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1. Classes of holders. a. Holders simply. (Sec. 51) b. Holders for value. (Sec. 26) c. Holders in due course. (Sec. 52, 57) 2. Rights of holder in general. a. He may sue on the instrument in his name; and b. He may receive payment and if the payment is in due course, the instrument is discharged. (Sec. 51) A holder for collection and the pledgee of a note or bill may sue in their own names as they are holders under the law. 3. Right of transferee of unindorsed instrument to sue. A transferee of unindorsed instrument is certainly not a holder as defined by Section 191 (payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof). It is believed, nevertheless, that he may do so. If the transfer vests in the transferee such title as the transferor had (Sec. 49) and if the transferor had legal title, this must pass by the transfer, although subject to defenses. 4. What constitutes a holder in due course. A holder in due course is a holder who has taken the instrument under the following conditions: all must be present to become a HIDC a. That it is complete and regular upon its face; (it is not wanting in any material particular [see Sec. 14], such as date, name of payee, amount, etc., and there is no apparent alteration on the instrument. EXAMPLE of not complete and regular upon its face: a bill dated without a year; an instrument blank as to payee or acceptor or dawee.) 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; An instrument is overdue after the date of maturity. A negotiable instrument in circulation past its maturity date carries strong indication that it has been dishonored. But one taking an instrument on the date of maturity takes before maturity because the principal debtor has the whole day to pay. Hence, it cannot be considered as notice of the instrument has been dishonored. HOLDER WITHOUT NOTICE OF DISHONOR. An instrument may be dishonored either by nonacceptance (BOE) or by non-payment (takes place upon maturity for note; may be before maturity for bill). c. That he took it in good faith and for value; and GOOD FAITH refers to the good faith of the indorsee or transferee. The indorsee is in not in good faith (bad faith) if he has knowledge of any fact which render it dishonest for him to take a particular piece of NI (that there is something wrong with the transaction). HOLDER FOR VALUE that the he became a holder for a consideration. Distinguish a holder for value from a holder in due course. A holder in due course is always a holder for value while a holder for value may not a holder in due course as when the holder acquires the instrument after it was overdue. They are: a. If he has not paid anything, he is relieved from the obligation to make payment; b. If he still pays the transferor after receiving notice, he is not deemed a holder in due course; and c. If he has not yet paid the full amount agreed to be paid for the instrument, he is deemed a holder in due course only to the extent of the amount thereto for paid by him. (Sec. 54) 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. (Sec. 52) Lack of knowledge of any infirmity or lack of bad faith will render the holder in good faith, a HIDC. Every holder is generally deemed prima facie a holder in due course. (Sec. 59) He who claims otherwise has the burden of proof. Where the instrument is payable on demand and it is negotiated an unreasonable length of time after its issue, the holder is not deemed a holder in due course. (Sec. 53)
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