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Santos [Negotiable Instruments]

HI-CEMENT CORP. v. INSULAR BANK OF ASIA pre-deducted interest, the post-dated checks of
Topic: Holders in Due Course their clients
Because of this agreement, the petitioner E.T.
DOCTRINE: Henry & Co. was able to re-discount its clients
Section 52: checks
A holder in due course is a holder who has taken the For every transaction, respondent required E.T.
instrument under the following conditions: Henry to execute a promissory note and a deed
(a) it is complete and regular on its face; of assignment bearing the conformity of the
(b) he became the holder of it before it was overdue, client to the re-discounting.
and without notice that it has previously been However, in February 1981, 20 checks of Hi-
dishonored, if such was the fact; Cement were dishonored, so with the other
(c) he took it in good faith and for value and customers of E.T. Henry & Co.
(d) at the time it was negotiated to him, he had no Respondent bank filed a complaint for sum of
notice of any infirmity in the instrument or defect in the money against E.T. Henry & Co., Sps. Tan, Hi-
title of the person negotiating it. Cement, and the other customers
Absent any of the elements set forth in Section 52, the According to respondent, the dishonored checks
holder is not a holder in due course. In the case at bar, made them suffer actual damages
the last two requirements were not met. Hi-Cement argued that (1) its general manager
and treasurer were not authorized to issue the
FACTS: post-dated crossed checks in E.T. Henry's favor;
Petitioners Spouses Tan were controlling (2) the deed of assignment purportedly executed
stockholders of E.T. Henry & Co., a company that by Hi-Cement assigning them to respondent only
is engaged in the business of processing and bore the conformity of its treasurer and (3)
distributing bunker fuel respondent was not a holder in due course as it
Hi-Cement was among the customers of should not have discounted them for being
Petitioner Spouses "crossed checks."
Hi-Cement issued post-dated checks for their ISSUE: Whether or not the respondent bank is a holder
purchases from E.T. Henry & Co in due course
In 1979, respondent bank, Insular Bank of Asia HELD:
and America granted E.T. Henry & Co. a credit No
facility which enables the latter to encash, with
Santos [Negotiable Instruments]

Respondent bank failed to meet the requisites of


a holder in due course, specifically (c) of Section
52 of the Negotiable Instruments Law
It did not show good faith when respondent bank
accepted and discounted Hi-Cements post-dated
crossed checks from E.T. Henry & Co.
Good faith herein is negated by gross negligent
conduct in dealing with the subjected checks
Respondent bank was well aware that the said
checks were crossed and therefore bore
restrictions that they were for deposit to the
payees account only
In addition, records show that respondent bank
completely disregarded a telling sign of
irregularity in the re-discounting of the checks
when the general manager did not acquiesce or
consent to it. Only the treasurers signature
appeared on the deed of assignment
Banks are expected to observe extraordinary
diligence in ever transaction

CASE REMANDED TO THE TRIAL COURT FOR


COMPUTATION OF PETITIONERS LIABILITIES

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