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STATE INVESTMENT HOUSE v. CA

FACTS:

Private respondent Nora B. Moulic issued two post-dated checks as security to Corazon Victoriano for pieces of jewelry to be sold on commission. The checks were negotiated to petitioner State Investment House, Inc. (STATE). However, Moulic was unable to sell the jewelry and returned them to Victoriano before the checks' maturity dates. The checks were already negotiated and could not be retrieved. Moulic then withdrew her funds from the drawee bank. When the checks were presented for payment, they were dishonored for insufficient funds. STATE allegedly notified Moulic of the dishonor of the checks and requested cash payment. STATE sued Moulic to recover the value of the checks. Moulic contended that she had no obligation on the checks as the jewelry was never sold and the checks were negotiated without her consent. The trial court dismissed the complaint, and the Court of Appeals affirmed the dismissal.

ISSUES:

  1. Whether State Investment House, Inc. (STATE) is a holder in due course of the post-dated checks issued by Nora B. Moulic.

  2. Whether the fact that the post-dated checks were issued as security renders them discharged as against a holder in due course.

RULING:

  1. STATE is a holder in due course. The evidence shows that the post-dated checks were complete and regular on their faces, STATE bought the checks in good faith and for value, and STATE had no notice that the checks were issued as security and not for value.

  2. The fact that the post-dated checks were issued as security does not discharge them as against a holder in due course. The only grounds for the discharge of a negotiable instrument are those outlined in Sec. 119 of the Negotiable Instruments Law, none of which apply in this case.

PRINCIPLES:

  • A holder in due course is a holder who has taken a negotiable instrument under certain conditions, as provided in Sec. 52 of the Negotiable Instruments Law.

  • The burden of proving that a holder is not a holder in due course lies in the person who disputes the presumption.

  • A holder in due course holds a negotiable instrument free from any defect of title of prior parties and from defenses available to prior parties among themselves.