Wan v. Kim
REITERATIONFacts
The Antecedents: Plaintiff-appellant Chan Wan filed a suit to collect eleven checks totaling P4,290.00, drawn by defendant Tan Kim (with her husband Chen So as co-defendant) payable to "cash or bearer" upon the Equitable Banking Corporation. These checks were presented by Chan Wan to the drawee bank but were dishonored and returned unpaid due to insufficient funds and/or causes attributable to the drawer. Procedural History: At the hearing, the plaintiff did not testify. His attorney identified the checks (Exhibits A to K) and letters of demand. Defendant Tan Kim testified without contradiction that the checks were issued to Pinong and Muy for shoes promised to be made and were intended as mere receipts. The trial court declined to order payment, citing plaintiff's failure to prove he was a holder in due course and the fact that the checks were crossed checks which should have been deposited with the bank specified in the crossing. The defendants' counterclaim was dismissed for failure of proof, and they did not appeal this dismissal. The Petition: The case reached the Supreme Court solely on the issue of plaintiff's right to collect on the eleven commercial documents.
Issue(s)
Whether the plaintiff, not being a holder in due course, can still recover on the dishonored checks. Whether the crossed checks were properly presented for payment, thereby attaching liability to the drawer.
Ruling
The Supreme Court returned the case to the lower court for additional evidence and further proceedings, finding that while the plaintiff was not a holder in due course, this fact alone did not preclude recovery. However, the issue of whether the checks were properly presented, especially considering they were crossed checks and the defense of the drawer regarding the purpose of their issuance, required further factual determination.
Ratio Decidendi
On the issue of whether the plaintiff, not being a holder in due course, can still recover on the dishonored checks: The Court held that the Negotiable Instruments Law does not preclude a holder who is not a holder in due course from recovering on an instrument. Such a holder, however, takes the instrument subject to defenses as if it were non-negotiable. The Court noted that the defendant Tan Kim's testimony suggested a potential defense if the checks were issued for shoes that were never made or delivered, but this required further proof. The plaintiff's failure to prove he was a holder in due course meant the checks were subject to any defenses available to the drawer. On the issue of whether the crossed checks were properly presented for payment, thereby attaching liability to the drawer: The Court agreed with the trial court's legal premise that eight of the checks, bearing two parallel transverse lines with the words "non-negotiable — China Banking Corporation," were crossed checks specially endorsed to China Banking Corporation. As such, they should have been presented for payment by China Banking Corporation, not by Chan Wan himself. The Court reiterated the drawer's engagement that "on due presentment, the check would be paid." In the absence of due presentment, the drawer does not become liable. While endorsements suggested deposit with and presentation by China Banking Corporation through the clearing office, the plaintiff did not explain how he obtained the checks after they were dishonored, leading the lower court to surmise he received them after dishonor, thus not making him a holder in due course.
Main Doctrine
A holder who is not a holder in due course may still recover on a negotiable instrument, but the instrument is subject to defenses as if it were non-negotiable. Proper presentment of a crossed check is essential for the drawer's liability to attach.