1. The holder of a negotiable instrument may sue in their own name and payment to the holder discharges the instrument. If an instrument is non-negotiable, subsequent holders are merely assignees subject to defenses of prior parties.
2. For a holder to be a holder in due course, they must take the instrument in good faith, for value, and without notice of defects, and the instrument must be complete and regular on its face. A holder in due course takes the instrument free from defects and defenses of prior parties.
3. A holder not in due course can still sue in their own name but the instrument is subject to defenses as if it were non-negotiable. They have rights of
1. The holder of a negotiable instrument may sue in their own name and payment to the holder discharges the instrument. If an instrument is non-negotiable, subsequent holders are merely assignees subject to defenses of prior parties.
2. For a holder to be a holder in due course, they must take the instrument in good faith, for value, and without notice of defects, and the instrument must be complete and regular on its face. A holder in due course takes the instrument free from defects and defenses of prior parties.
3. A holder not in due course can still sue in their own name but the instrument is subject to defenses as if it were non-negotiable. They have rights of
1. The holder of a negotiable instrument may sue in their own name and payment to the holder discharges the instrument. If an instrument is non-negotiable, subsequent holders are merely assignees subject to defenses of prior parties.
2. For a holder to be a holder in due course, they must take the instrument in good faith, for value, and without notice of defects, and the instrument must be complete and regular on its face. A holder in due course takes the instrument free from defects and defenses of prior parties.
3. A holder not in due course can still sue in their own name but the instrument is subject to defenses as if it were non-negotiable. They have rights of
1. The holder of a negotiable instrument may sue in their own name and payment to the holder discharges the instrument. If an instrument is non-negotiable, subsequent holders are merely assignees subject to defenses of prior parties.
2. For a holder to be a holder in due course, they must take the instrument in good faith, for value, and without notice of defects, and the instrument must be complete and regular on its face. A holder in due course takes the instrument free from defects and defenses of prior parties.
3. A holder not in due course can still sue in their own name but the instrument is subject to defenses as if it were non-negotiable. They have rights of
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CHAPTER IV
RIGHTS OF THE HOLDER
(Sec. 51-Sec. 59, NIL)
IN GENERAL -
The holder of a negotiable instrument may sue thereunder in his own
name and payment to him in due course discharges the instrument (Sec. 51)
If a promissory note is non-negotiable, subsequent holders can never be
holders in due course, but are mere assignees against whom defenses may be raised by prior parties (Consolidated vs, IFC, 149 SCRA 448)
CLASSES OF HOLDERS HOLDER IN DUE COURSE
1. Requisites (Sec. 52)
a. That it is complete and regular upon its face; 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; c. That he took it in good faith and for value; 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.
Every holder is deemed prima facie to be a holder in due
course (Sec. 59)
However, 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 a holder in due course (Bataan vs. CA, 230 SCRA 647)
What constitute a notice of defect?
To constitute notice of defect in the title of the person
negotiating the same, the person to whom it is negotiated must have actual knowledge of the defect, or knowledge of such facts that his action in taking the instrument amounts to bad faith.
2. Rights of Holder in Due Course
Like any holder, a holder in due course may enforce the
instrument and sue thereon in his own name
He also holds the instrument free from any defect of title
prior parties, free from defenses of prior parties among themselves and he may enforce payment of the instrument for full amount thereof against all parties liable thereon 1. He may sue on the instrument in his own name (Sec. 51); 2. He may receive payment and if the payment is in due course, the instrument is discharged; 3. He holds the instrument free from any defect of title of prior parties; 4. He holds the instrument free from defenses available to prior parties among themselves; 5. He may enforce payment of the instrument for full amount thereof against all parties liable thereon.
Can a payee be a holder in due course?
a. Negative view o
The holder in due course must have acquired
the instrument through negotiation and an instrument is issued and not negotiated to a payee.
A payee in a promissory note cannot be a
holder in due course within the meaning of NIL because a payee is an immediate party in relation to the maker. The payee is subject to whatever defenses, real or personal, available to the maker of the promissory note.
b. Affirmative view o
Payee may be a holder in due course under any
circumstances in which he meets the requirements of Sec. 52. A holder is defined as the payee or indorsee of the instrument who is in possession of it. Every holder is presumed to be a holder in due course. (Sec. 59)
HOLDER NOT IN DUE COURSE
Is one who became a holder of an instrument without any,
some, or all of the requisites under Sec. 52 of the NIL
Holder for value is one who has all the requisites for a holder in due course except notice of want of consideration. He is not necessarily a holder in due course, hence, prior parties may avail of defenses against said holder (Prudencio vs. CA, 143 SCRA 7)
The only disadvantage of a holder who is not a holder in due
course is that the instrument is subject to defenses as if it were non-negotiable (Bataan vs. CA, 230 SCRA 647)
Rights of Holder Not in Due Course
A holder not in due course can enforce the instrument and
sue under it in his own name
Prior parties, however, even though remote, can avail against
him any defense among these prior parties and prevent the said holder from collecting in whole or in part the amount stated in said instrument
That a holder is not a holder in due course does not mean
that he cannot recover under the instrument 1. He may sue on the instrument in his own name (Sec. 51). 2. He may receive payment and if the payment is in due course, the instrument is discharge. 3. He is entitled to the instrument but holds it subject to the same defenses as if it were non-negotiable (Sec. 58). 4. He has all the rights of a holder in due course from whom he derives his title in respect of all parties prior to such holder, provided he is not himself a party to any fraud or illegality affecting the instrument (Sec. 58).
DEFENSES OF PRIOR PARTIES AGAINST THE HOLDER
CLASSES OF DEFENSES
1. Real or Absolute Defenses
Defenses which attaches to the instrument irrespective of the
parties and is perfected on the principle that the right sought to be enforced has never existed or has ceased to exist
Those that are available against all parties, both immediate
and remote including holders in due course.
Example: a. Forgery or unauthorized signature (Sec. 23)
A forged signature is a real or absolute
defense, and a person whose signature on a negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to the contract that allegedly gave rise to it. The counterfeiting of any writing, consisting in the signing of anothers name with intent to defraud, is forgery (BPI vs, Casa, 430 SCRA 261)
b. Void contract (Civil Code)
c. Material alteration (Sec. 124) d. Incomplete and undelivered instrument (Sec. 15)
Real defense is available against all holders whether due
course of not
2. Personal or Equitable Defenses
Defenses growing out of an agreement or conduct of a
particular person in regard to an instrument which renders it inequitable for him, although owner of it, to enforce it against the defendant
Available to prior parties among themselves but which are
not good against a holder in due course. Available only against that person or subsequent holder who stands in privity with the party seeking to enforce it.
Examples: a. b. c. d. e.
Complete but undelivered instrument (Sec. 16)
Delivered but incomplete instrument (Sec. 14) Absence or failure of consideration (sec. 28) Defect of title Simple fraud or fraud in inducement (Sec. 55)
The defenses are available against all holders not in due
course, except those who derive their rights from holders in due course and who are not parties to any fraud or illegality affecting the instrument (Sec. 58)
2 Requisites: 1. That he derives his title through a holder in due course; 2. That he was not himself a party to any fraud or illegality affecting the instrument. Note:
A payee or indorsee whose title is defective cannot better it
by selling the instrument to a holder in due course and buying it again.
Example: M induced to issue promissory note in favor of P. Here, P is a party to the fraud. P indorsed the note to A. A has notice of the fraud but did not take part in it. By A, the note is indorsed to B, a holder in due course. B, in turn, indorses the note to C who knows how the note was obtained but without being a party to the fraud.
M -(fraud) P (party to fraud) ---(indorsed)-> A
(notice but not
part)
(holder in due course) ---
party)
(knows of fraud not a
C is not a holder in due course, but has all the rights of such holder with respect to M, P and A having derived his title from B a holder in due course (fraud cannot be set up against him)
If B indorsed it to P, the latter cannot become a holder in due
course, (original position)
If indorsed it to D who has also notice of the defect but not a
party to the fraud, D cannot recover from M because D did not acquire his title from holder in due course
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (Formerly INSULAR BANK OF ASIA AND AMERICA), Petitioner, vs. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., Respondents.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (Formerly INSULAR BANK OF ASIA AND AMERICA), Petitioner, vs. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., Respondents.
