The shelter principle provides that a person, to whom a holder in due course has transferred the negotiable instrument, as well as any later transferee, will succeed to the rights of the holder in due course. As a result, transferees of holders in due course are generally not subject to defenses against the payment of an instrument. This doctrine ensures the free transferability of the negotiable instrument. Its name derives from the idea that the transferees “take shelter” in the rights of the holder in due course. However, this principle presupposes that the holder for value is not a party to the fraud.
Since a holder for value merely steps into the shoes of the indorser, the holder for value will be able to acquire the rights of a holder in due course if the indorser is a holder in due course.
a. NO. A holder in due course is a holder who has taken the instrument under the following conditions: (a)That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. All of the four conditions must concur in order for a holder to qualify as a holder in due course. In the case at hand, Z did not acquire the instrument for value. As such she cannot be considered as a holder in due course.
b. The drawer. The instrument was validly negotiated to Z by virtue of the endorsement made by Y despite lack of any consideration. The drawer cannot evade liability since Z, as a holder of the instrument, has the right to collect upon the same. Likewise, the drawer may not raise as a defense the fact of lack of consideration since it is a personal defense that may only be raised by Y since the drawer is not privy to said transaction.
a. Excel Inc. is not a holder in due course. The act of crossing the check imposes upon the holder thereof the duty to ascertain the indorser’s title to the check or the nature of his possession or the purpose for which it was issued. Excel is guilty of gross negligence amounting to legal absence of good faith for its failure to inquire from Jose the purpose for which the three checks were crossed despite the warning of the crossing, hence, it is not deemed a holder in due course.
b. YES, the defense of lack of consideration as against Jose is also available as against Excel. For not being a holder in due course, Excel is subject to personal defenses as if the check were non-negotiable, such as lack of consideration between Po Press and Jose. In this case, Jose’s failure to deliver the newsprint resulted in the absence of consideration for the issuance of the check. Consequently, Po Press cannot be made liable to pay the face value of the check.
The complaint should be dismissed. The act of crossing the check imposes upon the holder thereof the duty to ascertain the indorser’s, in this case Moises’ title to the check or the nature of his possession. Failing in this respect, Dragon cannot be deemed a holder in due course and as such, Moises is subject to personal defenses as if the check were non- negotiable, such as lack of consideration between Chelsea and Moises for Moises’ failure to deliver the bales of tobacco. There being no consideration for the issuance of the check, Chelsea cannot thus be made liable to pay the face value of the check and this constitutes a defense not only against Moises but even against Dragon who is not a holder in due course.
1. The check may not be encashed but only deposited in a banks;
2. The check may be negotiated only once to one who has an account with a bank;
3. The act of crossing a check serves as a warning to the holder thereof that the check has been issued for a definite purpose so that the holder must inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course.
The case will prosper as against the CD Bytes, the immediate indorser but not as against Pentium Company. The effect of crossing a check relates to the mode of its presentment for payment which must be made by the holder, or by some person authorized to receive payment on his behalf. Thus, in the absence of due presentment, as in this case where the check was not presented by the payee (CD Bytes) or the proper party authorized to make presentment of the checks, the drawer (Pentium Company) cannot be held liable. However, Fund House may recover from the immediate indorser, if the latter has no valid excuse for refusing payment.
A crossed check is one with two parallel lines drawn diagonally on the left portion of the check. On the other hand, a cancelled check is one marked or stamped "paid" and/or "cancelled" by or on behalf of a drawee bank to indicate payment thereof.
A crossed check is a check with two parallel lines written diagonally on the left top portion of the check. The effects of crossing a check are: the check may not be encashed but only deposited in the bank; the check may be negotiated only once to one who has an account with a bank; and the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course. The act of crossing a check serves as a warning to the drawee bank that payment must be made to the right party; otherwise the bank has no authority to use the drawer's funds deposited with the bank. To be assured that it will avoid any mistake in paying to the wrong party, banks adopted the policy that crossed checks must be deposited in the payee's account. When withdrawal is made, the banks can be sure that they are paying to the right party.
The defense is not valid. The liability of X, Y and Z under the promissory note is joint. Such being the case, Z is not an indispensable party. The fact that A did not implead Z will not prevent A from collecting the proportionate share of X and Y in the payment of the loan.
a. YES. As a general rule, the drawee is not liable under the check because there is no privity of contract between XYZ Marketing, as payee, and ABC Bank as the drawee bank. However, if the action taken by the bank is an abuse of right which caused damage not only to the issuer of the check but also to the payee, the payee has a cause of action under quasi-delict.
b. The serial number is not a material particular of the check. Its alteration does not constitute material alteration of the instrument. The serial number is not material to the negotiability of the instrument.
