G.R. No. 72764 July 13, 1989
STATE INVESTMENT HOUSE, petitioner, vs. INTERMEDIATE APPELLATE COURT, ANITA PEÑA CHUA and HARRIS CHUA, respondents.

FACTS

Private respondent Anita Peña Chua issued three postdated crossed checks, payable to New Sikatuna Wood Industries, Inc., as part of a loan agreement conditioned on her husband having funds by December 1980. New Sikatuna subsequently assigned and discounted these checks, along with others, to petitioner State Investment House under a deed of sale. When petitioner deposited the checks, they were dishonored for “insufficient funds,” “stop payment,” and “account closed.”
Petitioner filed a collection suit against the Chua spouses. The Regional Trial Court ruled in favor of petitioner, ordering the spouses to pay the check value with interest and attorney’s fees. On appeal, the Intermediate Appellate Court reversed the decision and dismissed the complaint. The appellate court found that petitioner was not a holder in due course of the crossed checks and thus was subject to the personal defenses available between the original parties.

ISSUE

Whether petitioner State Investment House is a holder in due course entitled to collect on the dishonored crossed checks from the drawer, private respondent Anita Peña Chua.

RULING

The Supreme Court affirmed the decision of the Intermediate Appellate Court, ruling that petitioner was not a holder in due course and could not recover from the drawer. The legal logic rests on the nature and legal effects of crossed checks under Philippine jurisprudence. A crossed check, marked with two parallel lines, is payable only to the named payee through deposit in a bank account, not through encashment. This crossing serves as a warning that the check is issued for a specific purpose.
Under Section 52 of the Negotiable Instruments Law, a holder in due course must take the instrument in good faith and for value, without notice of any defect in title. The Court, citing Ocampo v. Gatchalian, held that taking a crossed check for value despite the crossing constitutes a violation of its intended purpose and imposes a duty of inquiry on the holder. Petitioner, by discounting the checks knowing they were crossed, failed to inquire into the purpose of the issuance or the title of New Sikatuna. This failure amounted to gross negligence, negating good faith and preventing petitioner from attaining holder in due course status.
Consequently, as a mere holder, petitioner was subject to the personal defenses between the original parties. The defense here was the failure of the condition precedent—the availability of funds for the intended loan—which rendered the issuance of the checks without consideration. Furthermore, as the checks were crossed and payable only to the named payee, presentment for payment by petitioner, who was not the payee, was improper. Under Section 72 of the Negotiable Instruments Law, improper presentment means the drawer’s liability did not attach. Therefore, petitioner had no right of recourse against the drawer, Anita Peña Chua.