G.R. No. L-15380 – 109 Phil. 706 – Mercantile Law – Negotiable Instruments Law – Negotiation after Dishonor – Holder in Due Course
Tan Kim and her husband (Chen So) issued 11 checks payable to “cash or bearer” to be drawn against their account with the Equitable Banking Corporation. The checks were negotiated to the White House Shoe Supply (company). White House then deposited the checks to their China Bank account. China Bank then presented the checks to Equitable Bank but the checks were returned because Equitable Bank then had no funds to cover the checks. China Bank then stamped the checks with “Account Closed” and “Non negotiable – China Bank Corporation”.
But somehow, Chan Wan got hold of these checks (Chan Wan was not able to explain in court how he got hold of the checks). Chan Wan now wants to encash the checks but Equitable Bank refused to accept the checks.
ISSUE: Whether or not Chan Wan is a holder in due course.
HELD: No. As a general rule, a dishonored check/instrument may still be negotiated either by indorsement or delivery and the holder may be a holder in due course provided that he received no notice regarding the dishonor of the instrument. In this case, the checks were already crossed on their face hence Chan Wan was properly notified of the dishonor of the checks at the time of his acquisition.
But may Chan Wan still recover?
Yes. 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 holder may recover directly from the drawee, in this case Tan Kim and Chen So, unless the drawees have a valid excuse in refusing payment. The only disadvantage of a holder who is not a holder in due course is that the negotiable instrument is subject to defense as if it were non- negotiable. The case was remanded to the lower court for a proper determination as to how Chan Wan acquired the checks and to determine if he is indeed entitled to payment based on some other transactions involving those checks.
