BANCO ATLANTICO vs. AUDITOR GENERALG.R. No. L-33549 January 31, 1978

FACTS:Boncan was the Finance Officer of the Philippine Embassy in Madrid who on many occasions negotiated with Banco Atlantico checks, allegedly endorsed to her by the embassy. On these occasions, the bank made the payment of the checks, notwithstanding the fact that the drawee bank has not yet cleared the checks for collection. This was premised on the finding that Boncan had special relations with the employees of the bank. And that upon presentment to the drawee bank, the checks were dishonored due to non-acceptance allegedly on the ground that the drawer has ordered the stoppage of payment. This prompted Banco Atlantico to collect from the Philippine Embassy for the funds released to Boncan but the latter refused. This eventually led to filing of money claim of the bank with the Auditor General.

Issue: WON Banco Atlantico was a holder in due course. NO.

HELD:

o All four conditions enumerated under Sec. 52, NIL must concur before a holder can be considered as a holder in due course. The absence or failure to comply with any of the conditions set forth under this section will make one's title to the instrument defective.

o The check for US$90,000.00 was a demand note. When Miss Boncan the payee of this check, negotiated the same by depositing it in her account, at the same time informing the bank in writing that it be not presented for collection until a later date.

o Banco Atlantico through its agent teller or cashier should have been put on guard that there was something wrong with the check.

o The fact that the amount involved was quite big and it was the payee herself who made the request that the same not be presented for collection until a fixed date in the future was proof of a glaring infirmity or defect in the instrument.

o It loudly proclaims, "Take me at your risk." The interest of the payee was the immediate punishment of the check of which she was the beneficiary and not the deferment of the presentment for collection of the same to the drawee bank.

o This being the case, Banco Atlantico was not a holder in due course as defined by Section 52 of the N.I.L., because it was obvious that it had knowledge of the infirmity or defect of the check. The fact that the check was honored by claimant bank was proof not only of their gross negligence but a further manifestation of the special treatment they were according Miss Boncan.

o In view of the foregoing, the embassy as the drawer of the 3 checks in question cannot be held liable. It is apparent that the said 3 checks were (fraudulently altered) by Boncan as to their accounts and therefore wholly inoperative (note: should be “avoided”).

ISIDRO SANTOS vs. ARTURO REYES

G.R. No. L-42081 June 26, 1937

Facts: o Hermogenes Mendoza applied for and obtained a loan from the Bureau of

Lands.o To secure the payment thereof, he constituted a mortgage on a residential

lot o Mendoza had been paying the interest on the loan, together with the land

tax.o Then the mortgage matured but Mendoza succeeded in having the period

for payment extended. However, threatened by the Bureau of Lands with foreclosure of the mortgage, Mendoza asked for help from Arturo Reyes.

o Mendoza executed a notarial instrument in favor of Arturo and Aurelio P. Reyes, to make it appear that he sold and transferred the parcel of land in question to Reyes brothers and also made to appear in said document that the land was subject to a mortgage lien in favor of the Bureau of Lands to secure the payment of a debt of P300 which obligation was assumed by the purchasers as a part of the purchase price.

o However, said deed of sale was not presented to the Bureau of Lands or to the registry of deeds for registration. Arturo P. Reyes, also issued a promissory note in favor of Hermogenes Mendoza, whereby, for value received, he promised to pay the latter, or order, the sum of P300 on or before April 24, 1931. Likewise on the same date, April 23, 1931, Arturo and Aurelio P. Reyes, executed another promissory note in favor of said Mendoza, acknowledging that they were indebted to the latter and promising to pay jointly and severally in Maypajo, Caloocan Rizal, the sum of P1,145 on or before October 23, 1932.

o Since the period for the payment of the mortgage debt had expired without having been paid, the mortgagee Director of Lands instituted a case against Mendoza alone for the foreclosure of the mortgage and judgment was rendered against him.

o As Mendoza needed money urgently, he executed a document whereby in consideration of the sum of P1,000, he transferred to Isidro S. Santos all his rights, interest and participation in the two promissory notes.

Issue: WON Isidro Santos is a holder in due course.NO.

Held: o When said documents were transferred to Isidro Santos, payment thereof

was already one year overdue, and he was aware of it. o In spite of this, he bought said promissory notes without first inquiring into

the solvency of the makers thereof, the herein defendants, contending himself with the idea that they were known to him.

o The promissory notes have not been endorsed to him by the holder Mendoza.

o Isidro Santo claimed to have asked the Reyes brothers, on whether or not said defendants were indebted to Mendoza, and they answered in the yes.

o There is no doubt that as the plaintiff had purchased the two promissory notes without the necessary endorsement on the part of the holder after payment thereof had already been one year overdue, and without having made inquiries about the solvency of their makers, he cannot be considered a holder in due course in accordance with the provisions of section 52 of the Negotiable Instruments Law (Act No. 2031)

o Thus, the Reyes brothers have a perfect right to set up against Isidro Santos the defense that said promissory notes lack valuable consideration and are fictitious, which defense they could also set up against original holder Mendoza if he demanded payment of them.