SIHI V IAC

Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter may sell the same. As
security for the jewelries, Moulic issued to Victoriano two post-dated checks in the aggregate amount of
P100,000.00. Moulic was not able to sell the jewelries so she returned the same to Victoriano.
Victoriano was however unable to return the checks hence Moulic withdrew all her funds from the
bank.

Apparently, the checks were negotiated by Victoriano to State Investment House, Inc. So when the
checks were dishonored, State Investment demanded Moulic to pay. Moulic refused to pay because she
said the checks were merely used as security for the jewelry. Moulic further averred that she received
no notice of dishonor.

ISSUE: Whether or not State Investment House is entitled to be paid.

HELD: Yes. State Investment is a holder in due course as it met all the requirements to be one pursuant
to Section 52 of the Negotiable Instruments Law. In particular, it is clearly shown that: (a) on their faces
the post-dated checks were complete and regular: (b) State Investment bought these checks from
Victoriano, before their due dates; (c) State Investment took these checks in good faith and for value,
(d) State Investment was never informed nor made aware that these checks were merely issued to
Victoriano as security and not for value.

Further, there is no need to issue a notice of dishonor to Moulic. After Moulic withdrew her funds, she
could not have expected her checks to be honored. It would only be futile for State Investment to be
sending her notices of dishonor for the two checks.

FACTS:

Moulic issued checks as security to Victoriano, for pieces of jewelry to be

sold on commission. Moulic failed to sell the pieces of jewelry, so she returned them to
Victoriano. The checks however could not be recovered
by Moulic as these have been discounted already in favor of petitioner. Consequently, before the
maturity dates, Moulic withdrew her funds from her account. Thereafter, petitioner presented the
checks for payment but these were dishonored. This prompted the petitioner to initiate an action
against Moulic.

HELD:

A prima facie presumption exists that a holder of a negotiable instrument is a holder in due course. The
burden of proving that State is not a holder in due course is upon Moulic. In this regard, she failed to do
so.

The evidence shows that the dated checks were complete and regular; petitioner bought the
checks from Victoriano before their due dates; it took the checks in good faith and for value; and it was
never informed nor made aware that these checks were merely issued to payee as security.
Consequently, State is a holder in due course. Moulic cannot set up the defense that there was
failure or want of consideration. It can only invoke the defense if State was a privy to the purpose for
which they were issued and therefore is not a holder in due course.

Furthermore, the mere fact that the checks were issued as security is not
sufficient ground to discharge the instrument as against a holder in due course.

And also, Moulic was responsible for the dishonor of her checks. She
withdrew her funds from her account and could not have expected her checks to be honored by
then.