 53( 5655 who too# it for value and in good faith :, 9,//./8 C-.9"KAC"I-. %the drawer& stopped payment for the 'he'# on
the ground that ;al'heff %the named payee&( an employee of the drawer( obtained the 'he'# by means of false and forged estimates of wor# done by him for the drawer "he 'he'# was
DI9<-.-K/D A$-. $K/9/.";/." about A.RIL /2" /1//.
!"riphonoff %I.D-K9/K& sued the drawer :, 9,//./8 "he latter argued that "riphonoff should have been put on noti'e of the infirmity in the instrument or defe't in the tile of
;ADC</FF by the fa't that the 'he'# was $-9"DA"/D Counsel for 9weeney goes as far as arguing that a postdated 'he'# is not a negotiable instrument if ta#en before the date on
whi'h demand 'an be made for payment but is simply an assignment of rights of the payee and opens the 'he'# to all e@uities and defenses
ISSUE
5 ,hether or not the 'he'# in this 'ase is .-" a negotiable instrument
2 ,hether or not postdating of the 'he'# amounts to a noti'e of the infirmity on the instrument as to dis@ualify the holder from be'oming a <IDC
HELD
/. NO. "he 'he'# is a negotiable instrument It is full and 'omplete on its fa'e as it satisfies the re@uirements of the law for an instrument to be negotiable It is worthy to note that the law
does not re@uire an instrument to be dated It is settled that the instrument is not rendered invalid by its antedating or postdating provided that it is not done for an illegal or fraudulent
purpose
3. NO. "he plaintiff indorsee was not as a matter of law put into in@uiry by reason of the 'he'#s being negotiated prior to day of its date "he law itself does not pros'ribe postdating of
the 'he'# It is noteworthy that the drawing of a postdated 'he'# is an everyday o''urren'e in the 'ommer'ial world and the uniform understanding of the parties is that( when a 'he'# is
postdated( it is payable on the day it purports to be drawn even though it be negotiated beforehand
,/4A&0 NA-9L 3AN: ' 4ILS/N 61"!37
~mel~
NATURE
A'tion by <oward .ational Ban# against 4raham ,ilson and another
FACTS
-/lliot was a'ting president of the ban# and had general oversight and management of its affairs <e was also interested in a lumber business 'ondu'ted as the , / /lliot Dumber
Company and a'ted as its treasurer
!<e had 2 'he'# a''ounts with the plaintiff ban#( one his personal a''ount and the other an a''ount as "reasurer of the lumber 'ompany <e also had an a''ount as treasurer of the
lumber 'ompany with the ,aterbury 9avings Ban#
!From :uly 7( 5656( to sept 5J( 5656( his personal a''ount with the plaintiff was overdrawn in in'reasing amounts until the overdraft amounted to 05>(36>5> an arrangement was
entered into by whi'h the plaintiff made a loan to the lumber 'ompany whi'h was deposited in its a''ount with the plaintiff( and /lliot transferred 05>(?3+ from this to his personal
a''ount( leaving a balan'e to his 'redit of 0533J7
!-n sept 53( /lliot had drawn a 'he'# on his personal a''ount for 05+(+++ whi'h had not been returned to the ban# when this ad)ustment was made "o 'over this 'he'# when returned(
he drew a 'he'# to himself on the ,aterbury Ban# for a li#e amount( whi'h he deposited in his personal a''ount "his overdrew the lumber 'ompanys a''ount at the ,aterbury Ban#
about 0J(?++ "here was no eviden'e that anyone other than /lliot #new of this situation at the time the note in @uestion was given
!-n the day the note was given( the defendant 'alled at the plaintiff an# on business whi'h was transa'ted with /lliot in the dire'tors room In the 'ourse of the interview /lliot pro'ured
the defendant to sign a note for his %/lliots& a''ommodation .o @uestion is made but that they were false and fraudlent "he note was e*e'uted and /lliot too# it out into the ban# and
dire'ted the assistant 'ashier to ma#e a 'ashiers 'he'# in favor of the defendant for the amount of the note /lliot returned with the 'he'# whi'h the defendant indorsed in blan# and
delivered to /lliott "he latter deposited the 'he'# to the 'redit of the lumber 'ompany in the ,aterbury Ban# on 9ept 2+ "he movement of these 'he'#s was so timed that want of funds
[ch3-:] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-:]
did not appear on the boo#s of either ban# /lliot paid the interest on the note indorsed :anuary 5( 562+ he died in the latter part of :anuary 562+( when for the first time( so far as
appeared( it was dis'overed that he was insolvent
!Defendant insists that the plaintiff( being the payee of the note( is not a holder in due 'ourse as a matter of law
ISSUE
5 ,-. plaintiff %being the payee& is a holder in due 'ourse
2 ,-. plaintiff too# the 'he'# in good faith
HELD:
5 8/9
!"hat a payee is 'apable of being a holder in due 'ourse at 'ommon law has been held almost without dissent "his view is 'onfirmed by the definition of FnegotiationG found in 9e' 1+ of
the a't( whi'h provides that an instrument is negotiated when it is transferred from person to another in su'h a manner as to 'onstitute the transferee the holder thereof As said( the
remaining senten'e of the se'tion( Fif payable to bearer( it is negotiated by deliveryH if payable to order( it is negotiated by the indorsement of the holder 'ompleted by delivery 4 #as not
intended to include all the #a,s in #hich an instru!ent !i'ht )e ne'otiated" nor to restrict the co!%rehensi(e ter!s o the %recedin' sentence.
2 8/9
!/viden'e was un'ontradi'ted that /lliot had authority and was a''ustomed to approve and dire't loans as this loan was approved and dire'ted( and that the defendant was a regular
'ustomer of the ban# Assuming that the eviden'e had the tenden'y 'laimed for it( we are at loss to see how( in the 'ir'umstan'es( it 'an be thought that the 'ashier had any reason to
suspe't fraud in the in'eption of the note or any wrongdoing in the transa'tion "he note was ta#en in usual 'ourse( for full value and without 'ir'umstan'es 'alling for or warranting
in@uiry respe'ting the o''asion for giving it "his being so( it 'annot be 'on'eived how a reasonable man 'ould thin# that the note was ta#en otherwise than in good faith
#I.&+. ' +A&L-/N 61"!!7
~eva~
NATURE
From a :udgment for Defendants( $laintiff Appeals
FACTS
!the a'tion is to re'over the balan'e due on 1 promissory notes( e*e'uted by ;: Carlton and others payable to Crawford & Ceas( dated Feb55(5651 and payable :une 5 of 565>(5653
and 5657( with an aggregate amount 025++
!on the afternoon of Feb 55( the notes having been indorsed in blan# by the payees( $ier'e bought said notes for 05J++( and without noti'e or #nowledge of any infirmity affe'ting the
validity of said notes
!in Feb5651 plaintiff sold and delivered said notes to his brother( "hosB$ier'e( for 025++H said $ier'e being also a pur'haser for value without noti'e
!:une 5653( plaintiff bought the notes ba'# from his brother for 025++ and indorsed to plaintiff without re'ourse %he didnt want his brother to be involved in the 'ontroversy on the notes&
!DefendantsB there was allegation with eviden'e tending to show that said notes were pro'ured by false and fraudulent representations on the part of the payees( and that plaintiff( not
only had full noti'e and #nowledge of the fraud at the time he first a'@uired said notes( but that he had a'tually aided and abetted the payees in the fraudulent 'ondu't and
representations by whi'h the note was pro'ured
!)udgment was rendered for the defendants
ISSUE
,-. the 'ourt erred in the refusal to nonsuit for want of any eviden'e to show parti'ipation in the alleged fraud on part of plaintiff
HELD: .-
!"he prin'iple that one who a'@uires title from a holder in due 'ourse may re'over( though he himself may have had noti'e of the infirmity when he a'@uired the instrument from su'h
holder( was re'ognized before the ena'tment of this statute %9e'1+>+ .egotiable Instruments &
!FBut this rule is sub)e't to the single e*'eption that( if the note were invalid as between the ma#er and the payee( the payee 'ould not himself( by pur'hase from a bona fide holder(
be'ome su''essor to his rights( it not being essential to su'h bona fide holders prote'tion to e*tend the prin'iple so farG %Calverts Daniel 7
th
ed 9e'J+3& And this e*'eption is
approved by the general 'urrent of authority
!"he e*'eption( we thin#( e*tends to the agent who a'ts for su'h a payee in rea'@uisition of the instrument( or to one who aids and abets the payee in the fraud by whi'h the instrument
is pro'ured
!"here are also de'isions whi'h seem to hold that the e*'eption referred to properly applies to one who( not being a party or parti'ipant in the fraud( has pur'hased su'h a note from the
payee with #nowledge or noti'e thereof( and rea'@uires the same from a bona fide holder
!"here is doubt if our statute permits an interpretation whi'h would apply to the fa'ts presented in these last 'ases The more natural meaning of the language used would apply the
exception to the payee or other taking part in the fraud or illegality which rendered the instrument invalid.
!-n the fa'ts of the present re'ord we are not 'alled on to ma#e definite de'ision on this @uestion for the reason that his honor( in submitting the se'ond issue( that as to present
plaintiffs ownership in good faith of the notes( instru'ted the )ury that if present plaintiff held the notes by indorsement for value from a bona fide holder( he was entitled to their verdi't on
the issue( unless defendants has satisfied them by the greater weight of the eviden'e that plaintiff was a Fparti'ipant in the fraudulent 'ondu't whi'h the note were se'uredG
!It is re'ognized prin'iple in this )urisdi'tion that a verdi't may be given signifi'an'e and 'orre'tly interpreted by referen'e to the pleadings( the fa'ts in eviden'e( and the 'harge of the
'ourt And the plaintiff having re'eived the full benefit of the position( the refusal of the 'ourt to submit the @uestion in the pre'ise terms of the issue as tendered is not erroneous
Dis%ositi(e "he fa'ts in eviden'e are fully suffi'ient to re@uire that the issues be submitted to the )ury( and that plaintiffs motion to nonsuit was properly overruled
LILL ' 8L.AS/N 61"1<7
~jat~
FACTS
!.elson 4leason %ma#er& e*e'uted and delivered a negotiable $=. due on 9ept5( 56+J( to $eerless ;a'hinery Co %payee& for the pur'hase of sto'#s in the said 'ompany "he note
was a''ompanied by a written 'ontra't permitting 4leason to return the sto'# and re'eive ba'# his note duly 'an'eled provided he gives the 'ompany prior noti'e of his intentions
4leason gave noti'e to $eerless but the note was not returned
!,hyS Be'ause $eerless had indorsed the .5N in )lan$ before maturity %ma#ing the originally order instrument into a bearer instrument& and left it with Andale 9tate Ban# %ban#& as
se'urity for money to be advan'ed to it by the ban# but the ban# refused to ma#e any advan'ement on the note until it was indorsed by ;i'hael Dill 9o Dill went to the ban# and wrote
[ch3-L] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-L]
his name on the ba'# of the note "he ban# then 'ashed the note ,hen the note matured 4leason refused to pay Apon the ban#s demand( Dill paid the note and re'eived it without
indorsement from the ban#
!Dill then filed an a'tion against 4leason in the distri't 'ourt( whi'h ruled in favor of the latter and held that Dill was not a holder in due 'ourse Dill appeals
ISSUE
5 ,-. Dill is a holder in due 'ourse
2 ,-. the note was dis'harged by Dills payment
HELD
5 8/9
Sec. 06 NIL:
xxx But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of
such former holder in respect of all parties prior the latter.
-"he order note( having been indorsed by the payee %$eerless& in blan#( be'ame payable to bearer and negotiable by delivery %9e' 1> .ID& "hus( when the note was delivered to the
ban#( the ban# be'ame the holder thereof in due 'ourse And when the ban# delivered the note to Dill( Dill be'ame the bearer and holder %9e'565 .ID& <aving derived his title from the
ban#( whi'h was a holder in due 'ourse( and not having been a party to any fraud or illegality affe'ting the instrument( Dill be'ame possessed of all the rights of the ban# against the
ma#er %9e'3J .ID&
2 .-
"he general rule is that payment by a party other than the prin'ipal debtor does not dis'harge parties prior to the one ma#ing the payment( and the payment( instead of e*tinguishing the
instrument( operates as a transfer of it to the party paying
*What is Lills status as a party to the note and what are his rights as such
Dill be'ame a party to the note for the a''ommodation of the payee %$eerless&( and his original status insofar as liability was 'on'erned( was that of an indorser( sin'e he did not indi'ate
an intention to be bound in some other 'apa'ity As an indorser( he thus be'ame se'ondarily liable to all parties subse@uent to the payee( in this instan'e to the ban# "he 'ontra't of an
indorser for the a''ommodation of the payee is wholly independent of that of the ma#er( and su'h indorser( upon ma#ing payment( su''eeds to the title and rights of the holder as
against the ma#er
Disposition :udgment of distri't 'ourt K/M/K9/D
F/SS1; ' F.&NAN0.B ,.&;AN/S 61"!37
~kooky~
FACTS
!Charles A Fossum was the resident agent in ;anila of the Ameri'an Iron $rodu'ts Company( In'( engaged in business in .ew 8or# City( while Fernandez <ermanos is a general
'ommer'ial partnership engaged in business in the $hilippines
!on Feb 5+( 562+( Fossum( a'ting as agent of AI$CI( pro'ured an order from Fernandez <ermanos( to deliver a tail shaft( to be installed on the ship !omulus It was stipulated that the
tail shaft would be in a''ordan'e with the spe'ifi'ations 'ontained in a blueprint given to Fossum on or about De' 5J( 5656H and it was further understood that the shaft should be
shipped from .ew 8or# in ;ar'h or April 562+
!"he manufa'ture and shipment of the shaft was delayed 'onsiderablyH it arrived in :an 5625 ;eanwhile AI$CI had drawn a time draft for 0223+( at 7+ days( upon Fernandez
<ermanos( for the pri'e of the shaft( and payable to $hilippine .ational Ban# %$.B& It was presented to Fernandez <ermanos( and was a''epted by it on De' 53( 562+( a''ording to its
tenor
!"he shaft was found not to be in 'onformity with the spe'ifi'ations and was in'apable of use for its intended purpose Apon dis'overing this( Fernandez <ermanos refused to pay the
draft( and it remained for a time dishonored in $.B ;anila Dater the ban# indorsed the draft in blan#( without 'onsideration( and delivered it to( Fossum( who then instituted this a'tion
against Fernandez <ermanos
!"he "C held( and it is evident( that the 'onsideration for the draft and for its a''eptan'e by Fernandez <ermanos has 'ompletely failedH and no a'tion whatever 'an be maintained on
the instrument by AI$CI( or by any other person against whom the defense of failure of 'onsideration is available
ISSUE:
,-. Fossum is a holder in due 'ourse( su'h that an a'tion 'an be maintained on the instrument
HELD: .-
!Fossum is far from being a holder in due 'ourse <e was himself a party to the 'ontra't whi'h supplied the 'onsideration for the draft( albeit a'ting in a representative 'apa'ity Also( he
pro'ured the instrument to be indorsed by the ban# and delivered to himself without the payment of value( after it was overdue( and with full noti'e that( as between the original parties(
the 'onsideration had 'ompletely failed Ander these 'ir'umstan'es( re'overy on the draft is out of the @uestion
!<e 'alls attention( however( to the familiar rule that a person who is not himself a holder in due 'ourse may yet re'over against the person primarily liable where it appears that su'h
holder derives his title through a holder in due 'ourse
!there is not a line of proof tending to show that the ban# itself was ever a holder in due 'ourse It was in'umbent on Fossum to show that the ban# was a holder in due 'ourse( and 'an
have no assistan'e from the presumption e*pressed in se' 36 of .ID( to the effe't that every holder is deemed prima facie to be a holder in due 'ourse "his presumption arises only in
favor of a person who is a holder in the sense defined in se' 565 of .ID( that is( a payee or indorsee who is in possession of the draft( or the bearer thereof Ander this definition( in order
to be a holder( one must be in possession of the note or the bearer thereof %.ight & Day Ban# vs. Kosenbaum& If this a'tion had been instituted by the ban# itself( the presumption that
the ban# was a holder in due 'ourse would have arisen from the tenor of the draft and the fa't that it was in the ban#Is possessionH but when the instrument passed out of the
possession of the ban# and into the possession of Fossum( no presumption arises as to the 'hara'ter in whi'h the ban# held the paper "he ban#Is relation to the instrument be'ame
past history when it delivered the do'ument to FossumH and it was in'umbent upon him to show that the ban# had in fa't a'@uired the instrument for value and under su'h 'onditions as
would 'onstitute it a holder in due 'ourse
!;oreover( Fossum personally made the 'ontra't whi'h 'onstituted the 'onsideration for the draft <e was therefore a party in fa't( if not in law( to the transa'tion giving origin to the
instrumentH and it is diffi'ult to see how he 'ould strip himself of the 'hara'ter to agent with respe't to the origin of the 'ontra't and maintain this a'tion in his own name where his
prin'ipal 'ould not An agent who a'tually ma#es a 'ontra't( and who has noti'e of all e@uities emanating therefrom( 'an stand on no better footing than his prin'ipal with respe't to
'ommer'ial paper growing out of the transa'tion "o pla'e him on any higher plane would be in'ompatible with the fundamental 'on'eption underlying the relation of prin'ipal and agent
!if the original payee of a note unenfor'eable for la'# of 'onsideration repur'hases the instrument after transferring it to a holder in due 'ourse( the paper again be'omes sub)e't in the
payeeIs hands to the same defenses to whi'h it would have been sub)e't if the paper had never passed through the hands of a holder in due 'ourse "he same is true where the
instrument is retransferred to an agent of the payee
Disposition De'ision affirmed
[ch3-;] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-;]
7ALCOL7" J., dissentingB
!9e' 3J of .ID providesB L A holder who derives his title through a holder in due 'ourse( and who is not himself a party to any fraud or illegality affe'ting the instrument( has all the
rights of su'h former holder in respe't of all parties prior to the latterL Ander the provisions of this se'tion( Fossum is in e*a'tly the same situation as $.B would be <e is entitled to all
the rights that pertain to $.B as holder in due 'ourse
!"he absen'e or failure of 'onsideration is not a defense against a holder in due 'ourse( although it is a defense against a holder not in due 'ourse
ASIA 3AN:IN8 +/&# ' -.N S.N 81AN S/3&IN/S 61"!37
~aida~
FACTS
!Asia Ban#ing is a foreign 'orporation li'ensed to engage in ban#ing in ;anila Defendant is a duly registered partnership indebted to Asia Ban#ing in the sum of 05+(>?335 for and on
a''ount of .ew 8or# draft whi'h was drawn by 9nows Dtd Asia Ban#ing had demanded for payment from "en 9en 4uan but the latter refused to do so
!February 23( 562+ Q Defendants ordered from 9nows Dtd 5+ 'ases of mer'erize batiste to be shipped from .ew 8or# freight prepaid to ;anila
!,hen the mer'handise arrived in ;anila( a draft drawn by 9nows Dtd against the defendants for the amount alleged was presented for a''eptan'e to the defendants "his was done
through Asia Ban#ing( an agent of 9nows Dtd 9nows Dtd had negotiated the draft with Asia Ban#ings 'ounterpart in .ew 8or#
!"he delivery of the bill of lading and other do'uments was refused by Asia Ban#ing until "en 9en 4uan a''epted the draft
!"en 9en 4uan a''epted the draft and re'eived delivery of the bill of lading and made entry of the goods at 'ustoms
!,hen the 'ases were opened( they were found to 'ontain burlap and not the batiste ordered by "en 9en 4uan 9o "en 9en 4uan de'lined to re'eive the goods and left them at
'ustoms "hey then returned the bill of lading to Asia Ban#ing and demanded that their a''eptan'e of the draft be 'an'elled
! "he lower 'ourt found for the defendant
ISSUE
,-. "en 9en 4uan is liable for the amount due
HELD
.-( be'ause Asia Ban#ing is not a holder in due 'ourse
!"he eviden'e presented to prove that Asia Ban#ing was a holder of the draft for value is not 'onvin'ing "o give an authenti' a''ount of the transa'tion( it should have been established
by 'ompetent eviden'e how Asia Ban#ing a'@uired the draft Asia Ban#ing only presented a lo'al employee of the ban# who testified as to the alleged meaning of 'ertain entries made
in the ban# re'ords
!"he trial 'ourt also found that the a''eptan'e of the draft by the defendants was 'onditional It was also found that the plaintiff released and dis'harged the defendants from liability
upon the draft be'ause of fraud
Disposition :udgment affirmed
STREET *concur+
!It was fraud on the part of 9nows Dtd to negotiate the draft in @uestion to the .ew 8or# bran'h of Asia Ban#ing
!"his fraud having been set up in the defendants answer and established by proof( it be'ame in'umbent upon the plaintiff to prove that it o''upies the position of bona fide pur'haser of
the draft for value and without noti'e "his re@uirement is not met by the presumption whi'h the law raises in favor of the holder of a negotiable instrument arising from the mere
possession of the instrument "he plaintiff must go further and prove that it is su'h a pur'haser
!"he reason for this is that the guilty ma#er or holder of an instrument vitiated by fraud of illegality will naturally see# to put it in the hands of some other person in order to 'ut off the
defense to whi'h the instrument is sub)e't
'AN S+:.L ' .88 ,A&3/& +/AL 5 L1;3.& +/% 61"3!7
~lora~
FACTS
!"he plaintiff( Man 9y'#el pur'hased 1 promissory notes differing only in the amount from one :oseph 4insberg
!"he form and indorsement of the notes were pre'ise with the followingB
F023++
/gg <arbor City( . :( De'ember 3( 5626
Four months after date ,e $romise "o $ay "he -rder of ;a* -ro'ofs#y at the /gg <arbor Commer'ial Ban#( /gg <arbor City( .:( 023++ And ++ Cts Dollar ,ith Defal'ation for Malue
Ke'eived
/gg <arbor Coal & Dumber Co
Arthur ;ueller %9igned& $res
2ate ;ueller %9igned& $res
.o 1?22+ Due Date Apr 3G
! Keverse sideB
F ;a* -ro'ofs#y by :4( pr Atty
%9igned&
,ithout re'ourse
C9 Man 9y'#el( Atty %9igned&G
!$laintiff 'laims that the notes were not paid and that the amounts therein stated were due and owing
!"he ma#ers signature was admitted however( the 'ase is barren of any proof of the genuineness of the signature of the payee
!"he lower 'ourt ruled in favor of the plaintiffB proofs showed that the plaintiff was holder of the instrument and that under 9e'tion 36 of the .ID( the duty was 'ast upon the defendant to
show a defe't as followsB Fevery holder is deemed prima fa'ie to be a holder in due 'ourseH but when it is shown that the title of any person who has negotiated the instrument was
defe'tive( the burden is on the holder to prove that he or some person under who he 'laims a'@uired the title as a holder in due 'ourseH but the last mentioned rule does not apply in
favor of a party who be'ame bound on the instrument prior to the a'@uisition of su'h defe'tive titleL
!Defendant appealed
ISSUES
[ch3-N] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-N]
5 ,-. the defendant has the burden of proof of showing defe't in the instrument
2 ,-. plaintiff is a holder in due 'ourse
HELD
5 NO.
!At 'ommon law( one who sues upon a written 'ontra't is obliged( in the absen'e of admission( to prove the sigNATUREof the defendants before the instrument 'an be re'eived in
eviden'e 9imilarly( the plaintiff( when not name in the 'ontra't( has always been re@uired to show the right on whi'h he stands
!"he notes were not payable to bearer( but were order notes( and title did not pass until indorsed by the payee "he proof of the sig NATUREof the payee was a ne'essary part of the
plaintiffs 'ase( unless the fundamental rule of the 'ommon law has been 'hanged by the .ID
!"here are no statutes 'hanging the law of eviden'e in this respe't "he .ID was intended as a 'odifi'ation of the 'ommon law rules relating to negotiable instruments( and is( for the
most part( de'laratory of the 'ommon law
!9e' 33 of .IDB Fthe title of a person who negotiated an instrument is defe'tive within the meaning of this A't when he obtained the instrument( or any signature thereto( by fraud( duress(
or for'e and fear( or other unlawful means( or for an illegal 'onsideration( or when he negotiates it in brea'h of faith( or under su'h 'ir'umstan'es as amount to a fraudG
!9e' 36 should be read in the light of 9e'tion 33 and the intervening 9e'tions and should be ta#en to mean that proof having been offered of the genuineness of the ma#ers and
payees signatures( the holder is deemed to be a holder in due 'ourse( and the duty of pro'eeding to offer some proof of fraud or defe't spe'ified( in pro'uring essential signatures( is
'ast upon the party alleging it( and( until su'h proof is offered( there is no duty upon the holder to prove that he or some person under whom he 'laims a'@uired the title as holder in due
'ourse
!"he Court does not thin# that it was intended that the presumption should arise under 9e'tion 36( without proof that the essential names on the front and ba'# of an order instrument
were signatures of the named persons
2 NO "he 'ourt and the )ury had no eviden'e before them that the signature upon the ba'# of the note was the signature of the payee( or that the agent purporting to sign the same
was authorized so to do It seems that su'h proof would be ne'essary( in view of 9e'tions 57( 56 and 11 of .ID before a presumption would arise of a valid and intentional delivery
!9in'e note obligation do not arise save by the signature of the ma#er( it would seem e@ually to follow that the signature of the payee by way of indorsement is the foundation of the
rights of holder in due 'ourse( subse@uent to the payee Apon the proof of the genuineness of the ne'essary signatures the holders rights arise as spe'ified in Arti'le > of the a't( but in
the absen'e of su'h proof there was nothing to indi'ate that the instruments in suit had been negotiated( or that the person possessed of the physi'al paper had title thereto( or the right
to the pro'eeds thereof
!A note payable to order is negotiated by the indorsement of the holder 'ompleted by delivery
!In this 'ase( the holder( prior to the indorsement was ;a* -ro'ofs#y <is signature was suffi'ient indorsement "here was however( no proof of authority of the person purporting to a't
as agent to affi* the signature
Disposition :udgment Keversed
3.A+/N -&1S- +/% ' &0.& 61"317
~marge~
FACTS
!$romissory note for 02+# dated ;ar'h 5J( 5626( payable to ;orris Kudni'# si* months after date( was purportedly made by Kobert D Kyder "he same was indorsed in blan# by
Charles , Kyder Fwaiving demand( noti'e and protestG and subse@uently indorsed in blan# also by ;orris Kudni'# and F/9 Company( In' ;orris Kudni'#( "reasG Before its maturity(
said promissory note was delivered by Kudni'# to plaintiff Bea'on "rust Co for dis'ounting
!-n its due date( $. was protested for nonpayment Kyders were notified
!Kyders denied their signatures on the $. and allege that there was no 'onsideration and no delivery "hey also allege that there was fraudulent transfer and insist that plaintiff prove
that it is a <IDC
ISSUE
,-. plaintiff may be 'ompelled to prove it is a <IDC
HELD
NO.
8enRule: "he holder of a negotiable instrument is deemed prima fa'ie to be a <IDC .o further burden rests upon him to prove that he or some other person under whom he 'laims
a'@uired the title as <IDC
9C.T if it is shown that the title of some person who has negotiated the instrument was defe'tive %ie( negotiation was Fin brea'h of faithG&
!"he burden of establishing that the payees title was defe'tive was on the Kyders Failing to sustain this burden Ttheir testimonial eviden'e did not 'onvin'e the 'ourtU( they 'annot insist
that Bea'on "rust Co prove its prima fa'ie 'ase that it is a <IDC
!$laintiff Bea'on "rust Cos right to 'harge the a''ount of the payee was not ne'essarily in'onsistent with it being a <IDC
!Indifferen'e on the part of the plaintiff as to the out'ome of the a'tion would not tend to show that it was not a <IDC 9u'h indifferen'e might result from a 'ons'iousness that there was
a good indorser
FA&;.&S9 S-A-. 3AN: ' :/FFL.& 61"307
~anton~
NATURE
A'tion to re'over on a 'he'# whi'h payment was stopped by the drawer
FACTS
!9eptember 53( 562JB 2offler %defendant& drew a 'he'# on the Farmers and mer'hants ban# if .ew /ngland in whi'h he had an a''ount( %a,a)le to the order o :enneth Da(is
!"he 'onsideration was 023+( and the 'he'# was intended for that amount "he sum payable was written in figures F023+++(G but in the body it was e*pressed in F"wo <undred and
3+=5++
th
DollarsG %02++3+&
!Davis indorsed the 'he'#( and then the 'he'# was Flost or stolenG
!-'tober 5B the 'he'# was presented to the plaintiff ban#( whi'h 'ashed it in the usual 'ourse of business "he ban# was a'@uainted neither with Davis nor the bearer who presented the
'he'#
!Davis and 2offler learned that the plaintiff had 'ashed the 'he'# 2offler notified the drawee ban# %Farmers and ;er'hants& not to pay the same
[ch3-/] Law 108: Negotiable Instruments First Semester A !008-0" #ro$%
&ogelio '% (ue)e*o [+h3-/]
!"he 'he'# was transmitted by plaintiff Farmers 9tate Ban# in the usual 'ourse for 'olle'tion and remittan'e( but the Farmers and ;er'hants refused to pay the same pursuant to
2offlers notifi'ation
!In meantime( after 2offler learned that the Farmers 9tate Ban# 'ashed the 'he'#( he gave Davis another one in lieu of the original
Defendants !laim
!"he instrument was 'omplete and regular upon its fa'e and had never previously been dishonored
!Farmers 9tate Ban# be'ame the holder of it for value and before it was overdue
!"he bearer of the 'he'# for whom the 'he'# was 'ashed had a defe'tive title within 9e' 33 of the .egotiable Instruments Daw %.ID&
!"he title of the bearer who negotiated the instrument was defe'tive( pursuant to 9e' 36 of the .ID
ISSUE
5 ,-. the bearer was a holder in due 'ourse
2 ,-. Farmers 9tate Ban# had the burden to prove it too# the instrument in good faith
HELD
5 8/9
!2offler disregarded the last senten'e of 9e' 36 of the .ID
Sec. 01N/very holder is deemed prima fa'ie to be holder in due 'ourseH but when it is shown that the title of any person who has negotiated the instrument was defe'tive( the burden is
on the holder to prove that he or some other person under whom he 'laims a'@uired the title as a holder in due 'ourse ;ut the last !entioned rule does not a%%l, in a(or o a %art,
#ho )eca!e )ound on the instru!ent %rior to the ac<uisition o such deecti(e title.
!<ere there is no defe't n the title so far as the ma#er is 'on'erned "he a'tion is not brought against Davis to 'harge him as indorsee It is brought against the defendant as ma#er
2offler be'ame bound to on the instrument at the time he delivered it to Davis Da(is indorsed the instru!ent %at the time he delivered& and !ade it %a,a)le to )earer.
!2offler has no defense against Davis 2offler is interposing a defense whi'h might have been available to Davis only
!"he 'he'# was in all aspe'ts regular e*'ept for the dis'repan'y between the figures indi'ating the sum payable and its statement in writing "here was nothing about it to 'hallenge the
attention of the plaintiff when it was 'ashed e*'ept this dis'repan'y
!$laintiff naturally assumed that the bearer was Davis ,hen the 'he'# was presented( the bearer turned to the des# for that purpose and made the indorsement
!"here was nothing suspi'ious whi'h would 'harge the ban# with noti'e of a defe't in title or show la'# of good faith
!As to the amount( the one in words 'ontrols in instan'es of dis'repan'y( unless the words are ambiguous
2 .-
!9e' 36 'onsidered as a whole does not have the effe't of shifting to the plaintiff the burden of proving that he is the holder in due 'ourse of the note on whi'h he sues !erel, ), a
sho#in' on the %art o the deendant that the title to the instru!ent #as deecti(e as a'ainst so!e inter!ediate indorsee.
!"he fraud in putting a note in 'ir'ulation whi'h will operate as a defense or 'harge the burden of proof !ust )e a raud a'ainst the deendant.
!It is #here the raud is done as to the deendant or !a$er" and not #here it is done as to the %a,ee or so!e inter!ediate holder or %art, to the %a%er.
Disposition Amount is redu'ed to a''ord with the sum payable :udgment is affirmed against 2offler
+/;;.&+IAL 3AN: /F LA FA.--. 5 -&1S- +/% ' 3A&& 61"3<7
~jonas~
NATURE
Appeal from )udgment of lower 'ourt
FACTS
!:C Barry( "rustee( e*e'uted demand notes payable to the order of the Ban# of Dafayette & "rust Company( of whi'h he was president "hese notes were issued in transa'tions
whereby the ban# pur'hased its own sto'# from sto'#holders who wished to dispose of them "he understanding was that Barry would not be personally liable on the notes but that the
notes would be paid out of the pro'eeds of the resale and from dividends
!"he Ban# of Dafayette & "rust Company sold all its assets( in'luding the Barry note for 0J(?55 being sued on( to the plaintiff( the Commer'ial Ban# of Dafayette & "rust Company "he
note was not indorsed by the payee ban# to the plaintiff ban#
!$laintiff 'ontends that it a'@uired the note for valuable 'onsideration before maturity( & hen'e is a holder against whom prior e@uities will not avail "hus( the ban# ob)e'ted to the offer of
any eviden'e by the defendant in support of his defense
ISSUE
,-. plaintiff ban# is a holder in due 'ourse
HELD
.-
Ratio "here having been no negotiation of the note sued on( be'ause it was never indorsed by the payeeH it is immaterial whether plaintiff a'@uired the note prior to its maturity It follows
that plaintiff 'annot be regarded as a holder in due 'ourse( & the instrument sued on is sub)e't to the same defenses as if it were non!negotiable "he defense of want of 'onsideration is
therefore available
Reasoning At 'ommon law( under the law mer'hant( & independently of the .egotiable Instruments Daw( a transferee of a note payable to order 'ould not & did not obtain a legal title
thereto( e*'ept by endorsement of the payee( and a holder without su'h endorsement too# it Vsub)e't to all the e@uities vested in prior parties
Disposition :udgment appealed from is affirmed