Professional Documents
Culture Documents
Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder who has taken the instrument under the following conditions:
(b) That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the fact;
(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.
Illustrations One who has purchased 2 promissory notes without the necessary indorsement
on the part of the holder after payment thereof had already been one year overdue and without having made inquiries about the solvency of the makers cannot be considered as a holder in due course o One taking past due paper is chargeable with notice of all equities between the
original parties but nbt with equities between intermediate indorsers o If the instrument is overdue, it is also a notice that it has been dishonored
AS TO ACCELERATED INSTRUMENTS
When the instrument contains an acceleration clause, knowledge of the holder at the time of acquisition thereof that one installment or interest, or both, as the case may be, is unpaid, is notice that the instrument is overdue
AS TO INTEREST
One who purchases in good faith an instrument upon which the interest is overdue is a holder in due course But where by the terms of the instrument, the principal was to become due upon
default of the payment of instrument, then one who takes the instrument upon which
establish notice
DEFECTS OF TITLE
All those situations which at common law were known as equitable defenses and also to cover those equities of ownership where there was breach of faith in negotiation
o o o o o o
Examples? Acquisition of the instrument by fraud Acquisition of the instrument by force, duress or fear Acquisition of the instrument by unlawful means Acquisition of the instrument by for an illegal consideration Negotiation of the instrument in breach of faith Negotiation of the instrument under circumstances which amount to fraud
DEFENSES
Include those common law defenses outside those covered in Section 55 These include mistake, absence and failure of consideration covered in Section 28, minority and other forms of incapacity, lack of authority of an agent
INFIRMITIES
o Things that are wrong with the instrument itself What are these? Wrong date inserted where the instrument is expressed to be payable at a fixed period
after sight is undated o Filling up a blank instrument not strictly in accordance with the authority given or
not within authority given or not within the reasonable time, where it was delivered wanting in a material alteration o o o o Filling up without authority an incomplete and undelivered instrument Lack of valid and intentional delivery Forgery Material alteration
Sec. 53. When person not deemed holder in due course. - Where an instrument payable on demand is negotiated on an unreasonable length of time after its issue, the holder is not deemed a holder in due course.
Sec. 54. Notice before full amount is paid. - Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount therefore paid by him.
Sec. 55. When title defective. - The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.
ACTUAL KNOWLEDGE
Actual knowledge is required and not mere suspicion, surmise or fear
Bad faith consists in guilty knowledge, or willful ignorance, showing a vicious or evil
mind While mere suspicion is not enough, where there is knowledge of suspicious
circumstances, coupled with means of verifying them, taking the instrument may amount to bad faith
Sec. 57. Rights of holder in due course. - A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.
from defenses available to prior parties among themselves 4. And he may enforce payment of the instrument for the full amount thereof against
An alteration irrespective of original tenor, it can be enforced real Irrespective of difference between original and altered tenor, can collect only
limited amountpersonal
THE INSTRUMENT SUBJECT TO A REAL DEFENSE CAN STILL BE ENFORCED. IT CANNOT BE ENFORCED WITH REGARD THE PERSON TO
consideration
received by the defendant for his liability and plaintiff must have given no consideration for his title
that the delivery was conditional or for a special purpose Where the instrument is stolen, the defense is also equitable But where the instrument is payable to order, it is a real defense for the person would
WHERE THE CORPORATION IS ABSOLUTELY PROHIBITED FROM ISSUING ANY NEGOTIABLE INSTRUMENT, THE PAPER CANNOT BE ENFORCED EVEN BY A HOLDER IN DUE COURSE
WHERE THE CONTRACT OR INSTRUMENT ITSELF IS MADE VOID BY STATUTE, THE ILLEGALITY OF THE INSTRUMENT IS A REAL DEFENSE
Sec. 58. When subject to original defense. - In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud
or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.
who isnt a party himself to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of parties prior to the latter
THE HOLDER ACQUIRING FROM A HOLDER IN DUE COURSE HAS THE BURDEN OF PROOF TO SHOW PREDECESSOR IS INDEED A HOLDER IN DUE COURSE
Sec. 59. Who is deemed holder in due course. - Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.
that is, that he is the indorsee in possession of the instrument, as it is payable to order
THE PRESUMPTION IS NOT APPLICABLE WHEN THE HOLDERS TITLE WAS DEFECTIVE OR SUSPICIOUS