2012 May 18.Rights of Holder

7/31/2019 2012 May 18.Rights of Holder

1/25

IV.RIGHTS OF HOLDER

Law 114

Law on Negotiable InstrumentsAtty. Froilyn P. Doyaoen-Pagayatan


2/25

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)


3/25


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


4/25


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 itsface;

b. became the holder before it was overdue and withoutnotice 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 ofinfirmity in the instrument or defect in the title of theperson negotiating it


5/25


6/25


3.1 Holder in due course complete and regularinstrument (Sec. 52):

Illustrations:

To: Ms. Felizco

Please pay Php2,000.00 to bearer 30 days from date.

Mr. Washing

ton Sycip


7/25


3.2 Holder in due course before instrument isoverdue (Sec. 52):

Maturity of instruments:

a. Date of maturity is the date or the specific event fixedtherein.

b. If instrument is payable on demand, it should bepresented for payment within a reasonable time afterissue, otherwise it could be considered as overdue


8/25


3.2 Holder in due course before instrument isoverdue (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.)


9/25


3.3 Holder in due course before instrument isdishonored (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 maturityor dishonor by indorsement or delivery, but:

a. if negotiated by indorsement: holder is not aholder in due course;

b. if negotiated by delivery: holder without notice ofdishonor is holder in due course


10/25


3.3 Holder in due course before instrument isdishonored (Sec. 52):

Illustrations:

Front of bill:

Back of bill:

To: Ms. Felizco 20 January 2012

Please pay Php2,000.00 to Ms. Sanchez or order 30 daysfrom date.

Mr. Washington Sycip (Sgd.)

Pay to Mr. Ledet.

Ms. Sanchez (Sgd.)


11/25


3.4 Holder in due course took instrument in goodfaith (Sec. 52):

The indorsee or transferee should have taken theinstrument in good faith, meaning, he should have

had no knowledge of facts which render it dishonestfor him to take a particular piece of negotiableinstrument.


12/25


3.4 Holder in due course took instrument in goodfaith (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:

Back of promissory note:

I promise to pay US$25,000.00 to Ms. Sanchez or bearer.

Mr. Ledet (Sgd.)

Pay Ms. Underwood.

Ms. Sanchez (Sgd.)


13/25


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 noteindorsed by Ms. Pili to Ms. Sunico.


14/25


3.5 Holder in due course no notice of infirmity ininstrument or defect in title (Sec. 52):

When title is defective (Sec. 55): title of a person whonegotiates an instrument is defective if he obtained the

instrument or any signature thereto by fraud, duress, orforce and fear, or other unlawful means, or for an illegalconsideration, or when he negotiates it in breach of faith orunder such circumstances as amount to a fraud.


15/25



What is notice of infirmity or defect (Sec. 56): the transfereemust have actual knowledge of the infirmity or defect; or

knowledge of such facts that his action in taking theinstrument amounts to bad faith.


16/25



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 ofPhp18,000 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?


17/25



Illustration 2:

Because she kept imagining what bikini she will wear in

Matabungkay, Ms. Cristobal loses a promissory note sheprepared payable to Mr. Conejos or order. Mr. Conejos findsthe promissory note in the trash can and indorses theinstrument to Mr. Dob.

Is Mr. Dob a holder in due course?


18/25


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 notdeemed a holder in due course.

Illustration:Ms. Mercado advances the share of Ms. Salcedo in thetransportation 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 2012when the Accounting students of Mapua were about to havetheir team building in Hawaii.


19/25


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 samedefenses as if it were non-negotiable

d. has all the rights of the holder in due course fromwhom he derives his title in respect of all parties priorto such holder, provided he is not party to any fraud orillegality


20/25


4. Partial holder in due course (Sec. 54):Illustration:

Ms. Mercado and Ms. Salcedo agree that Ms. Mercado willadvance the share of Ms. Salcedo in the transportation fees toMatabungkay in the amount of Php5,000. In return, Ms. Salcedoissued to Ms. Mercado a check issued by Ms. Salcedos father tocover 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. Salcedosfather that the check he issued was forged by Ms. Salcedo andMs. Salcedo is not permitted to go to Matabungkay.


21/25

B. Rights of Holder in Due Course

1. General rights of a holder in due course:Immediate parties: those with direct contractualrelations

Remote: those who are not in direct contractual

relations to each other

Prior parties: parties in the instrument prior to theholder


22/25


1. General rights of a holder in due course:Illustration:

Front of promissory note:

Back of promissory note:

Pay to Ms. Pascua.

Ms. Limjoco (Sgd.)

Pay to Mr. Valle.

Ms. Pascua (Sgd.)

I promise to pay Ms. Limjoco or bearer the amount ofPhp3,000.00.

Ms. Pili (Sgd.)


23/25


2. Defenses:a. Real or absolute defenses: those that are available against

all 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


24/25


2. Defenses:b. Personal defenses: those that are available to prior parties

among themselves but which are not good against a holder indue 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


25/25


2. Defenses:b. Personal defenses: those that are available to prior parties

among themselves but which are not good against a holder indue 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

2012 May 18.Rights of Holder

Documents