Lessons Applicable: Rights of Holder against general indorser (Negotiable Instrument Law)
FACTS:
- Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of E.T. Henry & Co., Inc. (E.T. Henry), a company engaged in the business of processing and distributing bunker fuel.
- E.T. Henry's customers were Hi-Cement Corporation (Hi-Cement), Riverside Mills Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo) who issued postdated checks for their purchases
- Sometime in 1979: Insular Bank of Asia and America (turned PCIB then Equitable PCI-Bank) granted E.T. Henry a credit facility known as “Purchase of Short Term Receivables.” (re-discounting arrangement)
- Through this, E.T. Henry was able to encash, with pre-deducted interest, the postdated checks of its clients.
- For every transaction, E.T. Henry had to execute a promissory note and a deed of assignment
- 1979-1981: E.T. Henry was able to re-discount its clients' checks
- February 1981: 20 checks of Hi-Cement (which were crossed and which bore the restriction “deposit to payee’s account only”) were dishonored. So were the checks of Riverside and Kanebo.
- Bank filed a complaint for sum of money in CFI against E.T. Henry, the spouses Tan, Hi-Cement (including its general manager and its treasurer as signatories of the postdated crossed checks), Riverside and Kanebo
- CA Affirmed RTC: Ordering E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo, jointly and severally, to pay bank damages represented by the face value of the postdated checks plus interests, services, charges and penalties until fully paid
- G.R. 132403: RTC & CA
- Hi-Cement authorized its general manager and treasurer to issue the subject postdated crossed checks
- Hi-Cement was already estopped from denying such authority since it never objected to the signatories' issuance of all previous checks to E.T. Henry
ISSUE:
- W/N bank was a holder in due course - NO
- W/N Hi-Cement can still be made liable for the checks - NO
HELD: CA AFFIRMED with MODIFICATION remanded to RTC for recomputation
- NO.
- Section 191
- Section 52
- Bank was all too aware that subject checks were crossed and bore restrictions that they were for deposit to payee's account only; hence, they could not be further negotiated to it
- irregularity - only the treasurer's signature appeared on the deed of assignment
- As a banking institution, it behooved respondent to act with extraordinary diligence in every transaction
- Its business is impressed with public interest, thus, it was not expected to be careless and negligent, specially so where the checks it dealt with were crossed.
- It is then settled that 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
2. NO.
- the drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due course
- may recover from the party who indorsed/encashed the checks “if the latter has no valid excuse for refusing payment - E.T. Henry had no justification to refuse payment, it should pay