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Central Optical Merchandising Co. v. Estate of Lowe bona fide manner, and he may recover upon such instrument as if it had never been
indorsed."
249 Miss. 61 (1964) To the same effect are 10 C.J.S., Bills and Notes, § 215; Beutel's Brannan, Negotiable
160 So. 2d 673 Instruments Law (7th ed. (1948) 642; McLemore v. Hawkins, 46 Miss. 715 (1872); Taylor
CENTRAL OPTICAL MERCHANDISING COMPANY, INC. v. ESTATE OF LOWE, v. Julienne, 180 Miss. 320, 177 So. 19 (1937); Kendrick v. Kyle, 78 Miss. 278, 28 So. 951
DECEASED (1900). (Hn 1) As was stated in McLemore, the "possession of a note by the payee or a
No. 42877. subsequent endorser is prima facie evidence, notwithstanding subsequent endorsers *68
Supreme Court of Mississippi. thereon, that he is the lawful owner and has reacquired the legal title." (Hn 2) Here
February 17, 1964. Central Optical had a prima facie right in these four notes, having reacquired them. So
Wynn, Hafter, Lake & Tindall, Greenville, for appellant. that claim should have been allowed, in the principal amount of $3,000 plus accrued
*65 Philip Mansour, Greenville, for appellee. interest. The decree disallowing the probated claim on the four promissory notes is
*66 ETHRIDGE, J. reversed, and judgment is rendered here allowing it.
This case involves contests of probated claims against the estate of a deceased. The Second. The claim filed by Central Optical on Lowe's open account consisted of five
Chancery Court of Washington County disallowed them, and from the two consolidated pages, with the statutory affidavit. It stated that Lowe's estate was indebted to claimant
decrees the claimant (Central Optical Merchandising Company, Inc., called Central as of November 30, 1962 in the sum of $5,006.47, "for the unpaid balance on the
Optical) appealed. account of the said M.B. Lowe and his estate, ... for lenses, frames and other optical
The issues are (1) whether claimant had a prima facie right as the holder to four merchandise sold and delivered, after allowing all proper credits." It was then stated that
promissory notes, which it as payee had endorsed in blank and upon which there were the unpaid balance of the account on June 25, 1961 was $8,410.85. This beginning
subsequent restrictive endorsements by others; and (2) whether the claim on open figure was assumed by claimant to be correct. It contained no verifying data to support it.
account was a sufficient "itemized account" under the statute to be amended (after the The claim, after allowing certain credits and debits, stated that the balance due on
six month period for creditors to file), and to be amplified and further described by November 30, 1962 was $5,006.47. Attached to it was a certified copy of the accounts
evidence on contest by the administratrix. These questions we answer in the affirmative. receivable records of claimant for the account from June 25, 1961 to November 30,
For many years Morris B. Lowe was the owner and operator of Greenville Optical 1962. This attached exhibit began with a "proof total" of $8,690.62, and contained 37
Company, an unincorporated business in Greenville, Mississippi. He died on July 16, pages of photocopies of the accounts receivable records of Central Optical. Each page
1962, and letters of administration were granted to appellee, Barbara Dale McHan. identified the purchaser, and contained ten vertical colums, with appropriate figures
Notice to creditors was published, and on December 22, 1962 Central Optical filed its under the various parts, identified as date, description, prescription, stock, net item,
claims against the estate. Mississippi Code 1942, Rec., section 568 requires that any credit, balance due, sales balances for prescription and stock, and proof total.
person desiring to probate his claim against an estate, where there is no written evidence The first publication for creditors was made on July 26, 1962. Several weeks after the six
of it, shall present "an itemized account, or a statement of the claim in writing, signed by months period for probating claims expired, the administratrix filed a contest, asserting
the creditor." There were two types of asserted debts, four promissory notes, and an the claim was not an itemized account, was fatally defective, and should be disallowed.
open account. *69 At the hearing Cecil R. Shaffer, president of Central Optical, testified about the notes,
First. Four promissory notes were executed by Lowe on July 8, 1961, each being in the and, with reference to the open account, he said the exhibit to the claim consisted of the
principal amount of $750, and payable to the order of Central Optical. At the time company's work sheets from which the statement was made up. Claimant's counsel then
claimant probated this claim, the maturity dates of all of the notes had occurred. They handed the witness eighteen manila envelopes, which he identified as containing copies
were endorsed in blank by Central Optical. Subsequently they were endorsed to the of the numerous original bills or invoices for supplies sent to Lowe from July 25, 1960 to
order of Lincoln Rochester Trust Company *67 by Shuron Optical Company, Inc. November 30, 1962. He then offered in evidence these invoices, stating they were not
Claimant had possession of the notes, and the probated claim averred that it had offered to amend the claim, but to support and substantiate the entries in the attached
reacquired them. On the face of three is stamped a notation that they were "charged ledger sheet. Counsel for appellee objected, on the ground they were an amendment to
back" to the account of Central Optical. The administratrix argues that the notes show on the claim. The court reserved its ruling. The final decree disallowed the claim on open
their face that Central Optical has no right, title or interest in them. The trial court account.
sustained this position, and disallowed this claim. We hold this was error. Subsequently claimant moved for consolidation of the cases on the notes and open
Mississippi Code 1942, Rec., section 89 (NIL § 48) states: account, and for an order directing the original invoices be sent to this Court. Such an
"The holder may at any time strike out any indorsement which is not necessary to his order was entered, stating "the invoices introduced as exhibit 2 to the direct examination
title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, of Mr. Cecil Shaffer be and they are hereby attached to and considered as a part of said
are thereby relieved from liability on the instrument." record without the necessity of each separate invoice being copied verbatim into said
The applicable rule is described in 11 Am.Jur.2d, Bills and Notes, section 393: record." Apparently the trial court considered that the invoices were admitted in evidence.
"The holder of an instrument may at any time strike out any indorsement which is not If they were not, they should have been. They described in detail each of the sales by
necessary to his title, thereby, however, releasing the indorser whose indorsement is Central Optical to Lowe, giving the date, description, and other details of the particular
stricken and all subsequent indorsers. Accordingly, if an instrument contains lenses, frames and other optical merchandise.
indorsements subsequent to an indorsement in blank the holder may strike these out, Under all of the foregoing circumstances, we conclude that appellant had the right to
although the intervening indorsements are in full. An indorsement upon a negotiable amend its claim (with limitations), and to offer evidence to explain and clarify it; and that
instrument may be stricken out by the original payee upon his regaining possession in a expiration of the period for filing claims did not bar these procedures.
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Mississippi Code 1942, Rec., section 568 provides that any person desiring to probate charge for "stock", and a "proof total." Although not as definite or adequate as it should
his claim against an estate shall present to the clerk, "if there be no written *70 evidence be, the claim gave notice that it existed against the estate, for payment of which the
thereof, an itemized account, or a statement of the claim in writing, signed by the creditor looked to the estate, it distinguished the claim with reasonable certainty from all
creditor, and make affidavit, to be attached thereto, to the following effect," setting forth other similar ones, and gave such information concerning its nature and amount as
the form of affidavit. would enable the representative of the estate to act intelligently either in providing for its
All claims against the estates of deceased persons shall be registered, probated and payment or in rejecting it, or in moving the court for a bill of particulars to make the claim
allowed within six months after first publication of notice to creditors, otherwise they will more definite and certain. It contained sufficient allegations upon which an amendment
be barred. Code §§ 569, 566. In 1926 what is now section 569 was amended (Miss. by claimant or a motion by the estate's representative for bill of particulars could be
Laws 1926, ch. 157) by adding a statement "that where the affidavit is made in good faith predicated.
and the claim is registered, probated and allowed by the clerk, but the affidavit is (Hn 8) Presentation of a claim against an estate is in many respects similar to the filing of
defective or insufficient, the court may allow the affidavit to be amended so as to conform a suit against a defendant. The main purposes of pleading and procedure are to obtain a
to the requirements of the statute, at any time before the estate is finally settled, clear definition of the issues between the parties and to reveal all of the facts, in order to
whereupon the probate shall be as effective and the claim as valid against the estate as obtain a fair and equitable decision of the controversy. (Hn 9) Where a claimant against
if the affidavit had been correct and sufficient, in the first instance." an estate presents in good faith a claim which is in substantial compliance with the
Nevertheless, Rice Strix Dry Goods Co. v. Monsour, 178 Miss. 621, 174 So. 63 (1937), foregoing requirements, it is not equitable to permit the deceased's representative to wait
held that this amendment to section 569 "limits its amendments to the affidavit, and does until the six months have expired, then to assert the itemized account is not technically
not apply to the account, ... ." See Bell v. Union & Planters Bank & Trust Co., 158 Miss. sufficient, and thereby to bar an otherwise legitimate debt of the estate.
486, 130 So. 486 (1930); U.S.F. & G. Co. v. Blanchard, 182 Miss. 179, 181 So. 134 Closely analogous are those cases dealing with whether an amendment of an
(1938) (can not amend to increase amount of claim). Rice Stix also disallowed a claim on inadequate complaint in a suit is permissible, where the amendment is filed after the
itemized account because insufficiently itemized, but it does not appear that evidence statute of limitations has run, but the original complaint *73 was filed before that time. In
was offered to explain it. Amendment was denied. re Estate of Whittington, 217 Miss. 457, 64 So. 2d 580 (1953), was an independent suit
(Hn 3) Legislative intent must be considered in the light of the realities of probate in chancery against an executor to recover for personal services rendered decedent.
practice. (Hn 4) Although claims must be registered within six months after the first After the three year statute of limitations had run, complainant amended her bill so as to
publication of notice to creditors, no fixed form of claim is ordinarily required, nor is the charge the promise was that she would be taken care of "at his death." The amendment
technical accuracy and certainty of description which is essential in pleading necessary. was held to be proper and not barred by the statute of limitations:
(Hn 5) In general, "the statement *71 shall give notice that a claim exists against the "The filing of the independent bill or petition was therefore in order, and its amendment,
estate, for payment of which the creditor looks to the estate, that the statement shall be by permission of the court, was not error... . The law is liberal as to amendments in order
so clear and unambiguous as to distinguish the claim with reasonable certainty from all that the real issues of the controversy may be presented. Under the allegations of the
other similar claims, and that it shall give such information concerning the nature and amended bill and the proof, the benefits of Section 729, supra, did not accrue to the
amount of the demand as will enable the representative to act intelligently in providing for estate, because three years had not elapsed."
its payment or in rejecting it." 34 C.J.S., Executors and Administrators, § 417. In McKesson & Robbins, Inc. v. Coker, 222 Miss. 774, 77 So. 2d 302 (1955), the drug
(Hn 6) The old rule that the statutes must be strictly complied with is no longer a company brought an action against a former partner for drugs furnished to the
controlling principle of interpretation. The cases in recent years show that a substantial partnership. An insufficient copy of an itemized account was attached to the declaration.
compliance is sufficient. Strange v. Strange, 189 Miss. 349, 197 So. 830 (1940); Fidelity After the three year limitation statute had run, plaintiff filed its amendment to the
Mut. Life Ins. Co. v. Goldstein, 187 Miss. 285, 192 So. 584 (1940); Deposit Gty. Bk. & Tr. declaration, which consisted of a sworn itemized statement with copies of the original
Co. v. Jordan's Estate, 171 Miss. 332, 157 So. 876 (1934); Hughes v. Box, 224 Miss. invoices of merchandise sold and delivered to the partner. Defendant pleaded the
513, 81 So. 2d 242 (1955). statute, and contended that plaintiff's suit was not effectually commenced until the
In Stewart v. Estate of Williamson, 243 Miss. 450, 138 So. 2d 742 (1962), claims were amendment was made, because the original declaration did not state any cause of
probated for premiums on a number of liability insurance policies. The chancery court action. Rejecting this contention, the opinion said:
held they were insufficient to permit the introduction of evidence to explain them. With "The amendment to the declaration introduced no new cause of action, and the
one exception, this Court held the itemized statement was sufficient, and claimant should amendment made no new demands or substantial change in the plaintiff's cause of
have been allowed to offer evidence in support. If the statement must include all items action. The filing of the itemized statement of account, in the form of copies of the
going into the final premium, "the claim would have to include the policy, the company's invoices of the merchandise sold and delivered, constituted no more than *74 a
manuals, and the audit of the insured's book. The statute never contemplated such compliance with the requirements of Section 1469, Code of 1942,... . The matters set up
requirement. It would be cumbersome and unreasonable... ." In short, substantial in the amendment constituted only a bill of particulars. The action was still an action on
compliance was the test. See 21 Am. Jur., Executors and Administrators, § 373; Anno., open account... . the amendment should have been regarded as a continuation of the
Sufficiency of Notice of Claim Against Decedent's Estate, 74 A.L.R. 368 (1931). original suit with respect to the tolling of the statute of limitations... . It may be readily
(Hn 7) The instant claim on open account is a sufficiently effective presentation of claim conceded that the plaintiff's original declaration in the case that we have here was
to preclude the six month provision of Code section 569 from barring it. *72 It was for defective in that there should have been attached to the declaration an itemized
"lenses, frames and other optical merchandise" sold to the deceased. It stated in some statement of the account... . Although the original declaration may have been defective,
detail credits and debits attributable to the estate, and alleged as true, correct, and owing the defects were removed by the amendment and the amendment was not inconsistent
the particular balance of account. The attached 37 pages from the accounts receivable with the purpose and relief originally sought. The amendments introduced no new cause
records stated the dates of the charges, the amount charged for the prescription, the of action; and the plea of the statute of limitations should have been overruled."
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Harrison v. Landrum, 223 Miss. 207, 78 So. 2d 132 (1955), was a suit brought by an right, respectively, to introduce evidence to support their positions. Code section 575 so
attorney against a client for fees. The complaint did not allege when the bill for services provides. Nicholson v. Dent, Robinson & Ward, 189 Miss. 658, 198 So. 552 (1940); Ellis
was due, and most of the debt appeared to be barred by the three year statute of v. Berry, 145 Miss. 652, 110 So. 211 (1926). (Hn 14) In the present case, the many
limitations. Thereafter complainant filed an amendment alleging that no fee was due until invoices of optical merchandise sold to Lowe by Central Optical, which were introduced
completion of the transaction, which took the suit out of the statute of limitations. It was in evidence, explained in detail the basis of a large number of the charges and asserted
said: debts of the estate. These were properly offered and admitted in evidence, and the trial
"The amended bill introduced no new cause of action and stated no new facts as the real court should have considered them on the issue of whether they adequately verified the
basis of recovery. Primarily, it simply made definite the allegation as to when appellee details of the claim.
was to be paid, and thereby perfected or amplified the cause of action set up in the *77 (Hn 15) The claim stated that the unpaid balance on June 25, 1961 was $8,410.85. It
original pleading, and related back to the commencement of the action, thereby tolling gave no verification of that sum, and there is no evidence to indicate it represents a
the running of the statute." See 54 C.J.S., Limitations of Actions, § 280, pp. 327-330; stated account as of that date. Claimant has the burden of proof to show the correctness
Anno., Sufficiency of Notice of Claim Against Decedent's Estate, 74 A.L.R. 368 (1931). of that particular, beginning sum for the itemized account, and of verifying it either from
Since the instant original claim gave notice that the claim existed, and was sufficient to that date, or from some other prior date at which there was a balance of account. In this
distinguish it from *75 other similar claims, and was a good faith, substantial compliance respect the record is indefinite and ambiguous.
with the statute, the claim was amendable after expiration of the six months. Such (Hn 16) The president of Central Optical was not precluded from testifying to establish
amendment would constitute a continuation of the original suit. It would relate back to the the claim of the corporation against the estate of Lowe. Mississippi Code 1942, Rec.,
commencement of the action. As was said in Coker, it may be conceded that the original section 1690 prohibits a person testifying as witness to establish his own claim against
claim was defective in that there should have been attached to it a more itemized the estate of a deceased person which originated in the latter's lifetime. However, the
statement of the account. Yet this was no bar to the claim, either if timely application was claim of this corporation did not belong to the witness; he was acting in the capacity of its
made for leave to amend, or if evidence to further describe and identify the basis of the agent. Lann and Carter Hardware Co. v. Carberry, 114 Miss. 519, 75 So. 377 (1917); see
claim was tendered, as it was here. McFarlane v. Plant, 185 Miss. 616, 626, 188 So. 530 (1939).
(Hn 10) Where the amendment increases the amount of the claim, sets up a new cause In summary, the chancery court erred in disallowing the itemized account in toto,
of action, and materially changes the basis for the claim, it is not allowable. (Hn 11) It is apparently on the ground of inability of claimant either to amend its claim after six months
permissible only if it does not amount to a new claim, but is merely an improvement or or to explain it by evidence on the hearing. Because of this error, and because claimant
perfection of one presented in time but lacking certain elements necessary to express its has the burden of proving more accurately its correctness, the decree disallowing the
full merits. 34 C.J.S., Executors and Administrators, § 417. claim on itemized account is reversed, and the cause is remanded in this respect for a
The general rule, which we adopt, is well summarized in the annotation, Amendment of full hearing on the merits in accordance with this opinion. The decree disallowing the
Claim Against Decedent's Estate After Expiration of Time for Filing Claims, 56 A.L.R. 2d claim on the four promissory notes is reversed, and judgment is rendered here allowing
627, 628 (1957). It is: that particular claim.
"It is a general rule that a seasonably filed claim against the estate of a decedent may be Reversed and judgment rendered here in part; in part reversed and remanded.
amended after the expiration of the time limited for the filing of claims where it is All Justices concur.
necessary or desirable to accomplish complete justice between the parties, the original
statement shows a claim (or cause of action) which may be established as a valid one, Edgar v. Haines, 141 N.E. 837 (Ohio 1923)
upon which an amendment can be predicated, the character and identity of the claim (or Ohio Supreme Court
cause of action) is not changed, unrelated increases in the sum claimed are not included, Filed: December 18th, 1923
and the proposal is not contrary to the provisions of the probate statute, as construed, Precedential Status: Precedential
but rather in harmony with applicable curative or jeofails statutes permitting amendments Citations: 141 N.E. 837, 109 Ohio St. 159
to *76 pleadings, etc., in proper civil cases." See Johnson v. Hannon, 211 Miss. 207, 51 Docket Number: No. 17852
So. 2d 283 (1951); Hughes v. Box, 224 Miss. 513, 81 So. 2d 242 (1955). Judges: MARSHALL, C.J.
To the extent that Rice Stix Dry Goods Co. v. Monsour, 178 Miss. 621, 174 So. 63
(1937), U.S.F. & G. Co. v. Blanchard, 182 Miss. 179, 181 So. 134 (1938), Wilson v. The first problem presented by this record relates to the law of negotiable instruments
Yandell, 174 Miss. 713, 165 So. 430 (1936), and any other related cases are inconsistent and may be solved by reference to the *Page 162 provisions of the Uniform Negotiable
with these conclusions and the rules set forth in this opinion, they are hereby modified, Instruments Act, Sections 8106 to 8230, inclusive, General Code. This instrument was
qualified and limited. originally a negotiable instrument, meeting all the requirements of the provisions of
(Hn 12) Although a claim may satisfy these minimum requirements, the personal Sections 8106 to 8109, inclusive, General Code, but being payable to two joint payees,
representative to whom a claim is presented has the duty to require the creditor to make who were not partners, and neither having any authority to transfer the interest of the
the statement of claim more definite and certain, where it does not sufficiently advise him other, it was clearly subject to the provisions of Section 8137, General Code, which
of its essential details and nature. If any uncertainty remains, it is incumbent on the provides:
personal representative to call for clarification, either by a motion to make more definite "The indorsement must be an indorsement of the entire instrument. An indorsement
and certain, or motion for a bill of particulars. 34 C.J.S., Executors and Administrators, § which purports to transfer to the indorsee a part only of the amount payable * * * does not
417, p. 197. operate as a negotiation of the instrument."
(Hn 13) In addition to a claimant's right to amend, where a claim meets the foregoing The transfer of the instrument in the manner in which the same was transferred by
minimum requirements, both he and the personal representative on a contest have the Edgar, being in contravention of the plain provisions of that section, stripped the
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instrument of some of the qualities of a negotiable instrument and left it a nonnegotiable that event the maker would also have a valid defense against Edgar, so that neither party
chose in action. It may be inquired at this point whether Section 8137 makes an could recover. On the other hand, if the maker were insolvent, and the Sixth Real Estate
attempted transfer in violation of its provisions an utterly void act. Our answer is that the Security Company were seeking personal judgment against Edgar as an indorser, Edgar
word "negotiation," as used in that section, is a technical term, and is used in a technical would likewise have a valid defense on the ground that the real estate company is not a
sense as the transfer of a negotiable instrument in due course. It is true that in Section holder in due course. Neither of the foregoing hypotheses is true, but, on the contrary,
8135 it is provided that: the maker of the note is perfectly solvent, makes no defense to the note, and has paid
"An instrument is negotiated when it is transferred from one person to another in such the amount of the same into court. The only question remaining for determination is the
manner as to constitute the transferee the holder thereof." rights of the respective parties in that fund. This determination must be made according
This section being a part of the uniform act, all sections of which are in pari materia, it to well-settled principles of equity, without regard to the rules and principles of
must necessarily refer to a negotiable instrument, and *Page 163 the holder of such an commercial paper. The situation is exactly the same as though tangible property were
instrument, and no one can be such holder who does not measure up to all of the involved instead of a chose in action.
requirements of Sections 8157 to 8164, inclusive, General Code. By virtue of the Edgar was induced by fraud to part with his title to this chose in action and could
provisions of Section 8160, General Code, a person is not a holder in due course who undoubtedly have recovered the title from Mayer, before Mayer parted with it, and could
acquires title by unlawful means, and it must necessarily be considered unlawful if in have recovered the title from any other person who acquired if with knowledge of the
contravention of the statutory provisions. fraud; but it is conceded in this case *Page 166 that the Sixth Real Estate Security
If, therefore, it is attempted to transfer a negotiable instrument in such manner as to Company acquired title without notice or knowledge of fraud or even circumstances
violate the provisions of Section 8137, General Code, it does not operate as a which would have put that company upon inquiry. The situation is the same as though
negotiation of a negotiable instrument. It does not follow, however, that the transfer of Edgar, admitting that the real estate company was not a party to the fraud, but, on the
only a part of the amount payable is a void act, or that the transferee acquires nothing by contrary, had acquired the same for a valuable consideration without notice or knowledge
the transaction. It cannot be doubted that any legislative attempt to deny the right of a thereof, had brought an action against the real estate company to recover the property
holder of a part interest in a negotiable instrument to sell and transfer such interest would on the ground that his transfer of it to Mayer was induced by fraud. It being admitted that
be unconstitutional. As a general rule, any person may sell and transfer property, or any Edgar indorsed the note, and delivered the note and mortgage to Mayer, that he thereby
interest therein, under the inherent power to make contracts, all of which is recognized by clothed Mayer with apparent indicia of title, with power to further dispose of the note and
the letter and the spirit of Section 1 of the Ohio Bill of Rights. It is, of course, an exception mortgage, and the same having in fact been disposed of to an innocent purchaser for a
to such general rule that the Legislature may limit such right on the ground of public valuable consideration, Edgar is, by well-settled principles of equity, estopped from
policy, the best examples of which are champertous and usurious contracts, contracts in setting up against such second assignee the fact that the title of Mayer was not
restraint of trade, and other agreements which need not be enumerated. It is likewise absolutely perfect. Edgar, by his own affirmative act, conferred the apparent title and
within the limits of legislative power to give to promissory notes and bills of exchange the ownership upon Mayer, and it was upon the faith of this transfer that Kaufman and the
attribute of negotiability, to place limitations thereon, and to take the same *Page real estate company purchased the same for a valuable consideration. Edgar is thereby
164 away under certain prescribed conditions. The Legislature would not, however, have precluded from asserting his real title. Edgar, having been defrauded, seeks to be made
the power to take away from a promissory note the force and effect of a contract, if it whole at the expense of the Sixth Real Estate Security Company, an innocent party, not
possesses all of the formal requisites and essential attributes of a contract. In the instant at the expense of Mayer, the real wrongdoer. This case is therefore governed by the
case, after the transfer of the part interest in the note, it still had all of the character and legal maxim that, where one of two innocent persons must sustain a loss from the fraud
quality of a contract, and as such it could lawfully be transferred. We have no difficulty, of a third, such loss must fall upon the one, if *Page 167 either, whose act has enabled
therefore, in reaching the conclusion that Mayer and the subsequent transferees were such fraud to be committed. The instant case is exactly parallel to the case
holders of a nonnegotiable chose in action. of Combes v.Chandler, 33 Ohio St. 178, and upon the authority of that case, as well as
At this new starting point, and based upon the foregoing conclusions, we will proceed to upon principle, the judgment of the Court of Appeals must be affirmed.
a consideration of the next legal question, and to a determination of the respective rights Judgment affirmed.
and claims of Edgar and the Sixth Real Estate Security Company in this chose in action. WANAMAKER, ROBINSON, JONES, MATTHIAS, DAY and ALLEN, JJ., concur.
It was not quite clear what theory counsel for Edgar entertained in disregarding the notes
and bringing action to foreclose the mortgage. It is well settled by the former EN BANC
adjudications of this court that a mortgage is not property separate and distinct from the G.R. No. L-26767 February 22, 1968
note which it secures, but that, on the other hand, the mortgage security is an incident of ANG TIONG, plaintiff-appellee,
the debt which it is given to secure, and, in the absence of a specific agreement to the vs.
contrary, passes to the assignee or transferee of such debt. These principles are settled LORENZO TING, doing business under the name and style of PRUNES
by the following cases: Paine v. French, 4 Ohio, 318,Executors of Swartz v. Leist, 13 PRESERVED MFG., and FELIPE ANG, defendants.
Ohio St. 419, and Allen v.First Nat. Bank of Xenia, 23 Ohio St. 97. This entire problem FELIPE ANG, defendant-appellant.
must therefore be solved by determining which of these parties has the better title to this Chipeco & Alcaraz, Jr. for plaintiff-appellee.
nonnegotiable *Page 165chose in action, and this question must be determined by Ang, Atienza & Tabora for defendant-appellant.
principles of law having no relation whatever to the law of negotiable instruments. If the CASTRO, J.:
fraud had arisen out of the transaction between the maker and the original payee of the On August 15, 1960 Lorenzo Ting issued Philippine Bank of Communications
note, the law of negotiable instruments would apply, and the Sixth Real Estate Security check K-81618, for the sum of P4,000, payable to "cash or bearer". With Felipe Ang's
Company not being a holder in due course, the maker would have a valid defense. In signature (indorsement in blank) at the back thereof, the instrument was received by the
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plaintiff Ang Tiong who thereafter presented it to the drawee bank for payment. The bank 3. That the appellant, again assuming him to be an accommodation indorser, may
dishonored it. The plaintiff then made written demands on both Lorenzo Ting and Felipe obtain security from the maker to protect himself against the danger of insolvency of the
Ang that they make good the amount represented by the check. These demands went latter, cannot in any manner affect his liability to the appellee, as the said remedy is a
unheeded; so he filed in the municipal court of Manila an action for collection of the sum matter of concern exclusively between accommodation indorser and accommodated
of P4,000, plus P500 attorney's fees. On March 6, 1962 the municipal court adjudged for party. So that the fact that the appellant stands only as a surety in relation to the maker,
the plaintiff against the two defendants. granting this to be true for the sake of argument, is immaterial to the claim of the
Only Felipe Ang appealed to the Court of First Instance of Manila (civil case appellee, and does not a whit diminish nor defeat the rights of the latter who is a holder
50018), which rendered judgment on July 31, 1962, amended by an order dated August for value. The liability of the appellant remains primary and unconditional. To sanction the
9, 1962, directing him to pay to the plaintiff "the sum of P4,000, with interest at the legal appellant's theory is to give unwarranted legal recognition to the patent absurdity of a
rate from the date of the filing of the complaint, a further sum of P400 as attorney's fees, situation where an indorser, when sued on an instrument by a holder in due course and
and costs." for value, can escape liability on his indorsement by the convenient expedient of
Felipe Ang then elevated the case to the Court of Appeals, which certified it to this interposing the defense that he is a mere accomodation indorser.
Court because the issues raised are purely of law. ACCORDINGLY, the judgment a quo is affirmed in toto, at appellant's cost.
The appellant imputes to the court a quo three errors, namely, (1) that it refused to Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez,
apply article 2071 of the new Civil Code to the case at bar; (2) that it adjudged him a Angeles and Fernando, JJ., concur.1äwphï1
general indorser under the Negotiable Instruments Law (Act 2031); and (3) that it held SECOND DIVISION
that he "cannot obtain his release from the contract of suretyship or obtain security to
protect himself against any proceedings on the part of the creditor and against the G.R. No. 93048 March 3, 1994
danger of insolvency of the principal debtor," because he is "jointly and severally liable BATAAN CIGAR AND CIGARETTE FACTORY, INC., petitioner,
on the instrument." vs.
This, appeal is absolutely without merit. THE COURT OF APPEALS and STATE INVESTMENT HOUSE, INC., respondents.
1. The genuineness and due execution of the instrument are not controverted. Teresita Gandiongco Oledan for petitioner.
That the appellee is a holder thereof for value is admitted. Acaban & Sabado for private respondent.
Having arisen from a bank check which is indisputably a negotiable instrument, the
present case is, therefore, in so far as the indorsee is concerned vis-a-vis the indorser, NOCON, J.:
governed solely plaintiff the Negotiable Instruments Law (see secs. 1 and 185). Article For our review is the decision of the Court of Appeals in the case entitled "State
2071 of the new Civil Code, invoked by the appellant, the pertinent portion of which Investment House, Inc. v. Bataan Cigar & Cigarette Factory Inc.,"1 affirming the decision
states, "The guarantor, even before been paid, may proceed against the principal debtor; of the Regional Trial Court2 in a complaint filed by the State Investment House, Inc.
(1) when he is sued for the payment; . . . the action of the guarantor is to obtain release (hereinafter referred to as SIHI) for collection on three unpaid checks issued by Bataan
from the guaranty, to demand a security that shall protect him from any proceedings by Cigar & Cigarette Factory, Inc. (hereinafter referred to as BCCFI). The foregoing
the creditor . . .," is here completely irrelevant and can have no application whatsoever. decisions unanimously ruled in favor of SIHI, the private respondent in this case.
We are in agreement with the trial judge that nothing in the check in question Emanating from the records are the following facts. Petitioner, Bataan Cigar & Cigarette
indicates that the appellant is not a general indorser within the purview of section 63 of Factory, Inc. (BCCFI), a corporation involved in the manufacturing of cigarettes, engaged
the Negotiable Instruments Law which makes "a person placing his signature upon an one of its suppliers, King Tim Pua George (herein after referred to as George King), to
instrument otherwise than as maker, drawer or acceptor" a general indorser, — "unless deliver 2,000 bales of tobacco leaf starting October 1978. In consideration thereof,
he clearly indicates plaintiff appropriate words his intention to be bound in some other BCCFI, on July 13, 1978 issued crossed checks post dated sometime in March 1979 in
capacity," which he did not do. And section 66 ordains that "every indorser who indorses the total amount of P820,000.00.3
without qualification, warrants to all subsequent holders in due course" (a) that the Relying on the supplier's representation that he would complete delivery within three
instrument is genuine and in all respects what it purports to be; (b) that he has a good months from December 5, 1978, petitioner agreed to purchase additional 2,500 bales of
title to it; (c) that all prior parties have capacity to contract; and (d) that the instrument is tobacco leaves, despite the supplier's failure to deliver in accordance with their earlier
at the time of his indorsement valid and subsisting. In addition, "he engages that on due agreement. Again petitioner issued post dated crossed checks in the total amount of
presentment, it shall be accepted or paid, or both, as the case may be, and that if it be P1,100,000.00, payable sometime in September 1979. 4
dishonored, he will pay the amount thereof to the holder." 1 During these times, George King was simultaneously dealing with private respondent
2. Even on the assumption that the appellant is a mere accommodation party, as SIHI. On July 19, 1978, he sold at a discount check TCBT 5518265 bearing an amount of
he professes to be, he is nevertheless, by the clear mandate of section 29 of the P164,000.00, post dated March 31, 1979, drawn by petitioner, naming George King as
Negotiable Instruments Law, yet "liable on the instrument to a holder for value, payee to SIHI. On December 19 and 26, 1978, he again sold to respondent checks
notwithstanding that such holder at the time of taking the instrument knew him to be only TCBT Nos. 608967 & 608968,6 both in the amount of P100,000.00, post dated
an accommodation party." To paraphrase, the accommodation party is liable to a holder September 15 & 30, 1979 respectively, drawn by petitioner in favor of George King.
for value as if the contract was not for accommodation. It is not a valid defense that the In as much as George King failed to deliver the bales of tobacco leaf as agreed despite
accommodation party did not receive any valuable consideration when he executed the petitioner's demand, BCCFI issued on March 30, 1979, a stop payment order on all
instrument. Nor is it correct to say that the holder for value is not a holder in due course checks payable to George King, including check TCBT 551826. Subsequently, stop
merely because at the time he acquired the instrument, he knew that the indorser was payment was also ordered on checks TCBT Nos. 608967 & 608968 on September 14 &
only an accommodation party. 2 28, 1979, respectively, due to George King's failure to deliver the tobacco leaves.
6

Efforts of SIHI to collect from BCCFI having failed, it instituted the present case, naming issued by Anita Peña Chua naming as payee New Sikatuna Wood Industries, Inc. Ruling
only BCCFI as party defendant. The trial court pronounced SIHI as having a valid claim that SIHI was not a holder in due course, we then said:
being a holder in due course. It further said that the non-inclusion of King Tim Pua The three checks in the case at bar had been crossed generally and
George as party defendant is immaterial in this case, since he, as payee, is not an issued payable to New Sikatuna Wood Industries, Inc. which could
indispensable party. only mean that the drawer had intended the same for deposit only by
The main issue then is whether SIHI, a second indorser, a holder of crossed checks, is a the rightful person, i.e. the payee named therein. Apparently, it was not
holder in due course, to be able to collect from the drawer, BCCFI. the payee who presented the same for payment and therefore, there
The Negotiable Instruments Law states what constitutes a holder in due course, thus: was no proper presentment, and the liability did not attach to the
Sec. 52 — A holder in due course is a holder who has taken the drawer. Thus, in the absence of due presentment, the drawer did not
instrument under the following conditions: become liable. Consequently, no right of recourse is available to
(a) That it is complete and regular upon its face; petitioner (SIHI) against the drawer of the subject checks, private
(b) That he became the holder of it before it was overdue, and without respondent wife (Anita), considering that petitioner is not the proper
notice that it had been previously dishonored, if such was the fact; party authorized to make presentment of the checks in question.
(c) That he took it in good faith and for value; xxx xxx xxx
(d) That at the time it was negotiated to him he had no notice of any That the subject checks had been issued subject to the condition that
infirmity in the instrument or defect in the title of the person negotiating private respondents (Anita and her husband) on due date would make
it. the back up deposit for said checks but which condition apparently was
Section 59 of the NIL further states that every holder is deemed prima facie a holder in not made, thus resulting in the non-consummation of the loan intended
due course. However, when it is shown that the title of any person who has negotiated to be granted by private respondents to New Sikatuna Wood
the instrument was defective, the burden is on the holder to prove that he or some Industries, Inc., constitutes a good defense against petitioner who is
person under whom he claims, acquired the title as holder in due course. not a holder in due course. 12
The facts in this present case are on all fours to the case of State Investment House, Inc. It is then settled that crossing of checks should put the holder on inquiry and upon him
(the very respondent in this case) v. Intermediate Appellate Court 7 wherein we made a devolves the duty to ascertain the indorser's title to the check or the nature of his
discourse on the effects of crossing of checks. possession. Failing in this respect, the holder is declared guilty of gross negligence
As preliminary, a check is defined by law as a bill of exchange drawn on a bank payable amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable
on demand. 8 There are a variety of checks, the more popular of which are the Instruments Law, 13 and as such the consensus of authority is to the effect that the holder
memorandum check, cashier's check, traveler's check and crossed check. Crossed of the check is not a holder in due course.
check is one where two parallel lines are drawn across its face or across a corner In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to
thereof. It may be crossed generally or specially. George King. Because, really, the checks were issued with the intention that George
A check is crossed specially when the name of a particular banker or a company is King would supply BCCFI with the bales of tobacco leaf. There being failure of
written between the parallel lines drawn. It is crossed generally when only the words "and consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be
company" are written or nothing is written at all between the parallel lines. It may be obliged to pay the checks.
issued so that the presentment can be made only by a bank. Veritably the Negotiable The foregoing does not mean, however, that respondent could not recover from the
Instruments Law (NIL) does not mention "crossed checks," although Article 541 9 of the checks. The only disadvantage of a holder who is not a holder in due course is that the
Code of Commerce refers to such instruments. instrument is subject to defenses as if it were
According to commentators, the negotiability of a check is not affected by its being non-negotiable. 14 Hence, respondent can collect from the immediate indorser, in this
crossed, whether specially or generally. It may legally be negotiated from one person to case, George King.
another as long as the one who encashes the check with the drawee bank is another WHEREFORE, finding that the court a quo erred in the application of law, the instant
bank, or if it is specially crossed, by the bank mentioned between the parallel petition is hereby GRANTED. The decision of the Regional Trial Court as affirmed by the
lines. 10This is specially true in England where the Negotiable Instrument Law originated. Court of Appeals is hereby REVERSED. Cost against private respondent.
In the Philippine business setting, however, we used to be beset with bouncing checks, SO ORDERED.
forging of checks, and so forth that banks have become quite guarded in encashing Narvasa, C.J., Regalado and Puno, JJ., concur.
checks, particularly those which name a specific payee. Unless one is a valued client, a Padilla, J., took no part.
bank will not even accept second indorsements on checks. SECOND DIVISION
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that
crossing of a check should have the following effects: (a) the check may not be encashed
but only deposited in the bank; (b) the check may be negotiated only once — to one who
has an account with a bank; (c) and the act of crossing the check serves as warning to
the holder that the check has been issued for a definite purpose so that he must inquire if
he has received the check pursuant to that purpose, otherwise, he is not a holder in due
course. 11
The foregoing was adopted in the case of SIHI v. IAC, supra. In that case, New Sikatuna
Wood Industries, Inc. also sold at a discount to SIHI three post dated crossed checks,