BANCO ATLANTICO vs.

AUDITOR GENERAL
G.R. No. L-33549 January 31, 1978
ISIDRO SANTOS vs. ARTURO REYES
FACTS:
Boncan was the Finance Officer of the Philippine Embassy in Madrid who on G.R. No. L-42081             June 26, 1937
many occasions negotiated with Banco Atlantico checks, allegedly endorsed
to her by the embassy.  On these occasions, the bank made the payment of Facts:
the checks, notwithstanding the fact that the drawee bank has not yet o Hermogenes Mendoza applied for and obtained a loan from the Bureau of
cleared  the  checks  for  collection.    This  was  premised  on  the  finding  Lands.
that Boncan  had  special  relations  with  the  employees  of  the  bank.    o To secure the payment thereof, he constituted a mortgage on a residential
And  that upon presentment to the drawee bank, the checks were lot
dishonored due to non-acceptance  allegedly  on  the  ground  that  the  o Mendoza had been paying the interest on the loan, together with the land
drawer  has  ordered  the 
tax.
stoppage  of payment.    This prompted Banco Atlantico to collect from the
o Then the mortgage matured but Mendoza succeeded in having the period
Philippine Embassy for the funds released to Boncan but the latter refused. 
for payment extended. However, threatened by the Bureau of Lands with
This  eventually  led  to  filing  of  money  claim  of  the  bank  with  the 
foreclosure of the mortgage, Mendoza asked for help from Arturo Reyes.
Auditor General. 
o Mendoza executed a notarial instrument in favor of Arturo and Aurelio P.
Reyes, to make it appear that he sold and transferred the parcel of land in
Issue: WON  Banco  Atlantico  was  a  holder  in  due  course. NO. question to Reyes brothers and also made to appear in said document
that the land was subject to a mortgage lien in favor of the Bureau of
HELD: Lands to secure the payment of a debt of P300 which obligation was
assumed by the purchasers as a part of the purchase price.
o All four conditions enumerated under Sec. 52, NIL must concur before a o However, said deed of sale was not presented to the Bureau of Lands or
holder can be considered as a holder in due course. The absence or to the registry of deeds for registration. Arturo P. Reyes, also issued a
failure to comply with any of the conditions set forth under this section will promissory note in favor of Hermogenes Mendoza, whereby, for value
make one's title to the instrument defective. received, he promised to pay the latter, or order, the sum of P300 on or
before April 24, 1931. Likewise on the same date, April 23, 1931, Arturo
o The check for US$90,000.00 was a demand note. When Miss Boncan the
and Aurelio P. Reyes, executed another promissory note in favor of said
payee of this check, negotiated the same by depositing it in her account, Mendoza, acknowledging that they were indebted to the latter and
at the same time informing the bank in writing that it be not presented for promising to pay jointly and severally in Maypajo, Caloocan Rizal, the sum
collection until a later date. of P1,145 on or before October 23, 1932.
o Banco Atlantico through its agent teller or cashier should have been put o Since the period for the payment of the mortgage debt had expired
on guard that there was something wrong with the check. without having been paid, the mortgagee Director of Lands instituted a
case against Mendoza alone for the foreclosure of the mortgage and
o The fact that the amount involved was quite big and it was the payee
judgment was rendered against him.
herself who made the request that the same not be presented for o  As Mendoza needed money urgently, he executed a document whereby
collection until a fixed date in the future was proof of a glaring infirmity or in consideration of the sum of P1,000, he transferred to Isidro S. Santos
defect in the instrument. all his rights, interest and participation in the two promissory notes.
o It loudly proclaims, "Take me at your risk." The interest of the payee was
the immediate punishment of the check of which she was the beneficiary Issue: WON Isidro Santos is a holder in due course.
NO.
and not the deferment of the presentment for collection of the same to the
drawee bank. Held:
o This being the case, Banco Atlantico was not a holder in due course as o When said documents were transferred to Isidro Santos, payment thereof
defined by Section 52 of the N.I.L., because it was obvious that it had was already one year overdue, and he was aware of it.
knowledge of the infirmity or defect of the check. The fact that the check o In spite of this, he bought said promissory notes without first inquiring into
was honored by claimant bank was proof not only of their gross the solvency of the makers thereof, the herein defendants, contending
negligence but a further manifestation of the special treatment they were himself with the idea that they were known to him.
o The promissory notes have not been endorsed to him by the holder
according Miss Boncan.
Mendoza.
o In  view  of  the  foregoing,  the  embassy  as  the  drawer  of  the  3 
o Isidro Santo claimed to have asked the Reyes brothers, on whether or not
checks  in question cannot be held liable. It is apparent that the said 3 said defendants were indebted to Mendoza, and they answered in the
checks were (fraudulently altered) by Boncan as to their accounts and yes.
therefore wholly inoperative (note: should be “avoided”).    o There is no doubt that as the plaintiff had purchased the two promissory
notes without the necessary endorsement on the part of the holder after
payment thereof had already been one year overdue, and without having
made inquiries about the solvency of their makers, he cannot be
considered a holder in due course in accordance with the provisions of
section 52 of the Negotiable Instruments Law (Act No. 2031)
o Thus, the Reyes brothers have a perfect right to set up against Isidro
Santos the defense that said promissory notes lack valuable consideration
and are fictitious, which defense they could also set up against original
holder Mendoza if he demanded payment of them.