159 Chan Wan v.

Tan Kim
50 O.G. 1554 (1960)
C.J. Bengzon / Tita K
Subject Matter: liability of parties; presentment for payment; sufficient presentment; by whom
Summary:
Checks payable to "cash or bearer" and drawn by Tan Kim upon the Equitable Banking Corporation, were all presented for payment
by Chan Wan to the drawee bank, but they "were all dishonored and returned to him unpaid due to insufficient funds and/or causes
attributable to the drawer. The court declined to order payment because: (1) Chan Wan failed to prove he was a holder in due
course, and (2) the checks being crossed checks should not have been presented to the drawee for "payment," but should have been
deposited instead with the bank mentioned in the crossing. The checks have been crossed to the China Banking Corporation, and
should have been presented for payment by China Banking, and not by Chan Wan. There was no proper presentment, and the
liability did not attach to the drawer. The lower court deemed Chan Wan as NOT a holder in due course under the circumstances,
since he knew, upon taking them up, that the checks had already been dishonored. However, it does not follow as a legal
proposition, that simply because he was not a holder in due course, Chan Wan could not recover on the checks. Chan Wan may go
after Tan Kim, subject to defenses of the latter.

Doctrines:
The checks were therefore crossed specially to CBC, and should have been presented for payment by CBC, and not by Chan Wan.

When Chan Wan presented the check himself, no liability attached to drawer Tan Kim because there was no proper presentment.

The Negotiable Instruments Law does not provide that a holder who is not a holder in due course, may not in any case, recover on
the instrument. The only disadvantage of a holder who is not a holder in due course is that the negotiable instrument is subject to
defenses as if it were non-negotiable.

Parties:
Petitioner Chan Wan
Respondent Tan Kim and Chen So
Type of Instrument: Bill of Exchange (check)
Drawer: Tan Kim
Drawee: Equitable Banking Corp.
Payee: Pinong and Muy

Facts:
 A suit to collect 11 checks totaling P 4,290, payable to “cash or bearer”, drawn by defendant Tan Kim upon Equitable
Banking Corp.
 Upon presentment, all checks were dishonored and returned unpaid due to insufficient funds and/or causes attributable to
drawer.
 According to Tan Kim, the checks had been issued to two persons named Pinong and Muy for some shoes that Tan Kim
promised to make, and that the checks were intended as mere receipts.
 The trial court did not order the payment on the said checks because:
1) the plaintiff Chan Wan failed to prove he was a holder in due course, and
2) the checks were crossed and should NOT have been presented to the drawee for payment, but should have been
deposited with the bank mentioned in the crossing.
Issue: WON Chan Wan (holder) has a right to collect on the 11 checks. (Case was remanded.)

Ratio:

The checks were deposited with China Banking Corp

 8 of the subject checks bear across their face two parallel lines, between which, these words were written: “non-negotiable
—CHINA BANKING CORPORATION (CBC).” N.B. The court still considered the checks negotiable.
o The checks were therefore crossed specially to CBC, and should have been presented for payment by CBC, and not
by Chan Wan.
o When Chan Wan presented the check himself, no liability attached to drawer Tan Kim because there was no
 proper presentment.
 The drawer in drawing the check engaged that "on due presentment, the check would be paid, and that if it be dishonored...
he will pay the amount thereof to the holder". Thus, in the absence of due presentment, the drawer would not become
liable.
o Nonetheless, the SC found that there were endorsements on the backs of the checks. The endorsements showed
that the checks had beendeposited with CBC, and were presented by CBC to the drawee bank for collection. i
o All the crossed checks have the "clearance" endorsement of CBC.
o Circumstances would seem to show deposit of the checks with CBC and subsequent presentation by the latter
through the clearing office; but as drawee had no funds, they were unpaid and returned, some of them stamped
"account closed".

It’s probable that the plaintiff Chan Wan got the checks after hey were dishonored and returned.

o How they reached his hands, Chan Wan did not indicate. Most probably, as the trial court surmised, he got them
after they had been thus returned, because he presented them in court with such "account closed" stamps,
without bothering to explain. Trial court held him not to be a holder in due course under the circumstances, since
he knew, upon taking them up, that the checks had already been dishonored.

Even if Chan Wan is not a HIDC, he might still recover if Tan Kim has no valid defense

 NIL does not provide that a holder who is not a holder in due course, may not in any case, recover on the instrument. If B
purchases an overdue negotiable promissory note signed by A, he is not a HIDC; but he may recover from A, if the latter has
no valid excuse for refusing payment. The only disadvantage of holder who is not a holder in due course is that the
negotiable instrument is subject to defense as if it were non- negotiable.
o Tan Kim admitted that either the checks had been issued as evidence of debts to Pinong and Muy, and/or that they
had been issued in payment of shoes which Pinong had promised to make for her. Seeming to imply that Pinong
had to make the shoes, she asserted Pinong had "promised to pay the checks for me".
o Needless to say, if it were true that the checks had been issued in payment for shoes that were never made and
delivered, Tan Kim would have a good defense as against a holder who is not a holder in due course.

Considering the deficiency of important details on which a fair adjudication of the parties' rights depends, we think the record should
be and is hereby returned, in the interest of justice, to the court below for additional evidence, and such further proceedings as are
not inconsistent with this opinion. With the understanding that, as defendants did not appeal, their counterclaim must be and is
hereby definitely dismissed.
i
Exhibits A and B:
“For deposit to the account of White House Shoe Supply with the China Banking Corporation.”

then this:
“Cleared through the clearing office of Central Bank of the Philippines. All prior endorsements and/or lack of
endorsements guaranteed. China Banking Corporation.”

And on the back of Exhibit G:

“For deposit to the credit of our account. Viuda e Hijos de Chua Chiong Pio. People's Shoe Company.”

Followed by the endorsement of CBC as in Exhibits A and B.