IV.

RIGHTS OF HOLDER
Law 114 Law on Negotiable Instruments Atty. Froilyn P. Doyaoen-Pagayatan

A. Classes of Holders
1. Holders, in an ascending order of rights:
a. Holders simply (Sec. 51) b. Holders for value (Sec. 26) c. Holders in due course (Secs. 52 and 57)

A. Classes of Holders
2. General rights of holder (Sec. 51):
a. sue on the instrument in his name b. receive payment on the instrument The following holders may sue in their own names: a. holder for collection only b. pledgee of a note c. transferee of unindorsed instrument

A. Classes of Holders
3. Holder in due course (Sec. 52):
A holder in due course is one who: a. took an instrument that is complete and regular upon its face; b. became the holder before it was overdue and without notice that it was previously dishonored; c. took it in good faith and for value; d. at the time of negotiation to him, had no notice of infirmity in the instrument or defect in the title of the person negotiating it

A. Classes of Holders
3.1 Holder in due course complete and regular instrument (Sec. 52):
a. Complete instrument the instrument should not be wanting in any material particular or particular proper to be inserted; someone who takes an incomplete instrument takes it subject to all defenses b. Regular instrument the instrument should be regular on its face such that there should be no alterations which are visible or apparent on the instrument

A. Classes of Holders
3.1 Holder in due course complete and regular instrument (Sec. 52):
Illustrations:
To: Ms. Felizco Please pay Php2,000.00 to bearer 30 days from date. Mr. Washington Sycip

A. Classes of Holders
3.2 Holder in due course before instrument is overdue (Sec. 52):
Maturity of instruments: a. Date of maturity is the date or the specific event fixed therein. b. If instrument is payable on demand, it should be presented for payment within a reasonable time after issue, otherwise it could be considered as overdue

A. Classes of Holders
3.2 Holder in due course before instrument is overdue (Sec. 52):
Illustrations:
To: Ms. Felizco 20 January 2012 Please pay Php2,000.00 to bearer 30 days from date. Mr. Washington Sycip (Sgd.) To: Ms. Felizco Please pay Php2,000.00 to bearer. Mr. Washington Sycip (Sgd.)

A. Classes of Holders
3.3 Holder in due course before instrument is dishonored (Sec. 52):
A negotiable instrument may be dishonored by: a. non-acceptance: in the case of a bill b. non-payment: in the case of a note and a bill A negotiable instrument may still be negotiated after maturity or dishonor by indorsement or delivery, but: a. if negotiated by indorsement: holder is not a holder in due course; b. if negotiated by delivery: holder without notice of dishonor is holder in due course

A. Classes of Holders
3.3 Holder in due course before instrument is dishonored (Sec. 52):
Illustrations: Front of bill:
To: Ms. Felizco 20 January 2012 Please pay Php2,000.00 to Ms. Sanchez or order 30 days from date. Mr. Washington Sycip (Sgd.)

Back of bill: Pay to Mr. Ledet.

Ms. Sanchez (Sgd.)

A. Classes of Holders
3.4 Holder in due course took instrument in good faith (Sec. 52): The indorsee or transferee should have taken the instrument in good faith, meaning, he should have had no knowledge of facts which render it dishonest for him to take a particular piece of negotiable instrument.

A. Classes of Holders
3.4 Holder in due course took instrument in good faith (Sec. 52):
Illustration: Mr. Tyler is selling his Rolls-Royce to Mr. Cowell. Mr. Cowell paid him cash of US$26,000 and the following promissory note: Front of promissory note: I promise to pay US$25,000.00 to Ms. Sanchez or bearer. Mr. Ledet (Sgd.) Back of promissory note: Pay Ms. Underwood. Ms. Sanchez (Sgd.)

A. Classes of Holders
3.5 Holder for value took instrument for value (Sec. 52): The indorsee or transferee should have taken the instrument for value. Illustration:
Because Ms. Sunico valued her friendship with Ms. Paituar, Ms. Sunico handed to Ms. Paituar a promissory note indorsed by Ms. Pili to Ms. Sunico.

A. Classes of Holders
3.5 Holder in due course no notice of infirmity in instrument or defect in title (Sec. 52):
When title is defective (Sec. 55): title of a person who negotiates an instrument is defective if 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.

A. Classes of Holders
3.5 Holder in due course no notice of infirmity in instrument or defect in title (Sec. 52):
What is notice of infirmity or defect (Sec. 56): the transferee must have actual knowledge of the infirmity or defect; or knowledge of such facts that his action in taking the instrument amounts to bad faith.

A. Classes of Holders
3.5 Holder in due course no notice of infirmity in instrument or defect in title (Sec. 52): Illustration 1:
While imagining what bikini she will wear in Matabungkay, Ms. Cristobal prepared a promissory note payable to Mr. Conejos or order. However, she wrote the amount of Php18,000 when she intended to write only Php13,000. Hence, she asked Mr. Conejos to correct the amount or just write Php13,000 when he indorses the instrument. Mr. Conejos indorses the instrument to Mr. Dob but does not correct the amount to Php13,000. Is Mr. Dob a holder in due course?

A. Classes of Holders
3.5 Holder in due course no notice of infirmity in instrument or defect in title (Sec. 52): Illustration 2:
Because she kept imagining what bikini she will wear in Matabungkay, Ms. Cristobal loses a promissory note she prepared payable to Mr. Conejos or order. Mr. Conejos finds the promissory note in the trash can and indorses the instrument to Mr. Dob. Is Mr. Dob a holder in due course?

A. Classes of Holders
4. Holder NOT in due course (Sec. 53):
If an instrument payable on demand is negotiated after an unreasonable length of time after its issue, the holder is not deemed a holder in due course. Illustration: Ms. Mercado advances the share of Ms. Salcedo in the transportation fees to Matabungkay. Ms. Salcedo gives Ms. Mercado a check to cover her share on 19 May 2012. Ms. Mercado puts the check in her wallet and forgets about it. Ms. Mercado remembers about the check only in May 2012 when the Accounting students of Mapua were about to have their team building in Hawaii.

A. Classes of Holders
4. Holder NOT in due course (Sec. 53):
Rights of holder not in due course: a. to sue on the instrument in his own name b. to receive payment and if payment is in due course, the instrument is discharged c. entitled to the instrument subject to the same defenses as if it were non-negotiable d. has all the rights of the holder in due course from whom he derives his title in respect of all parties prior to such holder, provided he is not party to any fraud or illegality

A. Classes of Holders
4. Partial holder in due course (Sec. 54):
Illustration: Ms. Mercado and Ms. Salcedo agree that Ms. Mercado will advance the share of Ms. Salcedo in the transportation fees to Matabungkay in the amount of Php5,000. In return, Ms. Salcedo issued to Ms. Mercado a check issued by Ms. Salcedos father to cover her share to be advanced by Ms. Mercado. On 18 May 2012, Ms. Mercado advances Php3,000 for Ms. Salcedo. Ms. Mercado was supposed to advance the remaining Php2,000 for Ms. Salcedo but she got a call from Ms. Salcedos father that the check he issued was forged by Ms. Salcedo and Ms. Salcedo is not permitted to go to Matabungkay.

B. Rights of Holder in Due Course

1. General rights of a holder in due course: Immediate parties: those with direct contractual relations Remote: those who are not in direct contractual relations to each other Prior parties: parties in the instrument prior to the holder

B. Rights of Holder in Due Course

1. General rights of a holder in due course:
Illustration: Front of promissory note:
I promise to pay Ms. Limjoco or bearer the amount of Php3,000.00. Ms. Pili (Sgd.)

Back of promissory note: Pay to Ms. Pascua.

Ms. Limjoco (Sgd.) Pay to Mr. Valle. Ms. Pascua (Sgd.)

B. Rights of Holder in Due Course

2. Defenses:
a. all Real or absolute defenses: those that are available against parties such as:

- incapacity, as far as incapacitated is concerned - illegality of contract - lack of delivery of complete instrument - forgery - lack of authority - duress amounting to forgery - fraud in fact and fraud in inducement - fraudulent alteration by holder - prescription - discharge at or after maturity

B. Rights of Holder in Due Course

2. Defenses:
b. Personal defenses: those that are available to prior parties among themselves but which are not good against a holder in due course such as:
- filling of wrong date - filling up of blanks not in accordance with authority given - lack of delivery of complete instrument - absence or failure of consideration - simple fraud or fraud in inducement - acquisition of instrument by unlawful means - acquisition of an instrument for an illegal consideration - negotiation in breach of faith

B. Rights of Holder in Due Course

2. Defenses:
b. Personal defenses: those that are available to prior parties among themselves but which are not good against a holder in due course such as (cont.):
- negotiation under circumstances that amount to fraud - innocent alteration or spoliation - set-off between immediate parties - discharge by payment or renunciation or release before maturity - discharge of party secondarily liable by discharge of prior party - lack of authority but agent has apparent authority