BA 164 Cases - September 8, 2015

HOWARD NATIONAL BANK v. WILSON

Facts: *Graham Wilson executed a promissory note payable to the order of Howard National Bank
(HNB).
From July to September 18, 1919, the personal account of Elliot in the plaintiff-bank was
overdrawn. An arrangement was then entered in which the bank made a loan to the lumber
company and the proceeds was then transferred and charged against the overdraft.
On September 15, Elliot had drawn a check on his personal account and to cover this check, he
drew a check for like amount on the Waterbury Bank which led to the overdraft of the
companys account in WB.
Wilson transacted with HNB through Elliot in which he signed a note for Elliots accommodation.
Elliot, through the cashier, made a check which was subsequently indorsed by Wilson to him
and deposited to companys account in WB.
Issue: Whether or not HNB, being a payee, is a holder in due course?
Held: Yes. It is in the fair construction of the whole act that says that a payee is capable of being a
holder in due course. It is made upon the evidence that the note was complete and regular upon its
face and that the plaintiff became a holder before it was overdue. Additionally, it could not be seen
that there has been actual knowledge that the note was tainted by fraud on the part of HNB since
Elliots knowledge was not imputed to the plaintiff. HNB also acquired it for value since they were used
to cover the overdraft at WB.
PIERCE v. CARLTON
Facts: *Carlton executed three promissory notes payable to Crawford and Ceas and subsequently
indorsed to Pierce.
The payees then indorsed the promissory notes in blank to Pierce and sold and delivered the
check to his brother, Thos. B. Pierce.
Because of a dispute on the notes, Pierce reacquired the notes from his brother by buying back.
There was an allegation showing that payees with the aid of the plaintiff procured the notes by
making fraudulent representations. He had actual knowledge of the fraud at the time he first
acquired the notes.
Issue: Whether or not H.F. Pierce is a holder in due course?
Held: No. A party who has reacquired an instrument from a bona fide holder for value is a holder in
due course unless such party was a participant in the fraudulent conduct which the note was secured.
From the records, it is shown that the plaintiff had full knowledge of the fraud at the time he first
acquired the notes. This serves as a protection to bona fide holder from which reacquisition was made.
LILL v. GLEASON
Facts: *Nelson Gleason executed a promissory note payable to Peerless Machinery and Supply
Company for stock in the machinery company.
It was accompanied by a written contract that Gleason may return the stock and receive the
note duly cancelled on or before August 1, 1908.
On July 25, 1908, notice was given but the instrument was not cancelled but was subsequently
indorsed in blank and is left at the Andale State Bank as a security for money advanced to the
company. Lill then went to the bank and wrote his name on the back of the note.
When the note matured, Gleason refused to pay. Lill took up the note and received it without
indorsement from the bank. Lill paid the note.
Issue: Whether or not Lill is a holder in due course?
Held: Yes. When Lill paid the note, the instrument was not discharged but operated as a transfer of
title to party paying (Lill). Since the note has been indorsed by the payee in blank, it becomes a

bearer instrument. Having derived title with the bank which was a holder in due course and not being
a party to a fraud affecting instrument, Lill is a holder in due course.

FOSSUM v. FERNANDEZ HERMANOS et al.

Facts: *American Iron Products Company, Inc. (AIP) had drawn a time draft upon Fernandez Hermanos
payable to Philippine National Bank.
Charles Fossum procured an order from Hermanos to deliver to said firm a tail shaft subject to
specifications contained in a blueprint and was in the hand of the agent Fossum.
Upon inspection, the shaft was found not to be in conformity with the specifications and was
incapable of use for its intended purpose. Fernandez Hermanos refused to pay upon discovery.
PNB subsequently indorsed the instrument in blank without consideration to the plaintiff
Fossum.
Appeal was made by Fossum after the decision of court in favour of Hermanos.
Issue: Whether or not Fossum is a holder in due course?
Held: No. It is a well-known rule that if the original payee of an unenforceable note for lack of
consideration repurchases the instrument after being transferred to a holder in due course, the paper
again become subject to payees hands, the payee shall be subject to same defences as if the paper
had never passed through a holder in due course. This also applies to a transfer to an agent of a
payee. Additionally, Fossum is the one who actually makes the contract and he cannot have better
title than his principal with respect to the instrument growing under the said transaction.
MURRAY v. THOMPSON et al.
Facts: *Brick Company executed a promissory note payable to Murray for personal injuries suffered
by him while in the employ of the company.
The promissory note was then subsequently indorsed by Murrays father, with knowledge and
authority of Murray to Thompson.
Murray entered into a suit against Thompson to recover and disaffirm Thompson from the
proceeds of the note
Issue: Whether or not the defense of infancy can be availed by Murray to disaffirm Thompson?
Held: Yes. An indorsement executed by a minor is not void but voidable under the law. Provided that
the former has constructive notice of the incapacity, the purchaser and indorsee of a note is NOT a
bona fide holder against the infant indorser and that the latter may disaffirm and recover the note
from the possession of the former. Hence, Murray is entitled to the defense of infancy to disaffirm
Thompson for the proceeds.
RODRIGUEZ v. MARTINEZ
Facts: Martinez executed a promissory note payable to the order of Felipe Montalvo.
Montalvo then sold and transferred the promissory note to Rodriguez before maturity, for a
consideration and without notice of conditions existing against the note.
Before buying the note, Rodriguez asked the maker and Martinez said that it was good, that he
would pay and that it is for payment of a gambling debt.
Issue: Whether or not the defense of illegality of consideration can be held against Rodriguez?
Held: No. The plaintiff acquired the note by virtue of indorsement, in good faith, for consideration and
without a notice that it is from an unlawful origin. There was also an assurance made on the part of
the defendant to which Rodriguez relies on buying the note. Hence, Rodriguez is a holder in due
course and the defense of illegality being a personal defense cannot be held against Rodriguez.

VICENTE R. DE OCAMPO & CO. v. GATCHALIAN et al.

Facts: *Anita C. Gatchalian executed a check payable to Vicente R. de Ocampo & Co. in consideration
of the car owned by Ocampo.
Manuel Gonzalez negotiated with Anita Gatchalian who during that time is looking for a car for
the use of their family. Manuel Gonzalez dishonestly presented himself as duly authorized by
the owner, Ocampo.
Being advised that owner will not show the certificate of registration without showing a proof of
buyers interest, Gatchalian issued a check for safekeeping of Gonzalez which is to be returned
the following day.
With the failure to bring the car and its certificate of registration and return the check,
Gatchalian issued a Stop Payment order without previous notice to Ocampo, the new holder.
Gonzalez, after receiving the check, delivered the same to Ocampo Clinic in payment of the
fees and expenses for the hospitalization of his wife. This was accepted by Ocampo and applied
to the outstanding fees of Gonzalez without making inquiry.
Issue: Whether or not Ocampo is a holder in due course?
Held: No. Ocampo is charged with gross neglect after failing to make inquiry to Gonzalez before
acceptance of the said check. The following circumstances should have led to an inquiry to which
Ocampo failed:
a. Gonzalez uses a check of another person in payment of his debt.
b. The check is a bearer instrument. Banks do make inquiry before having a check encashed.
c. The check had two parallel lines in the upper left hand corner which means that the check could
only be deposited but may not be converted in cash.
To say that a person has knowledge of facts, it is not necessary that he knew the exact fraud. It is
sufficient to show that he has notice that there was something wrong about the previous holders
acquisition of title.
LEONARDI v. CHASE NATIONAL BANK OF THE CITY OF NEW YORK
Facts: *A check for $3,750 was made payable to the order of Leonardi and drawn on the Bank of
Manhattan Trust Company of Jamaica.
Leonardi, then deposited the check on June 6, 1930 at the Bank of Bay Biscayne with the following
indorsement: For deposit of Florence Leonardi and John Leonardi. This was then emailed by the
bank to the New York correspondent of the drawee bank with cash remittance letter which indicated
that all items listed shall be handled as cash and credited to the account.
The letter with its content was received on June 9 and the check cleared through and the amount
was credited to the bank by the defendant.
The following day, the Bank of Bay Biscayne, being insolvent, was taken over by the Comptroller of
the State of Florida. The bank owed Chase National Bank over one million dollars. After having
knowledge of insolvency, it setoff against the banks debt the credits to the bank on its books
including the check of Leonardi.
Issue:
a. Whether or not a debtor-creditor relationship existed between the Bank of Bay Biscayne and
Leonardi at the time when the defendant setoff the credit to the bank?
b. Whether or not Leonardi is entitled to the proceeds of the check from Bank of Bay Biscayne?
Held:
a. YES. Chase National Bank was to be rendered as sub-agent of Leonardi in the collection UNTIL actual
final payment was made by the defendant to the bank. The credit established in favour of the bank

was an actual payment; hence, the agency of the bank and the defendant was terminated and the
debtor-creditor relationship between the Bank of Bay Biscayne and Leonardi ensued on July 9. Also,
in accordance with the agreement between the bank and the defendant, the defendant was entitled
to set off the credit against the banks general indebtedness as of July 11 th.
b. YES. Leonardis endorsement for deposit on the check was restrictive and indicated that the
forwarding bank was an agent for collection and not the owner of the item. Additionally, Leonardi
became a creditor of the Bank of Biscayne on June 9th and thus entitled to the proceeds of the
check.

SIMPSON v. FIRST NATIONAL BANK OF ROSEBURG

Facts:
A promissory note was executed by Mrs. M. Josephson for the loan received. The payees name
was left blank.
The bank suggested Simpson, having $1200 on deposit, to allow the bank to loan $1000 to a
responsible party. Then, the amount was appropriated and loaned to Mrs. Josephson. On January
1914, the bank delivered the note to Simpson with the information that the instrument
belonged to her through a memorandum check as voucher.
Within reasonable time after receiving the note, the plaintiff filled in the name of the defendant
as payee. After the bank presented the note to the maker from time to time a portion of interest
was paid but the whole principal was unpaid.
Simpson brought the matter as an action at law and not a suit in equity.
Issue: Whether or not Simpson is entitled to the endorsement of First National Bank of Roseburg?
Held: YES. It is stated that where the holder transfers it for value without indorsing it, the transferee
acquires the title as the transferor had therein and the right to have the indorsement. The instrument
was indorsed for value as evidenced by the memorandum check as voucher made by the defendant
bank.
However, the plaintiff brought the issue on the wrong side of the court but is granted the right to
amend its complaint as to entitle her to the indorsement of the bank. The court also ruled that the
transferee has the right to UNQUALIFIED indorsement unless it is explicitly stated upon its face that
indorsement is made as qualified.