Roberto Dino vs.

Maria Luisa Judal-Loot

Facts:

Petitioner was induced to lend a syndicate P3,000,000.00 to be secured by a real estate mortgage on
several parcels of land. Petitioner then issued three Metrobank checks totaling P3,000,000.00, one of which
is Check No. C-MA-142119406-CA postdated 13 February 1993 in the amount of P1,000,000.00 payable
to Vivencia Ompok Consing and/or Fe Lobitana. Upon scrutinizing the documents involving the properties,
petitioner discovered that the documents covered rights over government properties. Realizing he had
been deceived, petitioner advised Metrobank to stop payment of his checks. However, only the payment
of Check No. C-MA- 142119406-CA was ordered stopped. The other two checks were already encashed
by the payees.

Meanwhile, Lobitana negotiated and indorsed Check No. C-MA- 142119406-CA to respondents in
exchange for cash in the sum of P948,000.00, which respondents borrowed from Metrobank and charged
against their credit line. Drawee bank answered that the checks were sufficiently funded. However, the
same was dishonored by the drawee bank when they tried to deposit it for reason “PAYMENT STOPPED.”
Respondents filed a collection suit against petitioner and Lobitana before the trial court.

The trial court ruled in favor of respondents and declared them due course holders of the subject check,
since there was no privity between respondents and defendants. The Court of Appeals affirmed the trial
courts finding that respondents are holders in due course.

Issue:

WON the respondents were holders in due course?

Held:

The Supreme Court ruled in the negative Section 52 of the Negotiable Instruments Law defines a holder in
due course, thus: A holder in due course is a holder who has taken the instrument under the following
conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it
was overdue, and without notice that it has been previously dishonored, if such was the fact; (c) That he
took it in good faith and for value; and (d) That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it.

In the case of a crossed check, as in this case, the following principles must additionally be considered: A
crossed check (a) may not be encashed but only deposited in the bank; (b) may be negotiated only once
— to one who has an account with a bank; and (c) warns the holder that it has been issued for a definite
purpose so that the holder thereof must inquire if he has received the check pursuant to that purpose;
otherwise, he is not a holder in due course.
Based on the foregoing, respondents had the duty to ascertain the indorser’s, in this case Lobitana’s, title
to the check or the nature of her possession. This respondents failed to do. Respondents’ verification from
Metrobank on the funding of the check does not amount to determination of Lobitana’s title to the check.
Failing in this respect, respondents are guilty of gross negligence amounting to legal absence of good faith,
contrary to Section 52(c) of the Negotiable Instruments Law. Hence, respondents are not deemed holders
in due course of the subject check.

However, the fact that respondents are not holders in due course does not automatically mean that they
cannot recover on the check. 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 in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable.
Among such defenses is the absence or failure of consideration, which petitioner sufficiently established in
this case. Petitioner issued the subject check supposedly for a loan in favor of Consing’s group, who turned
out to be a syndicate defrauding gullible individuals. Since there is in fact no valid loan to speak of, there
is no consideration for the issuance of the check. Consequently, petitioner cannot be obliged to pay the
face value of the check.
Atrium Management Corporation vs. Court of Appeals

FACTS:

Hi-Cement Corporation borrowed money from E.T. Henry and Co. The said loan was secured by 4 checks
amounting to P2 million in total. The checks were signed by Lourdes M. de Leon, treasurer, and the late
Antonio de las Alas, Chairman. E.T. Henry and Co., Inc., in turn, endorsed the four checks to petitioner
Atrium Management Corporation for valuable consideration, after Enrique Tan (E.T. Henry) approached
Atrium for financial assistance, offering to discount four RCBC checks. Atrium agreed to Tan's offer based
on two letters, dated February 6, 1981 and February 9, 1981 issued by Hi-Cement through Lourdes M. de
Leon, as treasurer, confirming the issuance of the four checks in favor of E.T. Henry in payment for
petroleum products. Upon presentment for payment, the drawee bank dishonored all four checks for the
common reason payment stopped. Atrium, thus, instituted this action after its demand for payment of the
value of the checks was denied.

The trial court ordered all the defendants (Hi-Cement, E.T. Henry, and Lourdes M. de Leon) except
defendant Antonio de las Alas to pay Atrium jointly and severally P2,000,000.00 with the legal rate of
interest from the filling of the complaint until fully paid, plus P20,000.00 as attorneys fees and the cost of
suit. The CA (1) dismissed the plaintiffs complaint as against defendants Hi-Cement and De las Alas; (2)
ordered the defendants E.T. Henry and Co., Inc. and Lourdes M. de Leon, jointly and severally to pay the
plaintiff Atrium (P2,000,000.00) with interest at the legal rate from the filling of the complaint until fully paid,
plus P20,000.00 for attorneys fees. (3) ordered the plaintiff and defendants E.T. Henry de Leon, jointly and
severally to pay defendant Hi-Cement P20,000.00 as attorneys fees. De Leon and Atrium appealed the CA
decision separately.

ISSUE:

Whether or not petitioner Atrium was a holder of the checks in due course.

HELD:

The Supreme Court ruled in the negative.

A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in
the title of the person negotiating it.

In the instant case, the checks were crossed checks and specifically indorsed for deposit to payees account
only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payees
account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course.

However, it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in
due course for having taken the instruments in question with notice that the same was for deposit only to
the account of payee E.T. Henry that it was altogether precluded from recovering on the instrument. The
Negotiable Instruments Law does not provide that a holder not in due course can not recover on the
instrument.

The disadvantage of Atrium in not being a holder in due course is that the negotiable instrument is subject
to defenses as if it were non-negotiable. One such defense is absence or failure of consideration. We need
not rule on the other issues raised, as they merely follow as a consequence of the foregoing resolutions.