25) Vicente de Ocampo & Co. v. Gatchalian

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596 SUPREME COURT REPORTS ANNOTATEDVicente R. de Ocampo & Co. vs. Gatchalian

No. L15126. November 30, 1961.

VICENTE R. DE OCAMPO & Co., plaintiffappellee, vs.ANITA GATCHALIAN, ET AL., defendantsappellants.

Bills, notes and checks Negotiable instruments Holder in duecourse.Section 52(c) provides that a holder in due course is onewho takes the instrument in good faith and for value

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VOL. 3, NOVEMBER 30, 1961 597

Vicente R. de Ocampo & Co. vs. Gatchalian

Section 59, that every holder is deemed prima facie to be a holderin due course and Section 52(d), that in order that one may be aholder in due course it is necessary that at the time theinstrument was negotiated to him he had no notice of any x x xdefect in the title of the person negotiating it and lastly Section59, that every holder is deemed prima facie to be a holder in duecourse.

Same Same When a holder is not a holder in due course.Where a holders title is defective or suspicious, it cannot bestated that the payee acquired the check without the knowledge,of said defect in holders title, and for this reason the presumptionthat it is a holder in due course or that it acquired the instrumentin good faith does not exist.

Same Same Holder in due course When proof of good faithrequired.Where the payee required the check undercircumstances which should have put it to inquiry, why the holder



had the check and used it, to pay his own personal account, theduty developed upon it to prove that it actually acquired saidcheck in good faith.

APPEAL from a judgment of the Court of First Instance ofManila. Velasquez, J.

The facts are stated in the opinion of the Court.Vicente Formoso, Jr. for plaintiffappellee.Reyes & Pangalagan for defendantsappellants.

LABRADOR, J.:

Appeal from a judgment of the Court of First Instance ofManila, Hon. Conrado M. Velasquez, presiding, sentencingthe defendants to pay the plaintiff the sum of P600, withlegal interest from September 10, 1953 until paid, and topay the costs.

The action is for the recovery of the value of a check forP600 payable to the plaintiff and drawn by defendant AnitaC. Gatchalian. The complaint sets forth the check andalleges that plaintiff received it in payment of theindebtedness of one Matilde Gonzales that upon receipt ofsaid check, plaintiff gave Matilde Gonzales P158.25, thedifference between the face value of the check and MatildeGonzales indebtedness. The defendants admit theexecution of the check but they allege in their answer, asaffirmative defense, that it was issued subject to acondition, which was not fulfilled, and that plaintiff wasguilty of gross negligence in not taking steps to protectitself.

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At the time of the trial, the parties submitted a stipulationof facts, which reads as follows:

Plaintiff and defendants through their respective undersignedattorneys respectfully submit the following Agreed Stipulation ofFacts

First.That on or about 8 September 1953, in the evening,defendant Anita C. Gatchalian who was then interested in lookingfor a car for the use of her husband and the family, was shown



and offered a car by Manuel Gonzales who was accompanied byEmil Fajardo, the latter being personally known to defendantAnita C. Gatchalian

Second.That Manuel Gonzales represented to defendantAnita C. Gatchalian that he was duly authorized by the owner ofthe car, Ocampo Clinic, to look for a buyer of said car and tonegotiate for and accomplish said sale, but which facts were notknown to plaintiff

Third.that defendant Anita C. Gatchalian, finding the priceof the car quoted by Manuel Gonzales to her satisfaction,requested Manuel Gonzales to bring the car the day followingtogether with the certificate of registration of the car, so that herhusband would be able to see same that on this request ofdefendant Anita C. Gatchalian, Manuel Gonzales advised her thatthe owner of the car will not be willing to give the certificate ofregistration unless there is a showing that the party interested inthe purchase of said car is ready and willing to make suchpurchase and that for this purpose Manuel Gonzales requesteddefendant Anita C. Gatchalian to give him (Manuel Gonzales) acheck which will be shown to the owner as evidence of buyersgood faith in the intention to purchase the said car, the said checkto be for safekeeping only of Manuel Gonzales and to be returnedto defendant Anita C. Gatchalian the following day when ManuelGonzales brings the car and the certificate of registration, butwhich facts were not known to plaintiff

Fourth.That relying on these representations of ManuelGonzales and with his assurance that said check will be only forsafekeeping and which will be returned to said defendant thefollowing day when the car and its certificate of registration willbe brought by Manuel Gonzales to defendants, but which factswere not known to plaintiff, defendant Anita C. Gatchalian drewand issued a check, Exh. B that Manuel Gonzales executed andissued a receipt for said check, Exh. 1

Fifth.That on the failure of Manuel Gonzales to appear theday following and on his failure to bring the car and its certificateof registration and to return the check, Exh. B, on the followingday as previously agreed upon, defendant Anita C. Gatchalianissued a Stop Payment Order on the check, Exh. 3, with thedrawee bank. Said Stop Payment Order was issued withoutprevious notice on plaintiff not being known

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VOL. 3, NOVEMBER 30, 1961 599Vicente R. de Ocampo & Co. vs. Gatchalian



to defendant, Anita C. Gatchalian and who furthermore had noreason to know check was given to plaintiff

Sixth.That defendants, both or either of them, did not knowpersonally Manuel Gonzales or any member of his family at anytime prior to September 1953, but that defendant HipolitoGatchalian is personally acquainted with V. R. de Ocampo

Seventh.That defendants, both or either of them, had noarrangements or agreement with the Ocampo Clinic at any timeprior to, on or after 9 September 1953 for the hospitalization ofthe wife of Manuel Gonzales and neither or both of saiddefendants had assumed, expressly or impliedly, with the OcampoClinic, the obligation of Manuel Gonzales or his wife for thehospitalization of the latter

Eight.That defendants, both or either of them, had noobligation or liability, directly or indirectly with the OcampoClinic before, or on 9 September 1953

Ninth.That Manuel Gonzales having received the check Exh.B from defendant Anita C. Gatchalian under the representationsand conditions herein above specified, delivered the same to theOcampo Clinic, in payment of the fees and expenses arising fromthe hospitalization of his wife

Tenth.That plaintiff for and in consideration of fees andexpenses of hospitalization and the release of the wife of ManuelGonzales from its hospital, accepted said check, applying P441.75(Exhibit A) thereof to payment of said fees and expenses anddelivering to Manuel Gonzales the amount of P158.25 (as perreceipt, Exhibit D) representing the balance on the amount of thesaid check, Exh. B

Eleventh.That the acts of acceptance of the check andapplication of its proceeds in the manner specified above weremade without previous inquiry by plaintiff from defendants:

Twelfth.That plaintiff filed or caused to be filed with theOffice of the City Fiscal of Manila, a complaint for estafa againstManuel Gonzales based on and arising from the acts of saidManuel Gonzales in paying his obligations with plaintiff andreceiving the cash balance of the check, Exh. B and that saidcomplaint was subsequently dropped

Thirteenth.That the exhibits mentioned in this stipulationand the other exhibits submitted previously, be considered asparts of this stipulation, without necessity of formally offeringthem in evidence

WHEREFORE, it is most respectfully prayed that thisagreed stipulation of facts be admitted and that the partieshereto be given fifteen days from today within which to



submit simultaneously their memorandum to discuss theissues of law arising from the facts, reserving to eitherparty the right to submit reply memorandum, if necessary,within ten days from

receipt of their main memoranda. (pp. 2125,Defendants Record on Appeal)

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No other evidence was submitted and upon said stipulationthe court rendered the judgment already alluded to above.

In their appeal defendantsappellants contend that thecheck is not a negotiable instrument, under the facts andcircumstances stated in the stipulation of facts, and thatplaintiff is not a holder in due course. In support of the thefirst contention, it is argued that defendant Gatchalian hadno intention to transfer her property in the instrument asit was for safekeeping merely and, therefore, there was nodelivery required by law (Section 16, NegotiableInstruments Law) that assuming for the sake of argumentthat delivery was not for safekeeping merely, the deliverywas conditional and the condition was not fulfilled.

In support of the contention that plaintiffappellee is nota holder in due course, the appellant argues that plaintiffappellee cannot be a holder in due course because therewas no negotiation prior to plaintiffappellees acquiringthe possession of the check that a holder in due coursepresupposes a prior party from whose hands negotiationproceeded, and in the case at bar, plaintiffappellee is thepayee, the maker and the payee being original parties. It isalso claimed that the plaintiffappellee is not a holder indue course because it acquired the check with notice ofdefect in the title of the holder, Manuel Gonzales, andbecause under the circumstances stated in the stipulationof facts there were circumstances that brought suspicionabout Gonzales possession and negotiation, whichcircumstances should have placed the plaintiffappelleeunder the duty, to inquire into the title of the holder. Thecircumstances are as follows:

The check is not a personal check of Manuel Gonzales.(Paragraph Ninth, Stipulation of Facts). Plaintiff could have



inquired why a person would use the check of another to pay hisown debt. Furthermore, plaintiff had the means of knowledgeinasmuch as defendant Hipolito Gatchalian is personallyacquainted with V. R. de Ocampo (Paragraph Sixth, Stipulation ofFacts.)

The maker Anita C. Gatchalian is a complete stranger toManuel Gonzales and Dr. V. R. de Ocampo (Paragraph Sixth,Stipulation of Facts).

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The maker is not in any manner obligated to Ocampo Clinicnor to Manuel Gonzales. (Par. 7, Stipulation of Facts.)

The check could not have been intended to pay the hospitalfees which amounted only to P441.75. The check is in the amountof P600.00, which is in excess of the amount due plaintiff. (Par.10, Stipulation of Facts).

It was necessary for plaintiff to give Manuel Gonzales changein the sum of P158.25 (Par. 10, Stipulation of Facts). SinceManuel Gonzales is the party obliged to pay, plaintiff should havebeen more cautious and wary in accepting a piece of paper anddisbursing cold cash.

The check is payable to bearer. Hence, any person who holds itshould have been subjected to inquiries. EVEN IN A BANK,CHECKS ARE NOT CASHED WITHOUT INQUIRY FROM THEBEARER. The same inquiries should have been made byplaintiff. (Defendantsappellants brief, pp. 5253).

Answering the first contention of appellant, counsel forplaintiffappellee argues that in accordance with the bestauthority on the Negotiable Instruments Law, plaintiffappellee may be considered as a holder in due course, citingBrannans Negotiable Instruments Law, 6th edition, page252. On this issue Brannan holds that a payee may be aholder in due course and says that to this effect is thegreater weight of authority, thus:

Whether the payee may be a holder in due course under the N. I.L., as he was at common law, is a question upon which the courtsare in serious conflict. There can be no doubt that a properinterpretation of the act read as a whole leads to the conclusionthat a payee may be a holder in due course under anycircumstance in which he meets the requirements of Sec. 52.



The argument of Professor Brannan in an earlier edition ofthis work has never been successfully answered and is hererepeated

Section 191 defines holder as the payee or indorsee of a bill ornote, who is in possession of it, or the bearer thereof. Sec. 52defines a holder in due course as a holder who has taken theinstrument under the following conditions: 1. That it is completeand regular on its face. 2. That he became the holder of it before itwas overdue, and without notice that it had been previouslydishonored, if such was the fact. 3. That he took it in good faithand for value. 4. That at the time it was negotiated to him he hadno notice of any infirmity in the instrument or defect in the title ofthe person negotiating it

Since holder, as defined in sec. 191, includes a payee who

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is in possession the word holder in the first clause of sec. 52 andin the second subsection may be replaced by the definition in sec.191 so as to read a holder in due course is a payee or indorseewho is in possession, etc. (Brannans on Negotiable InstrumentsLaw, 6th ed., p. 543).

The first argument of the defendantsappellants, therefore,depends upon whether or not the plaintiffappellee is aholder in due course. If it is such a holder in due course, itis immaterial that it was the payee and an immediateparty to the instrument.

The other contention of the plaintiff is that there hasbeen no negotiation of the instrument, because the drawerdid not deliver the instrument to Manuel Gonzales with theintention of negotiating the same, or for the purpose ofgiving effect thereto, for as the stipulation of facts declaresthe check was to remain in the possession of ManuelGonzales, and was not to be negotiated, but was to servemerely as evidence of good faith of defendants in theirdesire to purchase the car being sold to them. Admittingthat such was the intention of the drawer of the checkwhen she delivered it to Manuel Gonzales, it was no faultof the plaintiffappellee drawee if Manuel Gonzalesdelivered the check or negotiated it. As the check waspayable to the plaintiffappellee, and was entrusted to



(a)(b)

(c)(d)

Manuel Gonzales by Gatchalian, the delivery to ManuelGonzales was a delivery by the drawer to his own agent inother words, Manuel Gonzales was the agent of the drawerAnita Gatchalian insofar as the possession of the check isconcerned. So, when the agent of drawer Manuel Gonzalesnegotiated the check with the intention of getting its valuefrom plaintiffappellee, negotiation took place through nofault of the plaintiffappellee, unless it can be shown thatthe plaintiffappellee should be considered as having noticeof the defect in the possession of the holder ManuelGonzales. Our resolution of this issue leads us to aconsideration of the last question presented by theappellants, i.e., whether the plaintiffappellee may beconsidered as a holder in due course.

Section 52, Negotiable Instruments Law, defines holderin due course, thus:

A holder in due course is a holder who has taken the

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instrument under the following conditions:

That it is complete and regular upon its faceThat he became the holder of it before it was overdue, andwithout notice that it had been previously dishonored, ifsuch was the factThat he took it in good faith and for valueThat at the time it was negotiated to him he had no noticeof any infirmity in the instrument or defect in the title ofthe person negotiating it.

The stipulation of facts expressly states that plaintiffappellee was not aware of the circumstances under whichthe check was delivered to Manuel Gonzales, but we agreewith the defendantsappellants that the circumstancesindicated by them in their briefs, such as the fact thatappellants had no obligation or liability to the OcampoClinic that the amount of the check did not correspondexactly with the obligation of Matilde Gonzales to Dr. V. R.de Ocampo and that the check had two parallel lines in theupper left hand corner, which practice means that the



check could only be deposited but may not be convertedinto cashall these circumstances should have put theplaintiffappellee to inquiry as to the why and wherefore ofthe possession of the check by Manuel Gonzales, and whyhe used it to pay Matildes account. It was payees duty toascertain from the holder Manuel Gonzales what thenature of the latters title to the check was or the nature ofhis possession. Having failed in this respect, we mustdeclare that plaintiffappellee was guilty of gross neglect innot finding out the nature of the title and possession ofManuel Gonzales, amounting to legal absence of good faith,and it may not be considered as a holder of the check ingood faith. To such effect is the consensus of authority.

In order to show that the defendant had knowledge of such factsthat his action in taking the instrument amounted to bad faith, itis not necessary to prove that the defendant knew the exact fraudthat was practiced upon the plaintiff by the defendants assignor,it being sufficient to show that the defendant had notice thatthere was something wrong about his assignors acquisition oftitle, although he did not have notice of the particular wrong thatwas committed. Paika v. Perry, 225 Mass. 563, 114 N.E. 830.

It is sufficient that the buyer of a note had notice or

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knowledge that the note was in some way tainted with fraud. It isnot necessary that he should know the particulars or even thenature of the fraud, since all that is required is knowledge of suchfacts that his action in taking the note amounted to bad faith.Ozark Motor Co. v. Horton (Mo. App.), 196 S.W. 395. Accord.Davis v. First Nat. Bank, 26 Ariz. 621, 229 Pac. 391.

Liberty bonds stolen from the plaintiff were brought by thethief, a boy fifteen years old, less than five feet tall, immature inappearance and bearing on his face the stamp of a degenerate, tothe defendants clerk for sale. The boy stated that they belongedto his mother. The defendants paid the boy for the bonds withoutany further inquiry. Held, the plaintiff could recover the value ofthe bonds. The term bad faith does not necessarily involve furtivemotives, but means bad faith in a commercial sense. The mannerin which the defendants conducted their Liberty Loan departmentprovided an easy way for thieves to dispose of their plunder. It



was a case of no questions asked. Although gross negligence doesnot of itself constitute bad faith, it is evidence from which badfaith may be inferred. The circumstances thrust the duty upon thedefendants to make further inquiries and they had no right toshut their eyes deliberately to obvious facts. Morris v. Muir, 111Misc. Rep. 739, 181 N.Y. Supp. 913, affd. in memo., 191 App. Div.947, 181 N.Y. Supp. 945. (pp. 640642, Brannans NegotiableInstruments Law, 6th ed.).

The above considerations would seem sufficient to justifyour ruling that plaintiffappellee should not be allowed torecover the value of the check. Let us now examine theexpress provisions of the Negotiable Instruments Lawpertinent to the matter to find if our ruling conformsthereto. Section 52 (c) provides that a holder in due courseis one who takes the instrument in good faith and forvalue Section 59, that every holder is deemed prima facieto be a holder in due course and Section 52 (d), that inorder that one may be a holder in due course it is necessarythat at the time the instrument was negotiated to him hehad no notice of any x x x defect in the title of the personnegotiating it and lastly Section 59, that every holder isdeemed prima facie to be a holder in due course.

In the case at bar the rule that a possessor of theinstrument is prima facie a holder in due course does notapply because there was a defect in the title of the holder(Manuel Gonzales), because the instrument is not payable

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to him or to bearer. On the other hand, the stipulation offacts indicated by the appellants in their brief, like the factthat the drawer had no account with the payee that theholder did not show or tell the payee why he had the checkin his possession and why he was using it for the paymentof his own personal accountshow that holders title wasdefective or suspicious, to say the least. As holders titlewas defective or suspicious, it cannot be stated that thepayee acquired the check without knowledge of said defectin holders title, and for this reason the presumption that itis a holder in due course or that it acquired the instrumentin good faith does not exist. And having presented no



evidence that it acquired the check in good faith, it (payee)cannot be considered as a holder in due course. In otherwords, under the circumstances of the case, instead of thepresumption that payee was a holder in good faith, the factis that it acquired possession of the instrument undercircumstances that should have put it to inquiry as to thetitle of the holder who negotiated the check to it. Theburden was, therefore, placed upon it to show thatnotwithstanding the suspicious circumstances, it acquiredthe check in actual good faith.

The rule applicable to the case at bar is that described inthe case of Howard National Bank v. Wilson, et al., 96 Vt.438, 120 At. 889, 894, where the Supreme Court ofVermont made the following disquisition:

Prior to the Negotiable Instruments Act, two distinct lines ofcases had developed in this country. The first had its origin in Gillv. Cubitt, 3 B. & C. 466, 10 E. L. 215, where the rule wasdistinctly laid down by the court of Kings Bench that thepurchaser of negotiable paper must exercise reasonable prudenceand caution, and that, if the circumstances were such as ought tohave excited the suspicion of a prudent and careful man, and hemade no inquiry, he did not stand in the legal position of a bonafide holder. The rule was adopted by the courts of this countrygenerally and seem to have become a fixed rule in the law ofnegotiable paper. Later in Goodman v. Harvey, 4 A. & E. 870, 31E. C. L. 381, the English court abandoned its former position andadopted the rule that nothing short of actual bad faith or fraud inthe purchaser would deprive him of the character of a bona fidepurchaser and let in defenses existing between prior parties, thatno circumstances of suspicion merely, or want of proper

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caution in the purchaser, would have this effect, and that evengross negligence would have no effect, except as evidence tendingto establish bad faith or fraud. Some of the American courtsadhered to the earlier rule, while others followed the changeinaugurated in Goodman v. Harvey. The question was before thiscourt in Roth v. Colvin, 32 Vt. 125, and, on full consideration ofthe question, a rule was adopted in harmony with that announcedin Gill v. Cubitt, which has been adhered to in subsequent cases,



including those cited above. Stated briefly, one line of casesincluding our own had adopted the test of the reasonably prudentman and the other that of actual good faith. It would seem that itwas the intent of the Negotiable Instruments Act to harmonizethis disagreement by adopting the latter test. That such is theview generally accepted by the courts appears from a recentreview of the cases concerning what constitutes notice of defect.Brannan on Neg. Ins. Law, 187201. To effectuate the generalpurpose of the act to make uniform the Negotiable InstrumentsLaw of those states which should enact it, we are constrained tohold (contrary to the rule adopted in our former decisions) thatnegligence on the part of the plaintiff, or suspicious circumstancessufficient to put a prudent man on inquiry, will not of themselvesprevent a recovery, but are to be considered merely as evidencebearing on the question of bad faith. See G. L. 3113, 3172, wheresuch a course is required in construing other uniform acts.

It comes to this then: When the case has taken such shapethat the plaintiff is called upon to prove himself a holder in duecourse to be entitled to recover, he is required to establish theconditions entitling him to standing as such, including good faithin taking the instrument. It devolves upon him to disclose thefacts and circumstances attending the transfer, from which goodor bad faith in the transaction may be inferred.

In the case at bar as the payee acquired the check undercircumstances which should have put it to inquiry, why theholder had the check and used it to pay his own personalaccount, the duty devolved upon it, plaintiffappellee, toprove that it actually acquired said check in good faith. Thestipulation of facts contains no statement of such goodfaith, hence we are forced to the conclusion that plaintiffpayee has not proved that it acquired the check in goodfaith and may not be deemed a holder in due coursethereof.

For the foregoing considerations, the decision appealedfrom should be, as it is hereby, reversed, and the defen

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dants are absolved from the complaint. With costs against



plaintiffappellee.

Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L.,Barrera, Paredes, Dizon and De Leon, JJ., concur.

Bengzon, C.J., concurs in the result.

Decision reversed.

A N N O T A T I O N

HOLDER IN DUE COURSE UNDER THE NEGOTIABLEINSTRUMENTS LAW

Every holder of a negotiable instrument is deemed primafacie a holder in due course. However, this presumptionarises only in favor of a person who is a holder of thenegotiable instrument as defined in Section 191 of theNegotiable Instruments Law (Fossum vs. Fernandez, 44Phil. 713). Under Section 191 of the said law, a holdermeans a payee or indorsee of a bill or note who is in possession of it or the bearer thereof. Therefore, one who is nota payee or indorsee of a check can not be considered aholder and invoke the presumption. (Montinola vs.Philippine National Bank, 88 Phil. 178). The presumptiondoes not arise in favor of a person who is no longer inpossession of the instrument (Fossum v. Fernandez, supra).

Since Section 191 of the Negotiable Instruments Lawdefines holder as the payee or indorsee of a bill or note,one who received a check by indorsement to him of onlypart of its face value, and who was not the payee, could notbe considered a holder of the instrument. An indorsementwhich purports to transfer to the indorsee only a part of theamount payable does not operate as a negotiation of theinstrument. The transferee could not be considered anindorsee and at most was a mere assignee subject to all thedefenses available to the drawer. (Montinola vs. PhilippineNational Bank, supra). Where, however, the transfereereceives notice of any infirmity in the instrument or defectin the title of the person negotiating the same before he haspaid the full amount agreed to be paid therefor, thetransferee will be deemed a holder in due

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course to the extent of the amount therefor paid by him(Sec. 54, Negotiable Instruments Law).

Where an instrument payable on demand is negotiatedan unreasonable length of time after its issue, the holderthereof is not deemed a holder in due course (Section 53,Negotiable Instruments Law). Where a check was issued bythe provincial treasurer on May 2, 1942 as drawer and thecheck was transferred to plaintiff about the last days ofDecember 1944, or about two and one half years later, itwas held that since the check was already overdue when itfell into the hands of the plaintiff, he could not beconsidered a holder in due course (Montinola vs. PhilippineNational Bank, supra). Also, one who purchased twopromissory notes without the necessary indorsement on thepart of the holder, after payment thereof had already beenone year overdue, and without having made inquiries aboutthe solvency of their makers, was not been considered aholder in due course (Santos vs. Reyes and Reyes, 64 Phil.383).

A person who had not paid the full amount of the checkand who should have known that the check could not havebeen issued to the indorser in his private capacity but as agovernment official was not considered a holder in goodfaith hence, not a holder in due course (Montinola vs. Philippine National Bank, supra).

The relinquishment by a bank of its possession of andlien on several pounds of rubber in consideration for thesight draft delivered to it is a valuable consideration. Valuemay be some right, interest, profit or benefit to the partywho makes the contract or some forbearance, detriment,loss, responsibility, on the other side. (Walker RubberCorporation vs. Redulandsel Indische & Handels Bank,Nos. L12502 and L12513, May 29, 1959). One whoaccepted checks that had passed the clearing office butwere unpaid and returned because the drawee had nofunds, some of them stamped account closed, was not aholder in due course, since he knew upon taking them upthat the checks had already been dishonored (Chan Wanvs. Tan Kim, No. L15380, September 30, 1960).

609




It does not follow that simply because a holder of a bearernote is not a holder in due course, he can not recover on thechecks. If B purchases an overdue negotiable note signedby A, he is not a holder in due course but he may recoverfrom A if the latter has no valid excuse for refusingpayment. The only disadvantage of a holder who is not aholder in due course is that the negotiable instrument issubject to defenses as if it was nonnegotiable. Therefore ifthe overdue checks were issued in payment for shoes thatwere never delivered, A would have a good defense asagainst a holder who is not so in due course (Chan Wan v.Tan Kim, L15380, September 30, 1960).

A holder of a negotiable instrument not in due course,but who derives title through a holder in due course, may,therefore, recover against the person primarily liable,though consideration for the same instrument has failedbut the holder must have to prove as an independentmatter of fact that the previous holder was so in due course(Fossum vs. Fernandez, supra).

Any promissory note, check, or order for the payment ofmoney given for money with which to gamble or for moneylost at gambling or as stake, is void (Section 9. Act 1757). Itwas held that in the absence of the consent of the payor,promissory notes representing gambling debts wereunenforceable in the hands of an assignee (Palma vs.Canizares, 1 Phil. 602). However, in the hands of onepurchasing the same for a valuable consideration in goodfaith before maturity and not knowing and having noknowledge of facts sufficient to put them upon notice thatsuch promissory note, check or order for the payment ofmoney was given in consideration of a gambling debt formoney lost at gambling or as a stake, is the same is valid.(Section 9, Act 1757).

All covenants and stipulations contained in bonds bills,notes, etc. whereupon or whereby there shall be stipulated,charged, demanded, reserved, secured, taken, or receiveddirectly or indirectly, a higher rate or greater sum of valuefor the loan or renewal or forbearance of money goods,credits than is allowed by the Usury Law shall be void,except as to an innocent purchaser for a valuable consider

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610 SUPREME COURT REPORTS ANNOTATED



National Power Corporation vs. Valera

ation before maturity, when there has been no intention onthe part of said purchaser to evade the provisions of theUsury Law and said purchaser was not a part of theoriginal usurious transaction (Sec. 7, Act 2655).CAMILOD. QUIASON.

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25) Vicente de Ocampo & Co. v. Gatchalian