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Sec. 30. What constitutes negotiation - An instrument
is negotiated when it is transferred from one person to
another in such manner as to constitute the transferee
the holder thereof. If payable to bearer, it is
negotiated by delivery; if payable to order, it is
negotiated by the indorsement of the holder and
completed by delivery.
Methods of Transfer
1. Issue is the first delivery of instrument
complete in form, to a person who takes it as
a holder. (Sec. 191)
2. Negotiation operates to make the transferee
of a negotiable instrument the holder thereof.
3. Assignment involves a transfer of right
under a contract.
DE La Victoria Vs Burgos
Facts: Private respondent Raul Sesbreño sought
judgment in his favor and against Assistant City
Fiscals Bienvenido N. Mabanto, Jr., and Dario D.
Rama, Jr., before the RTC. The decision having
become final and executory, on motion of Sesbreño,
the trial court ordered its execution. A notice of
garnishment was served on petitioner Loreto de la
Victoria as City Fiscal of Mandaue City where
defendant Mabanto, Jr., was then detailed. The notice
directed petitioner not to disburse, transfer, release
or convey to any other person except to the deputy
sheriff concerned the salary checks or other checks,
monies, or cash due or belonging to Mabanto, Jr.,
under penalty of law. Petitioner moved to quash the
notice of garnishment claiming that he was not in
possession of any money, funds, credit, property or
anything of value belonging to Mabanto, Jr., except
his salary and RATA checks, but that said checks
were not yet properties of Mabanto, Jr., until
delivered to him.
HELD: It recognized the role of petitioner
as custodian of the checks. At the same time however it
considered the checks as no longer government funds
and presumed delivered to the payee based on the last
sentence of Sec. 16 of the Negotiable Instruments Law
which states: "And where the instrument is no longer in
the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is
presumed." Yet, the presumption is not conclusive
because the last portion of the provision says "until the
contrary is proved." However this phrase was deleted by
the trial court for no apparent reason. Proof to the
contrary is its own finding that the checks were in the
custody of petitioner. Inasmuch as said checks had not
yet been delivered to Mabanto, Jr., they did not belong to
him and still had the character of public funds. In Tiro
v. Hontanosas 8 we ruled that —
The salary check of a government officer or employee
such as a teacher does not belong to him before it is
physically delivered to him. Until that time the check
belongs to the government. Accordingly, before there is
actual delivery of the check, the payee has no power
over it; he cannot assign it without the consent of the
Government.
As a necessary consequence of being public fund, the
checks may not be garnished to satisfy the
judgment. 9 The rationale behind this doctrine is
obvious consideration of public policy. The Court
succinctly stated in Commissioner of Public Highways v.
San Diego 10 that —
The functions and public services rendered by the State
cannot be allowed to be paralyzed or disrupted by the
diversion of public funds from their legitimate and
specific objects, as appropriated by law.
Philippine Commercial Industrial Bank v. Court of
Appeals. 11 Our precise ruling in that case was that "[I]t
is not incumbent upon the garnishee to inquire or to
judge for itself whether or not the order for the
advance execution of a judgment is valid." But that is
invoking only the general rule. We have also
established therein the compelling reasons, as
exceptions thereto, which were not taken into account
by the trial court, e.g., a defect on the face of the writ
or actual knowledge by the garnishee of lack of
entitlement on the part of the garnisher. It is worth to
note that the ruling referred to the validity of advance
execution of judgments, but a careful scrutiny of that
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case and similar cases reveals that it was applicable
to a notice of garnishment as well. In the case at
bench, it was incumbent upon petitioner to inquire into
the validity of the notice of garnishment as he had
actual knowledge of the non-entitlement of private
respondent to the checks in question. Consequently,
we find no difficulty concluding that the trial court
exceeded its jurisdiction in issuing the notice of
garnishment concerning the salary checks of
Mabanto, Jr., in the possession of petitioner.
DEVELOPMENT BANK OF RIZAL,
vs.
SIMA WEI
FACTS: Respondent Sima Wei executed and
delivered to petitioner Bank a promissory
note engaging to pay the petitioner Bank or
order the amount of P1,820,000.00. Sima Wei
subsequently issued two crossed checks
payable to petitioner Bank drawn against China
Banking Corporation in full settlement of the
drawer's account evidenced by the promissory
note. These two checks however were not
delivered to the petitioner-payee or to any of its
authorized representatives but instead came
into the possession of respondent Lee Kian
Huat, who deposited the checks without the
petitioner-payee's indorsement to the account
of respondent Plastic Corporation with
Producers Bank. Inspite of the fact that the
checks were crossed and payable to petitioner
Bank and bore no indorsement of the latter, the
Branch Manager of Producers Bank authorized
the acceptance of the checks for deposit and
credited them to the account of said Plastic
Corporation.
HELD: No. A negotiable instrument must be
delivered to the payee in order to evidence its
existence as a binding contract. Section 16 of the
NIL provides that every contract on a negotiable
instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving
effect thereto.
The normal parties to a check are the drawer, the
payee and the drawee bank. Courts have long
recognized the business custom of using printed
checks where blanks are provided for the date of
issuance, the name of the payee, the amount payable
and the drawer's signature. All the drawer has to do
when he wishes to issue a check is to properly fill up
the blanks and sign it. However, the mere fact that he
has done these does not give rise to any liability on
his part, until and unless the check is delivered to the
payee or his representative. A negotiable instrument,
of which a check is, is not only a written evidence of a
contract right but is also a species of property. Just as
a deed to a piece of land must be delivered in order to
convey title to the grantee, so must a negotiable
instrument be delivered to the payee in order to
evidence its existence as a binding contract. Section
16 of the Negotiable Instruments Law, which governs
checks, provides in part:
Every contract on a negotiable instrument is
incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto
Thus, the payee of a negotiable instrument acquires
no interest with respect thereto until its delivery to
him.3Delivery of an instrument means transfer of
possession, actual or constructive, from one person to
another.4 Without the initial delivery of the instrument
from the drawer to the payee, there can be no liability
on the instrument. Moreover, such delivery must be
intended to give effect to the instrument.
The allegations of the petitioner in the original
complaint show that the two (2) China Bank checks,
numbered 384934 and 384935, were not delivered to
the payee, the petitioner herein. Without the delivery
of said checks to petitioner-payee, the former did not
acquire any right or interest therein and cannot
therefore assert any cause of action, founded on said
checks, whether against the drawer Sima Wei or
against the Producers Bank or any of the other
respondents.
Metropol vs Sambok
FACTS: Dr. Javier Villaruel executed a promissory
note in favor of Ng Sambok Sons Motors Co., Ltd.
Payable in 12 equal monthly installments with
interest. It is further provided that in case on non-
payment of any of the installments, the total
principal sum then remaining unpaid shall become
due and payable with an additional interest. Sambok
Motors co., a sister company of Ng Sambok Sons
negotiated and indorsed the note in favor of
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Metropol Financing & investment Corporation.
Villaruel defaulted in the payment, upon
presentment of the promissory note he failed to pay
the promissory note as demanded, hence Ng
Sambok Sons Motors Co., Ltd. notified Sambok as
indorsee that the promissory note has been
dishonored and demanded payment. Sambok failed
to pay. Ng Sambok Sons filed a complaint for the
collection of sum of money. During the pendency of
the case Villaruel died. Sambok argues that by
adding the words “with recourse” in the
indorsement of the note, it becomes a qualified
indorser, thus, it does not warrant that in case that
the maker failed to pay upon presentment it will pay
the amount to the holder.
ISSUE: Whether or not Sambok Motors Co is a
qualified indorser, thus it is not liable upon the
failure of payment of the maker.
HELD: No. A qualified indorserment constitutes the
indorser a mere assignor of the title to the instrument.
A qualified indorsement constitutes the indorser a mere
assignor of the title to the instrument. It may be made
by adding to the indorser's signature the words
"without recourse" or any words of similar
import. Such an indorsement relieves the indorser of
the general obligation to pay if the instrument is
dishonored but not of the liability arising from
warranties on the instrument as provided in Section 65
of the Negotiable Instruments Law already mentioned
herein. However, appellant Sambok indorsed the note
"with recourse" and even waived the notice of demand,
dishonor, protest and presentment.
"Recourse" means resort to a person who is secondarily
liable after the default of the person who is primarily
liable. Appellant, by indorsing the note "with recourse"
does not make itself a qualified indorser but a general
indorser who is secondarily liable, because by such
indorsement, it agreed that if Dr. Villaruel fails to pay
the note, plaintiff-appellee can go after said appellant.
The effect of such indorsement is that the note was
indorsed without qualification. A person who indorses
without qualification engages that on due presentment,
the note shall be accepted or paid, or both as the case
may be, and that if it be dishonored, he will pay the
amount thereof to the holder. Appellant Sambok's
intention of indorsing the note without qualification is
made even more apparent by the fact that the notice of
demand, dishonor, protest and presentment were an
waived. The words added by said appellant do not limit
his liability, but rather confirm his obligation as a
general indorser.
Lastly, the lower court did not err in not declaring
appellant as only secondarily liable because after an
instrument is dishonored by non-payment, the person
secondarily liable thereon ceases to be such and
becomes a principal debtor. His liabiliy becomes the
same as that of the original obligor. Consequently, the
holder need not even proceed against the maker before
suing the indorser.
Sesbreno V. CA
FACTS: Petitioner Sesbreno made a money market
placement in the amount of P300,000 with the
Philippine Underwriters Finance Corporation
(PhilFinance), with a term of 32 days. PhilFinance
issued to Sesbreno the Certificate of Confirmation of
Sale of a Delta Motor Corporation Promissory Note, the
Certificate of Securities Delivery Receipt indicating the
sale of the note with notation that said security was in
the custody of Pilipinas Bank, and postdated checks
drawn against the Insular Bank of Asia and America for
P304,533.33 payable on March 13, 1981. The checks
were dishonored for having been drawn against
insufficient funds. Pilipinas Bank never released the
note, nor any instrument related thereto, to Sesbreno;
but Sesbreno learned that the security which was issued
on April 10, 1980, maturing on 6 April 1981, has a face
value of P2,300,833.33 with PhilFinance as payee and
Delta Motors as maker; and was stamped “non-
negotiable” on its face. As Sesbreno was unable to
collect his investment and interest thereon, he filed an
action for damages against Delta Motors and Pilipinas
Bank. Delta Motors contents that said promissory note
was not intended to be negotiated or otherwise
transferred by Philfinance as manifested by the word
"non-negotiable" stamped across the face of the Note.
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HELD: it is important to bear in mind that
the negotiation of a negotiable instrument must be
distinguished from the assignment or transfer of an
instrument whether that be negotiable or non-
negotiable. Only an instrument qualifying as a
negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled
with delivery, or by delivery alone where the negotiable
instrument is in bearer form. A negotiable instrument
may, however, instead of being negotiated, also
be assigned or transferred. The legal consequences of
negotiation as distinguished from assignment of a
negotiable instrument are, of course, different. A non-
negotiable instrument may, obviously, not be
negotiated; but it may be assigned or transferred,
absent an express prohibition against assignment or
transfer written in the face of the instrument:
The words "not negotiable," stamped on the face of the
bill of lading, did not destroy its assignability, but the
sole effect was to exempt the bill from the statutory
provisions relative thereto, and a bill, though not
negotiable, may be transferred by assignment; the
assignee taking subject to the equities between the
original parties. (Emphasis added)
DMC PN No. 2731, while marked "non-negotiable,"
was not at the same time stamped "non-transferable"
or "non-assignable." It contained no stipulation which
prohibited Philfinance from assigning or transferring, in
whole or in part, that Note.
CALTEX Vs. CA
FACTS: Security bank issued Certificates of
Time Deposits to Angel dela Cruz. The same
were given by Dela Cruz to petitioner in
connection to his purchase of fuel products of
the latter. On a later date, Dela Cruz
approached the bank manager,
communicated the loss of the certificates
and requested for a reissuance. Upon
compliance with some formal requirements,
he was issued replacements. Thereafter, he
secured a loan from the bank where he
assigned the certificates as security. Here
comes the petitioner, averred that the
certificates were not actually lost but were
given as security for payment for fuel
purchases. The bank demanded some proof
of the agreement but the petitioner failed
to comply. The loan matured and the time
deposits were terminated and then applied to
the payment of the loan. Petitioner
demands the payment of the certificates
but to no avail.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this
Bank the sum of
PESOS: FOUR THOUSAND ONLY, SECURITY BANK
SUCAT OFFICE P4,000 &
00 CTS Pesos, Philippine Currency, repayable to said
depositor 731 days.
after date, upon presentation and surrender of this
certificate, with interest
at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
—————————— ———————————
AUTHORIZED SIGNATURES
HELD: CTDs are negotiable instruments. The documents
provide that the amounts
deposited shall be repayable to the depositor.
And who, according to the document, is the depositor?
It is the "bearer." The documents do not say that the
depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him.
 NEGO Otaza Notes
Rather, the amounts are to be repayable to the
bearer of the documents or, for that matter,
whosoever may be the bearer at the time of
presentment.
If it was really the intention of respondent bank to
pay the amount to Angel de la Cruz only, it could have
with facility so expressed that fact in clear and
categorical terms in the documents, instead of having
the word "BEARER" stamped on the space provided for
the name of the depositor in each CTD.
On the wordings of the documents, therefore, the
amounts deposited are repayable to whoever may
be the bearer thereof. Thus, petitioner's aforesaid
witness merely declared that Angel de la Cruz is the
depositor "insofar as the bank is concerned," but
obviously other parties not privy to the transaction
between them would not be in a position to know
that the depositor is not the bearer stated in the CTDs.
Hence, the situation would require any party dealing
with the CTDs to go behind the
plain import of what is written thereon to unravel
the agreement of the parties thereto through facts
aliunde.
This need for resort to extrinsic evidence is what is
sought to be avoided by the Negotiable Instruments
Law and calls for the application of the elementary
rule that the
interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the
obscurity.
The next query is whether petitioner can rightfully
recover on the CTDs. This time, the answer is in the
negative. The records reveal that Angel de la Cruz,
whom petitioner chose not to implead in this suit for
reasons of its own, delivered the CTDs amounting to
P1,120,000.00 to petitioner without informing
respondent bank thereof at any time.
Unfortunately for petitioner, although the CTDs are
bearer instruments, a valid negotiation thereof for
the true purpose and agreement between it and De la
Cruz, as ultimately ascertained, requires both
delivery and indorsement. For, although petitioner
seeks to deflect this fact, the CTDs were in reality
delivered to it as a security for De la Cruz' purchases of
its fuel products. Any doubt as to whether the CTDs
were delivered as payment for the fuel products or as a
security has been dissipated and resolved in favor of the
latter by petitioner's own authorized and
responsible representative himself.
In a letter dated November 26, 1982 addressed to
respondent Security Bank, J.Q. Aranas, Jr., Caltex
Credit Manager, wrote: ". . . These certificates of
deposit were negotiated to us by Mr. Angel dela
Cruz to guarantee his purchases of fuel products."
This admission is conclusive
upon petitioner, its protestations notwithstanding.
Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as
against the person relying thereon
Atrium Management Vs. CA
FACTS: Hi-Cement Corporation through its corporate
signatories, petitioner Lourdes M. de Leon, treasurer,
and the late Antonio de las Alas, Chairman, issued
checks in favor of E.T. Henry and Co. Inc., as payee. E.T.
Henry and Co., Inc., in turn, endorsed the four checks to
Atrium for valuable consideration. Enrique Tan of E.T.
Henry approached Atrium for financial assistance,
offering to discount four RCBC checks in the total
amount of P2 million, issued by Hi-Cement in favor of
E.T. Henry. Atrium agreed to discount the checks,
provided it be allowed to confirm with Hi-Cement the
fact that the checks represented payment for
petroleum products which E.T. Henry delivered to Hi-
Cement. Upon presentment for payment, the drawee
bank dishonored all four checks for the common reason
“payment stopped”. As a result thereof, Atrium filed an
action for collection of the proceeds of 4 PDC in the
total amount of 2M with RTC Manila. Judgment was
 NEGO Otaza Notes
rendered in favor of Atrium ordering Lourdes and Rafael
de Leon, E.T. Henry and Co., and Hi-Cement to pay
Atrium the said amount plus interest and attorneys
fees. CA absolved Hi-cement Corporation from liability.
It also ruled that since Lourdes was not authorized to
issue the subjects checks in favor of E.T. Henry Inc., the
said act was ultra vires.
Issue: Whether the issuance of the questioned checks
was an ultra vires act;
Ruling: Yes.
An ultra vires act is one committed outside the object
for which a corporation is created as defined by the law
of its organization and therefore beyond the power
conferred upon it by law. The term “ultra vires” is
“distinguished from an illegal act for the former is
merely voidable which may be enforced by
performance, ratification, or estoppel, while the latter is
void and cannot be validated.
The next question to determine is whether Lourdes M.
de Leon and Antonio de las Alas were personally liable
for the checks issued as corporate officers and
authorized signatories of the check.
"Personal liability of a corporate director, trustee or
officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when:
1. He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith or gross negligence in
directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its
stockholders or other persons;
2. He consents to the issuance of watered down stocks
or who, having knowledge thereof, does not forthwith
file with the corporate secretary his written objection
thereto;
3. He agrees to hold himself personally and solidarily
liable with the corporation; or
4. He is made, by a specific provision of law, to
personally answer for his corporate action.
In the case at bar, Lourdes M. de Leon and Antonio de
las Alas as treasurer and Chairman of Hi-Cement were
authorized to issue the checks. However, Ms. de Leon
was negligent when she signed the confirmation letter
requested by Mr. Yap of Atrium and Mr. Henry of E.T.
Henry for the rediscounting of the crossed checks
issued in favor of E.T. Henry. She was aware that the
checks were strictly endorsed for deposit only to the
payees account and not to be further negotiated. What
is more, the confirmation letter contained a clause that
was not true, that is, that the checks issued to E.T.
Henry were in payment of Hydro oil bought by Hi-
Cement from E.T. Henry. Her negligence resulted in
damage to the corporation. Hence, Ms. de Leon may be
held personally liable therefor.
The next issue is whether or not petitioner Atrium was a
holder of the checks in due course. The Negotiable
Instruments Law, Section 52 defines a holder in due
course, thus:
A holder in due course is a holder who has taken the
instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) 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;
(c) That he took it in good faith and for value;
(d) 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.
In the instant case, the checks were crossed checks and
specifically indorsed for deposit to payees account
only. From the beginning, Atrium was aware of the fact
that the checks were all for deposit only to payees
account, meaning E.T. Henry. Clearly, then, Atrium
could not be considered a holder in due course.
However, it does not follow as a legal proposition that
simply because petitioner Atrium was not a holder in
due course for having taken the instruments in question
with notice that the same was for deposit only to the
 NEGO Otaza Notes
account of payee E.T. Henry that it was altogether
precluded from recovering on the instrument. The
Negotiable Instruments Law does not provide that a
holder not in due course cannot recover on the
instrument.
The disadvantage of Atrium in not being a holder in due
course is that the negotiable instrument is subject to
defenses as if it were non-negotiable. One such defense
is absence or failure of consideration. We need not rule
on the other issues raised, as they merely follow as a
consequence of the foregoing resolutions.
De Ocampo vs. Gatchalian
Facts: Manuel Gonzales offered to sell a car to Anita
Gatchalian, who was looking for a car for her husband’s
use. Manuel represented that he was duly authorized
by Ocampo Clinic, the car owner, to look for buyer,
negotiate and accomplish the sale of the car. Anita
requested Manuel to bring the car and Certificate of
Registration for her husband to see; but Manuel said
that he can bring the car on the condition that Anita
gives him a check to show to the owner as evidence of
Anita’s good faith in the intention to buy the car. Anita
gave Manuel a check in the amount of P600, on the
condition that the check will only be for safekeeping
and will be returned to her the following day when the
car and Certficate of Registration will be brought by
Manuel. Manuel failed to appear the following day, so
Anita issued a Stop Payment Order on the check with
the drawee bank, which was issued without previous
notice to holder. Meanwhile, Manuel delivered the
check to Ocampo Clinic, in payment of the
hospitalization expenses of his wife, Matilde Gonzales.
Vicente de Ocampo gave Manuel change of P158.25 –
difference of P600 value of check less P441.75 total
hospitalization fees. Vicente de Ocampo sued Manuel
for estafa for not paying his obligations to the Ocampo
Clinic and for receivsing the cash balance of the check.
HELD/RATIO NO, because de Ocampo was guilty of
gross negligence in not finding out the nature of the
title and possession of Manuel Gonzales, amounting to
legal absence of good faith; hence he cannot be
considered as holder of the check in good faith. The
presumption does not apply in this case because there
was a defect in the title of the holder because the
instrument is not payable to him or to bearer and the
circumstances show that that Manuel’s title is at least
suspicious, if not defective. *** Section 52(d) of the NIL
provides that in order that one may be considered a
holder in due course, it is necessary that “at the time
the instrument was negotiated to him, he had no notice
of any xxx defect in the title of the person negotiating
it.” Meanwhile, Section 59 of the NIL states that every
holder is deemed prima facie to be a holder in due
course. The Court found circumstances that should have
put de Ocampo to inquiry as to why and wherefore the
possession of the check by Manuel and why he used it
to pay Matilde’s hospitalization expenses: De Ocampo
was not aware of the circumstances how the check was
delivered to Manuel
 Gatchalian had no obligation whatsoever with
Ocampo Clinic
 The check had two parallel lines in the upper left
hand corner, which practice means that the
 check could only be deposited but may not be
converted into cash. These considerations would seem
sufficient to justify the ruling that Gatchalian should not
be allowed to recover the value of the check.
Where a holder’s title is defective or suspicious, it
cannot be stated that the payee acquired the check
without the knowledge, of said defect in holder’s title,
and for this reason the presumption that it is a holder in
due course or that it acquired the instrument in good
faith does not exist. Where the payee required the
check under circumstances which should have put it to
inquiry, why the holder had the check and used it, to
pay his own personal account, the duty developed upon
it to prove that it actually acquired said check in good
faith.
Yang Vs. CA
Facts: Petitioner Cely Yang agreed with private
respondent Prem Chandiramani to procure from
Equitable Banking Corp. and Far east Bank and Trust
Company (FEBTC) two cashier’s checks in the amount of
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P2.087 million each, payable to Fernando david and
FEBTC dollar draft in the amount of US$200,000.00
payable to PCIB FCDU account No. 4195-01165-2. Yang
gave the checks and the draft to Danilo Ranigo to be
delivered to Chandiramani. Ranigo was to meet
Chandiramani to turn over the checks and the dollar
draft, and the latter would in turn deliver to the former
Phil. Commercial International Bank (PCIB) manager’s
check in the sum of P4.2 million and the dollar draft in
the same amount to be issued by Hang Seng Bank Ltd.
of HongKong. But Chandiramani did not appear at the
rendezvous and Ranigo allegedly lost the two cashier’s
checks and the dollar draft.
The loss was then reported to the police. It transpired,
however that the checks and the dollar draft were
never lost, for Chandiramani was able to get hold of
them without delivering the exchange consideration
consisting of PCIB Manager’s checks. Two hours after
Chandiramani was able to meet Ranigo, the former
delivered to David the two cashier’s checks of Yang and,
in exchange, got US $360,000 from David, who in turn
deposited them. Chandiramani also deposited the dollar
draft in
PCIG FCDU No. 4194-0165-2.
Meanwhile, Yang requested FEBTC and Equitable to
stop payment on the instruments she believed to be
lost. Both Banks complied with her request, but upon
the representation of PCIB, FEBTC subsequently lifted
the stop payment order on FEBTC Dollar Draft No. 4771,
thus, enabling the holder PCIB FCDU Account No. 4194-
0165-2 to received the amount of US $ 200, 000.
Issue: Whether or not the presumption that every party
to an instrument acquired the same for a consideration
is applicable in this case.
HELD: The presumption is that every party to an
instrument acquired the same for a consideration.
However, said presumption may be rebutted. Hence,
what is vital to the resolution of this issue is whether
David took possession of the checks under the
conditions provided for in Section 52 of the Negotiable
Instruments Law. All the requisites provided for in
Section 52 must concur in David’s case, otherwise he
cannot be deemed a holder in due course.
Section 24 of the Negotiable Instruments Law creates a
presumption that every party to an instrument acquired
the same for a consideration or for value. Thus, the law
itself creates a presumption in David’s favor that he
gave valuable consideration for the checks in question.
In alleging otherwise, the petitioner has the onus to
prove that David got hold of the checks absent said
consideration. However, petitioner failed to discharge
her burden of proof. The petitioner’s averment that
David did not give valuable consideration when he took
possession of the checks is unsupported, devoid of any
concrete proof to sustain it. Note that both the trial
court and the appellate court found that David did not
receive the checks gratis, but instead gave
Chandiramani US$ 360,000 as consideration for the said
instruments.
In the present case, it is not disputed that David was the
payee of the checks in question. The weight of authority
sustains the view that a payee may be a holder in due
course. Hence, the presumption that he is a prima
facie holder in due course applies in his favor. However,
said presumption may be rebutted. Hence, what is vital
to the resolution of this issue is whether David took
possession of the checks under the conditions provided
for in Section 52 of the Negotiable Instruments Law. All
the requisites provided for in Section 52 must concur in
Davids case, otherwise he cannot be deemed a holder
in due course.
We find that the petitioners challenge to Davids status
as a holder in due course hinges on two arguments: (1)
the lack of proof to show that David tendered any
valuable consideration for the disputed checks; and (2)
Davids failure to inquire from Chandiramani as to how
the latter acquired possession of the checks, thus
resulting in Davids intentional ignorance tantamount to
bad faith. In sum, petitioner posits that the last two
requisites of Section 52 are missing, thereby preventing
David from being considered a holder in due course.
Unfortunately for the petitioner, her arguments on this
score are less than meritorious and far from persuasive.
 NEGO Otaza Notes

First, with respect to consideration, Section 24 of the about Chandiramanis acquisition or possession of the
Negotiable Instruments Law creates a presumption that checks. David did not close his eyes deliberately to the
every party to an instrument acquired the same for a nature or the particulars of a fraud allegedly committed
consideration or for value.Thus, the law itself creates a by Chandiramani upon the petitioner, absent any
presumption in Davids favor that he gave valuable knowledge on his part that the action in taking the
consideration for the checks in question. In alleging instruments amounted to bad faith.
otherwise, the petitioner has the onus to prove that
David got hold of the checks absent said
consideration. In other words, the petitioner must
present convincing evidence to overthrow the
presumption. Our scrutiny of the records, however,
shows that the petitioner failed to discharge her burden
of proof. The petitioners averment that David did not
give valuable consideration when he took possession of
the checks is unsupported, devoid of any concrete proof
to sustain it. Note that both the trial court and the
appellate court found that David did not receive the
checks gratis, but instead gave Chandiramani
US$360,000.00 as consideration for the said
instruments. Factual findings of the Court of Appeals
are conclusive on the parties and not reviewable by this
Court; they carry great weight when the factual findings
of the trial court are affirmed by the appellate court.

Second, petitioner fails to point any circumstance which

should have put David on inquiry as to the why and
wherefore of the possession of the checks by
Chandiramani. David was not privy to the transaction
between petitioner and Chandiramani. Instead,
Chandiramani and David had a separate dealing in
which it was precisely Chandiramanis duty to deliver the
checks to David as payee. The evidence shows that
Chandiramani performed said task to the letter.
Petitioner admits that David took the step of asking the
manager of his bank to verify from FEBTC and Equitable
as to the genuineness of the checks and only accepted
the same after being assured that there was nothing
wrong with said checks. At that time, David was not
aware of any stop payment order. Under these
circumstances, David thus had no obligation to
ascertain from Chandiramani what the nature of the
latters title to the checks was, if any, or the nature of his
possession. Thus, we cannot hold him guilty of gross
neglect amounting to legal absence of good faith,
absent any showing that there was something amiss