FACTS:

Bataan  Cigar  has  engaged  one  of  its  suppliers,  George  King,  to  deliver bales of tobacco leaves.  Petititoner then issued postdated crossed checks in favor of King.  This was continued despite the failure to deliver the bales.  Simultaneous  to  these  transactions  was  the  discounting  of  King  of  the checks  to  State  Investment  House.    Bataan  then  stopped  payment  and SIHI tried to collect.
 

HELD:

The  negotiability  of  the  check  isn’t  affected  by  it  being  crossed,  whether specially  or  generally.    It  may  be  legally  negotiated  from  one  person  to another as long as the one who encashes the check with the drawee bank or  if  its  specially  crossed,  by  the  bank  mentioned  between  the  parallel
lines.   
 
Jurisprudence provides the following effects of crossing a check:
1.    The check may not be encashed but only deposited in the bank
2.    The  check  may  be  negotiated  only  once—to  one  who  has  an account with a bank
3.    The  act  of  crossing  the  check  serves  the  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 check should placed the holder in inquiry and upon him devolves the duty  to  ascertain  the  indorser’s  title  to  the  check  or  the  nature  of  his possession.    Failing  in  this  respect,  the  holder  is  declared  guilty  of  gross negligence amount to legal absence of good faith.
 
In the present case, petitioner’s defense in stopping payment is as good to SIHI as it is to King because really the consideration for the checks were the delivery of the bales of tobacco leaves which King failed to do.  There being failure of consideration, SIHI is not a holder in due course.