SEC 51. Right of holder to sue; payment.

The holder of a
negotiable instrument may sue thereon in his own name;
and payment to him in due course discharges the
instrument.
What are the rights of a holder in relation to a particular instrument?
(the following are available to all holders)
1) To sue on the instrument in his own name.
2) To receive payment. (primary right)
- He may receive payment and if the payment is in due course, the instrument is discharged.
Payment in due course
- Payment made by the person primary liable to the person who is authorized to receive it at then time it was supposed to be given
ordinarily at the time of the maturity of the instrument.
- (page 195) is payment made
(a) At or after the maturity of the instrument
(b) To the holder thereof
(c) In good faith and without notice that his title is defective
SEC 57. Rights of holder in due course. A holder in due
course holds the instrument free from any defect of title
of prior parties, and free from defenses available to prior
parties among themselves, and may enforce payment of
the instrument for the full amount thereof against all
parties liable thereon.
Additional rights?
(only available to a holder in due course)
3) He holds the instrument free from any defect of title of prior parties.
- Examples of personal defenses:
incomplete but delivered, non-delivery, etc.
4) He holds the instrument free from defenses available to prior parties among themselves.
(Illustration:)
XABCD
X is the maker and the transfer to A has no consideration as it was fortuitously transferred.
If D is a holder in due course or a holder through a holder in due course, he can go after A and the latter cannot interpose the defense
that there was no consideration.
If D is not a holder in due course as well as C, then any defense that X can interpose against A will also affect D.

5) He may enforce payment of the instument for the full amount thereof against all parties liable thereon.
- Only applies to holders who acquired the instrument by indorsement. If it was by mere delivery, the liability of the parties who
negotiated the instrument only extends to the immediately succeeding party.
SEC 52. What constitutes a holder in due course. A
holder in due course is a holder who has taken the
instrument under the following conditions:
(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.
When is a holder a holder in due course?
-

One who took the instrument:

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.

Complete and regular

-

It is complete when all the material particulars are stated in the instrument. Material particulars are those that are necessary to constitute
an instrument as negotiable.
It is regular when it is free from any alterations or any circumstances that would place it under suspicion.

When is an instrument overdue?

-

It is beyond the date of maturity. You have 24 hours on the date of maturity within which to make payment.

When does the phrase without notice that it had been previously dishonored apply?
-

There are two forms of dishonor:

a) Dishonor by non-payment
- Can only happen on the date or after the date of maturity.
b) Dishonor by non-acceptance
- Could happen prior to the maturity as when it is a bill of exhange.

Took it in good faith?

-

There is no bad faith.

When do you know that there is good faith?

-

When there is bad faith. T_T

Holder is not privy to any illegality nor infirmity

Whose good faith is referred to here?

-

To the buyer/indorsee.

For value?
-

There is payment of valuable consideration.

SEC 56. What constitutes notice of defect. To constitute

notice of an infirmity in the instrument or defect in the
title of the person negotiating the same, the person to
whom it is negotiated must have had actual knowledge of
the infirmity or defect, or knowledge of such facts that
his action in taking the instrument amounted to bad faith.
When do we know that there is notice of infirmity?
1) Actual knowledge
2) Knowledge of such facts that his action in taking the instrument amounted to bad faith.
Knowledge of such facts that his action in taking the instrument amounted to bad faith
case: DE OCAMPO V. GATCHALIAN
knowledge of facts amounting to bad faith:
-

The amount of the check was more than the amount actually due.
The check was for de Ocampo signed by Gatchalian when the latter had no debt or liability to the former.
The check was a crossed check.

De Ocampo should have made inquiries before he accepted the check.

SEC 55. When title is defective. The title of a person
who negotiates an instrument is defective within the
meaning of this Act when he obtained the instrument, or
any signature thereto, by fraud, duress, or force and fear,
or other unlawful means, or for a illegal consideration, or
when he negotiates it in breach of faith, or under such
circumstances as amount to fraud.
When do we know that the title is defective?

Two instances when the title is defective:

1) During the acquisition
- When he obtained the instrument or any signature thereto by fraud, duress, or force and fear or other unlawful means, or for an
illegal consideration.
2) During the negotiation
- When he negotiates the instrument in breach of faith, or under such circumstances as amount to fraud.

Knowledge of any of these whould already constitute one as not a holder in due course as this violates Sec. 52 (d).

When is the notice of the defect or infirmity necessary?

-

At the time you acquired the instrument.