G.R. No. 138074 ; August 15, 2003
CELY YANG, Petitioner, vs. HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST CO., EQUITABLE BANKING CORPORATION, PREM CHANDIRAMANI and FERNANDO DAVID, Respondents.

FACTS

Petitioner Cely Yang and respondent Prem Chandiramani agreed to exchange checks for mutual profit. Yang procured two cashier’s checks, each for ₱2.087 million payable to Fernando David, and a dollar draft. She gave these to her associate’s messenger, Danilo Ranigo, to deliver to Chandiramani in exchange for a PCIB manager’s check and another dollar draft. Chandiramani failed to appear at the rendezvous, and Ranigo reported the instruments as lost. However, Chandiramani subsequently obtained the checks and delivered them to respondent Fernando David in San Fernando, Pampanga, receiving US$360,000 in exchange. Chandiramani also deposited the dollar draft. Upon learning of the non-delivery, Yang requested the drawee banks to stop payment. The banks initially complied but later lifted the stop order on the dollar draft upon PCIB’s representation, allowing the account holder to collect.

ISSUE

The primary issue is whether respondent Fernando David is a holder in due course of the two cashier’s checks, entitling him to recover their value despite Yang’s stop payment orders.

RULING

The Supreme Court affirmed the Court of Appeals’ decision, ruling that David was a holder in due course. The legal logic rests on the principles of negotiable instruments law. A cashier’s check is a primary obligation of the issuing bank and is deemed accepted upon issuance. For an instrument to be negotiated, delivery is essential. The Court found that Yang voluntarily parted with possession of the checks by handing them to Ranigo for delivery to Chandiramani. This constituted constructive delivery, making Chandiramani a holder who could further negotiate them. David took the checks in good faith and for value, providing US$360,000 to Chandiramani. There was no evidence David had knowledge of any defect in Chandiramani’s title at the time of negotiation. The checks were complete, regular, and not overdue. Therefore, David, as a holder in due course, holds the instruments free from any personal defenses available to prior parties, including Yang’s claim of non-delivery under her agreement with Chandiramani. Consequently, the issuing banks, FEBTC and Equitable, were obligated to honor the checks upon presentment by David. The Court modified the award of moral damages, reducing it to ₱50,000, as David’s actions in pursuing his claim were in the exercise of a legal right and did not constitute wanton bad faith.