Atrium Management Corporation filed with the RTC an action for collection of the proceeds checks. Hi-Cement Corporation through its corporate signatories, De Leon, issued the checks in favor of E.T. Henry and Co. Inc., which in turn, endorsed the checks to petitioner Atrium Management Corporation for valuable consideration. Upon presentment for payment, the drawee bank dishonored all four checks for the common reason “payment stopped”. The trial court rendered a decision ordering De Leon, E.T. Henry and Co., Inc and Hi-Cement Corporation to pay Atrium, jointly and severally, hence this case.
1. Whether De Leon’s valid corporate action absolves her liability in the dishonour check.
2. Whether Atrium is a holder in due course.
1. No, De Leon was 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 payee’s 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.
2. No, 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 payee’s account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payee’s 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 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.