Fossum v. Fernandez Hermanos
REITERATIONFacts
The Antecedents: Charles A. Fossum, as resident agent for American Iron Products Company, Inc., procured an order from Fernandez Hermanos for a tail shaft for the ship Romulus. The shaft was to be manufactured according to specifications and shipped from New York. The American Iron Products Company, Inc. drew a time draft for $2,250 on Fernandez Hermanos, payable to the Philippine National Bank. Fernandez Hermanos accepted the draft on December 15, 1920. The shaft arrived in January 1921, but was found not to conform to specifications and was unusable. Fernandez Hermanos refused to pay the draft, which was dishonored. The Philippine National Bank indorsed the draft in blank, without consideration, to Fossum, who then filed suit against Fernandez Hermanos. Procedural History: The trial court held that the action could not be maintained due to failure of consideration and absolved the defendants. The plaintiff appealed. The Petition: The plaintiff appealed the trial court's decision, arguing that he, as an indorsee, could recover on the instrument.
Issue(s)
Whether the plaintiff, Charles A. Fossum, can maintain an action on the dishonored draft. Whether the Philippine National Bank was a holder in due course. Whether the plaintiff, as an agent of the original contracting party, can recover on the instrument when his principal could not.
Ruling
The Supreme Court affirmed the decision of the trial court, holding that the plaintiff could not maintain the action and absolving the defendants. The Court ordered that the judgment appealed from be affirmed, with costs against the appellant.
Ratio Decidendi
On the plaintiff's right to maintain the action: The Court held that the plaintiff, Charles A. Fossum, could not recover on the draft. Fossum was not a holder in due course because he was a party to the contract that supplied the consideration for the draft, albeit in a representative capacity. Furthermore, he procured the indorsement and delivery of the instrument without payment of value, after it was overdue, and with full notice of the failure of consideration. His position was no better than that of his principal, the American Iron Products Company, Inc., which could not have maintained an action due to the failure of consideration. On whether the Philippine National Bank was a holder in due course: The Court found no proof that the bank was a holder in due course. The presumption that every holder is prima facie a holder in due course, as provided in Section 59 of the Negotiable Instruments Law, arises only in favor of a person who is a holder as defined in Section 191, meaning a payee or indorsee in possession of the draft. When the instrument passed from the bank to the plaintiff, no presumption arose as to the bank's character as a holder in due course. It was incumbent upon the plaintiff to affirmatively show that the bank acquired the instrument for value and under conditions constituting it a holder in due course, which was not done. On the plaintiff's status as an agent: The Court emphasized that the plaintiff personally made the contract, making him a party in fact to the transaction. As an agent with notice of all equities, he could stand on no better footing than his principal. The Court considered the situation to be the same in practical effect as if the action had been brought in the name of the American Iron Products Company, Inc. itself, and Fossum's use of his name was seen as an attempt to evade the rule of law that would have been fatal to the company's success. The rule identifying an agent with the principal regarding legal consequences operates in conjunction with the Negotiable Instruments Law.
Main Doctrine
An agent who procures an instrument to be indorsed and delivered to himself without payment of value, after it is overdue, and with full notice that the consideration has failed, cannot recover on the instrument. Furthermore, an agent is identified with the principal regarding the legal consequences of certain acts, and cannot stand on a better footing than his principal.