Negotiable Instruments Case Digest: Bataan Cigar v. CA (1994)

G.R. No. 93048  March 3, 1994

Lessons Applicable: Rights of a holder (Negotiable Instruments Law)

FACTS: 

• Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of cigarettes purchased from King Tim Pua George (George King) 2,000 bales of tobacco leaf to be delivered starting October 1978. 
• July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the total amount of P820K
• George represented that he would complete delivery w/in 3 months from Dec 5 1978 so BCCFI agreed to purchase additional 2,500 bales of tobacco leaves, despite the previous failure in delivery
• It issued post dated crossed checks in the total amount of P1.1M payable sometime in September 1979. 
• July 19, 1978:  George sold to SIHI at a discount check amounting to P164K, post dated March 31, 1979, drawn by BCCFI w/ George as payee. 
• December 19 and 26, 1978: George sold 2 checks both in the amount of P100K, post dated September 15 & 30, 1979 respectively, drawn by BCCFI w/ George as payee
• Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 a stop payment order for all checks
• SIHI failing to claim, filed a claim against  BCCFI
• RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial to the case

ISSUE: W/N SIHI is a holder in due course beign a second indorser and a holder of crossed checks

HELD: YES.  GRANTED. RTC reversed.

• Sec. 52

1. That it is complete and regular upon its face
2. 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
3. That he took it in good faith and for value
4. 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

• Sec. 59
• every holder is deemed prima facie a holder in due course
• However, when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims, acquired the title as holder in due course.
• effect of crossing of a check

1. check may not be encashed but only deposited in the bank
2. check may be negotiated only once — to one who has an account with a bank
3. act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose - he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course

• crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser's title to the check or the nature of his possession - failure = guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law
• SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks.  However, that SIHI could not recover from the checks. The only disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses as if it were non-negotiable. Hence, SIHI can collect from the immediate indorser, George