RIGHTS OF A HOLDER
HOLDER = payee or indorser who is in possession of it or bearer
ORDER = Payee or Indorser
BEARER = Payee or Bearer
Sec. 51 – Rights of a Holder to Sue: Payment
The holder of a NI:
a. May sue in his own name
b. May receive payment
c. Has the right to discharge
- Payment to him in due course (legally) discharges
the instrument
 It is not necessary that the H is a HIDC before he can enforce
payment especially if there are no available defenses
available to the parties
 NO DEFENSES = distinction between a HIDC and one who is
not is immaterial
 DISADVANTAGE OF NOT HIDC = NI is subject to defenses as
if it were non-negotiable
Sec. 52 – Requisites of a Holder in Due Course
The H who has taken the instrument under the ff. conditions:
a) Instrument is complete and regular upon its face
- Contains all the requirements in Sec. 1
- Material particulars are present
- I’s still complete even if it lacks material
particulars
- No alterations must be visible on the instrument
- Incomplete and Irregular = contains material
alterations
- H is not a HIDC if:
i. He took the instrument at the time it was
regular
ii. He subsequently put the instrument in a
regular shape
b) Holder before overdue
- Overdue when:
1. Payable on a specified date = date after the
specified date
2. Payable on demand = can be negotiated even
after years depending on the usage of trade
and commerce; after the lapsed of reasonable
time
3. Payable on Installments = date after the
maturity of 1st installment
ACCELERATION CLAUSE – if you have
defaulted in the payment of an installment,
the whole amount will be due and
demandable
- H who takes an overdue instrument is put on
inquiry although he is not actually aware of any
existing defense of a prior party
c) No Notice of Prior Dishonor
- Instrument has not been accepted or paid by
person primarily or secondarily liable
- Actual notice
d) No Notice of Infirmities and Defects in the Title
- NNI = on payee’s part; acquisition
- DT = on indorser’s part; negotiation
- No actual knowledge of any circumstance that will
show bad faith in taking the instrument
- Defects in Title = person negotiating the
instrument acquired the instrument through force,
fear, duress and undue influence
- Notice of Infirmities = not actual knowledge; mere
knowledge which constitutes bad faith is already
sufficient
- Examples of Infirmities
1. Insertion of a wrong date (Sec. 13)
2. Delivery of incomplete instruments (Sec. 14)
3. Incomplete but undelivered instruments (Sec.
15)
4. Complete but undelivered instruments (Sec.
16)
5. Signature by Procuration (Sec. 21)
6. Forgery (Sec. 23)
7. Alteration of instrument (Sec. 124)
8. Material Alteration (Sec. 125)
e) Good Faith
- Presumed on the part of the holder = prima facie
- Honesty in the transaction ; no illegal
consideration
- Person who took a crossed check = not in GF
f) Holder for Value
- H took the instrument for a valuable consideration
- HfV = instrument was indorsed to him by his
immediate transferor
- Valuable consideration
1. Consideration sufficient to support a contract
2. Payment for security
3. Commitment to pay = irrevocable
Sec. 53 – When person not deemed HIDC
- Instrument payable on demand is negotiated on an
unreasonable length of time
- Sec. 193 “What is reasonable or unreasonable time
regard is to be had in the nature of the instrument, the
usage of trade or business (if any) with respect to such
instruments, and the facts of a particular case.”
Sec. 54 – Notice before full amount is paid
- Transferee receives notice of infirmity in the
instrument or defect in title before he has paid the full
amount = HIDC only to the extent of amount paid to
him
M (100K)  P (FRAUD) AB (KNOWS THE FRAUD UP TO 50K)
Can B still be considered as a HIDC? No, only up to the extent of
50K
*P and A not being HIDC do not affect the due course holdings of B
Sec. 55 – When title is defective Sec. 59 – Who is deemed HIDC
-defective within the meaning of this Act: Gen Rule: Holder = prima facie to be HIDC
1. When the instrument was obtained or any signature by Exception: when the title of the person who negotiated the
fraud, duress, or force, fear or unlawful means or illegal instrument is defective:
consideration 1. The burden on proving this is on the holder or some
2. negotiated in breach of faith person who claims that he is not HIDC
2. BUT, this does not apply to the person who became
Sec. 56 – What constitutes notice of defect bound on the instrument prior to the acquisition of
1. actual knowledge of infirmity or defect or such defective title
2. knowledge of such facts amounting to BF
REAL DEFENSE
Sec. 57 – Rights of HIDC 1. Incapacity
1. holds the instrument free from any defect of title of 2. Illegality of the contract
prior parties AND 3. Want of delivery of incomplete instrument
2. free from defenses available to prior parties among 4. Forgery
themselves AND 5. Want of authority
3. enforce payment of the instrument for the full amount 6. Duress
against liable parties 7. Fraud in factum
8. Fraudulent alterations
HIDC 9. Prescription
- not free from personal defenses 10. Minority
- the claim of HIDC can still be defeated by the person 11. Non-delivery of the incomplete instrument
primarily or secondarily liable if the latter had in his 12. Material alteration
favor real defense 13. Ultra Vires acts of a corporation
- 14. Vicious force/violence
NOT HIDC 15. Discharge in insolvency
- not free from all types of defenses
PERSONAL DEFENSE
Sec. 58 – When subject to original defense 1. Insertion of a wrong date
1. H other than HIDC = NI is subject to defenses as if it 2. Filling up of blanks
were non-negotiable 3. Want of delivery of the complete instrument
2. Instances when a H, not HIDC can be considered as a 4. Absence or failure of an instrument
HIDC: 5. Simple fraud or fraud inducement
a. Not a party to fraud 6. Acquisition of instrument due to force
b. Derived his title to HIDC 7. Acquisition of instrument due to illegal consideration
3. Parties who can’t revert back the due course holding 8. Negotiation of a breach of faith
a. Prior parties who participate in the defect 9. Innocent alteration
10. Discharge by payment
M  P  A (TITLE IS DEFECTIVE) B 11. Want of authority
12. Conditional delivery
Presumption = B not a HIDC 13. Non-delivery of complete instrument
In order for B to be a HIDC he: 14. Duress or Intimidation
1. Has to have all the requirements under Sec. 52 15. Mistake
2. Must present evidences

Secs 60-66
PERSONS PRIMARILY LIABLE
MAKER ACCEPTOR
LIABILITY Upon making and signing it Accepting the instrument
NATURE OF Absolute Depends upon the acceptance
LIABILITY
ENGAGEMENT Pay to according to the instrument Pay according to the tenor of the acceptance
WARRANTIES 1. Existence of the payee 1. Existence of the drawer
2. Capacity of the payee to indorse 2. Genuineness of the drawer’s signature
3. Capacity of the drawer to draw the bill
4. Existence of the payee
5. Capacity of the payee to indorse
 PERSONS SECONDARILY LIABLE

DRAWER INDORSER
LIABILITY 1. When the person primarily liable fail or -same-
refuse to pay
2. Necessary proceeding for dishonor has
been undertaken
QUALIFIED INDORSER
Transfer title without secondary liability
ENGAGEMENT 1. Instrument will be paid or accepted or IRREGULAR INDORSER
both by the drawee, and if not, 1. Not a party
2. Pay the amount to the holder or 2. Affixes his signature prior to delivery
subsequent holder
GENERAL INDORSER
1. Indorses without any qualification
2. Secondarily liable to HIDC or subsequent holders
who may be compelled to pay
3. On due presentment:
a. Accepted, paid or both according to its tenor
by the Maker or Drawee
b. If not accepted or paid, GI will pay the
amount to the holder or subsequent holder
WARRANTIES 1. Existence of the payee GENERAL INDORSER
2. Capacity of the payee to indorse 1. Instrument is genuine and in all what it purports
to be
2. Good title
3. Prior parties have capacity to enter contracts
4. Valid and subsisting at the time of indorsement

QUALIFIED INDORSER
1. Instrument is genuine and in all what it purports
to be
2. Good title
3. Prior parties have capacity to enter contracts
4. He has no knowledge of any fact which would
impair the validity of the instrument or render it
valueless (No infirmities)

Sec. 67 – Liability of Indorser where paper negotiable by Sec. 69 – Liability of an Agent or Broker
delivery Gen. Rule = Broker or Agent without indorsement incurs all the
- Where a person places his indorsement, he incurs all liabilities under Sec. 65
the liabilities of an indorser Exception = UNLESS, he discloses the name of his principal and
- Indorsement without qualification = liabilities of a the fact that he is acting only as agent
general indorser, who in turn is secondarily liable for
break of warranties
- Indorser of a bearer instrument = liable only to those
holders who make title through his indorsement

Sec. 68 – Order in which Indorser’s are liable

- Indorsers are liable prima facie in the order in which
they indorse BUT evidence is admissible to show that,
as between or among themselves, they have agreed
otherwise
- Joint payees/indorsees who indorse are deemed to
indorse jointly and severally