Professional Documents
Culture Documents
(C gives value) and C in turn negotiates it to D by way of gift, D is a holder for value within the
meaning of Sec 26, as against A and B but not against C.
The mere fact that the present holder paid nothing for a note or is not a holder for value does
not preclude recovery, but only lets defenses, if any , that might be urged against the original payee.
D. LIEN HOLDER, HOLDER FOR VALUE
Sec. 27. When lien on instrument constitutes holder for value. Where the holder has a lien on
the instrument arising either from contract or by implication of law, he is deemed a holder for
value to the extent of his lien.
WHLI - AEF C/BIL HDHFV - TEOHL
CAMPOS: if a negotiable instrument is given as a collateral for a debt, the holder has a LIEN on the
instrument.
DEBT > INSTRUMENT. If the amount called for by the instrument is less than by such
instrument, the pledgee is a HFV for the full amount an may therefore recover all
INSTRUMENT > DEBT. If the debt secured by the instrument is less than the sum for
which the instrument was issued, and there are no existing defenses, the pledgee can still
recover all, but the excess over the debt he holds in trust for whomsoever is entitled to it.
He is a holder for value only to the extent of his lien (only to the amount owed to him)
and should therefore be entitled only to the amount of his debt, but since this would be
against the general rule against splitting the cia udner sec 32, the pledgee is still allowed
to recover all, holding the excess as mere trustee.
However, if the secured debt is less than the amount of the instrument, but there are
existing defenses among prior parties of which the pledgee had no knowledge, he is a
HOLDER in DUE COURSE, but since he is a HFV only to the extent of his lien, he
can recover ONLY THE AMOUNT OF THE DEBT.
The above principles should not be confused withh the rights of a purchaser who buys the
instrument at a discount. Such purchaser is entitled to recover the full amount although he paid less
for the instrument.
E. EFFECT OF WANT OF CONSIDERATION
Sec. 28. Effect of want of consideration. - Absence or failure of consideration is a matter of
defense as against any person not a holder in due course; and partial failure of consideration is a
defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise.
[A/FC MD AAAPNHUDC; PFCDPT, WFIA&LA/O ]
CAMPOS: reiterates the rule in sec 24 that every instrument is deemed priana facie to have been
issued for a valuable consideration. It is also consistent with the provision that the validity and
negotiable character of an instrument is not afected by the fact that it does not SPECIFY that any
value has been given therefor,
Under these rules the defendant has the burden of proving that there was no consideration for the
instrument.
But section 28 goes farther for it in effect provides that absence or failure of consideration is a
personal defense available only against holders not in due course, therefore the presumption of
consideration is conclusive.
The acceptability of negotiable instruments would be greatly restricted if prospective purchasers
were burdened with the need of determining whether such instruments are supported by
consideration
Absence of consideration means total lack of consideration.
EX: A makes a PN payable to B as gift, there is absence of consideration. As between A and B there
can be no recovery.
But if B negotiates it to C, a holder in due course, C can recover against A because As defense of
absence of consideration is personal.
Failure of consideration means that something was agreed upon as consideration for a contract but
for some reason the consideration did not materialize.
EX: A enters into a contract to sell certain merchandise to B. In consideration of this, B makes a PN
payable to A as advance payment therefor. A fails to deliver the merchandise. There is failure of
consideration so that A cannot recover from B. If B negoitates note to C,who knew that A failed to
deliver, neither can C recover from A. If C were ignorant of such defense and is a HDC, C can
recover from A.
Partial failure of consideration means simply that part of the consideration did not materialize.
EX above: If A delivered only a party of the merchandise, there is a partial failure of consideration
which may be set up as a defense pro tanto by B against A, or a H not in Due course ie B is not
laible to the extent of the price of the undelivered portion.
F. ACCOMMODATION PARTY
Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and
for the purpose of lending his name to some other person.
Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the
time of taking the instrument, knew him to be only an accommodation party.
CAMPOS: an accommodation party is actually a surety for the principal debtor.
He lends his name to enable the accommodated party to obtain credit or to raise money.
He receives no part of the consideration for the instrument but assumes liability to the other
parties thereto.
Since the relationship between an accommodation party and an accommodated party is one of
principal and surety, should the accommodation party pay to the holder, he has a right to claim
REIMBURSEMENT FROM THE party accommodated.
Ex. A wants to borrow money from B, who is willing to lend him if C signs the note in favor of B.
C, if he agrees to do so is an accommodation co maker.
If B indorse the note to X, who knows that C was merely an acc maker, but who otherwise has all
the requisites of section 52.
Upon maturity, C cannot refuse to pay X on the ground that X knew him to be an acc party.
The fact that the holder knew of such fact does not prevent him from being a HDC.
X's title is not rendered defective by his knowledge that the party sought to be held liable was an
accommodation party.
Section 29 makes the accommodation party liable to a HFV even if such holder knew him to be
only an accommodation party.
Whether the accommodation party's liability is primary or secondary will depend upon whether he
signs as mmaker, acceptor, drawer, or indorser.
If he signs as an indorser, he will be liable secondarily, and entitled to notice of dishonor, and in its
absence, he cannot be held liable.
Should he sign as drawee acceptor, then he is primarily and personally liable thereon.