MATRIX OF DEFECTS AND RIGHTS OF HOLDERS

Legend:
HDC – Holder in due course
HTHDC – Holder through holder in due course
NHDC – Not a holder in due course
PNBD – Persons negotiating by delivery

Warranties of indorsers:
A. If incomplete – that the instrument is genuine and in all respects what it purports to be.
B. If undelivered – that he has good title to it
C. If incomplete and undelivered – both

Take note:
1. Prior parties – parties prior to the defect
2. Subsequent parties – parties after the defect
3. The perpetrator of the fraud is ultimately liable because we do not tolerate fraud in commercial transactions.

DEFECT KIND OF DEFENSE HDC HTHDC NHDC

Prior parties
Liable (personal defense is not available
against a HDC)
Insertion of a
Wrong Date Personal defense Subsequent parties
1. Indorsers – liable (because they warrant
that the instrument is genuine and in all
respects what it purports to be)
2. PNBD – liable if immediate transferor
3. Perpetrator – ultimately liable
Same rules as HDC apply
because a HTHDC acquires
the rights of a holder in due
course.
Prior parties
Not liable (personal defense can be raised)
Subsequent parties
1. Indorsers – liable (because they warrant
that the instrument is genuine and in all
respects what it purports to be)
2. PNBD – liable if immediate transferor
3. Perpetrator – ultimately liable

Prior parties
Liable (personal defense is not available
against a HDC)
Incomplete but Personal defense Subsequent parties
delivered 1. Indorsers – liable (because they warrant
that the instrument is genuine and in all
respects what it purports to be)
2. PNBD – liable if immediate transferor
3. Perpetrator – ultimately liable
Same rules as HDC apply
because a HTHDC acquires
the rights of a holder in due
course.
Prior parties
Not liable (personal defense can be raised)
Subsequent parties
1. Indorsers – liable (because they warrant
that the instrument is genuine and in all
respects what it purports to be)
2. PNBD – liable if immediate transferor
3. Perpetrator – ultimately liable
 Prior parties
Not liable (real defense can be raised even
against a HDC)
Same rules as HDC apply
Subsequent parties because a HTHDC acquires Same rules as HDC because incomplete and
Incomplete and Real defense 1. Indorsers – liable (because they warrant the rights of a holder in due undelivered is a real defense
undelivered that the instrument is genuine and in all course.
respects what it purports to be and that
they have good title to it)
2. PNBD – liable if immediate transferor
3. Perpetrator – ultimately liable

Prior parties Prior parties

Liable (personal defense is not available Not liable (personal defense can be raised)
against a HDC) Same rules as HDC apply
Complete but Personal defense because a HTHDC acquires Subsequent parties
undelivered Subsequent parties the rights of a holder in due 1. Indorsers – liable (because they warrant
1. Indorsers – liable (because they warrant course. that they have good title to the instrument)
that they have good title to the 2. PNBD – liable if immediate transferor
instrument) 3. Perpetrator – ultimately liable
2. PNBD – liable if immediate transferor
3. Perpetrator – ultimately liable

PROMISSORY NOTE
SIGNATURE OF MAKER IS FORGED
Prior party (maker)
Not liable (real defense can be raised even
against a HDC)

Subsequent parties
1. Indorsers – liable (because they warrant
that the instrument is genuine and in all
Forgery Real defense respects what it purports to be) Same rules as HDC apply Same rules as HDC because
2. PNBD – liable if immediate transferor because a HTHDC acquires forgery is a real defense
3. Perpetrator – ultimately liable the rights of a holder in due
course.
SIGNATURE OF INDORSER IS FORGED

Prior parties
A. Order instrument – not liable
B. Bearer instrument – liable (because
indorsement is not necessary to the title
of the holder)
Subsequent parties
1. Indorsers – liable (because they warrant
that the instrument is genuine and in all
respects what it purports to be)
2. PNBD – liable if immediate transferor
3. Perpetrator – ultimately liable

BILL OF EXCHANGE

SIGNATURE OF DRAWER IS FORGED

Prior party (drawer)

Not liable (real defense can be raised even
against a HDC)

Subsequent parties
1. Acceptor – liable (because he warrants
the genuineness of the signature of the
drawer)
2. Indorsers – liable (because they warrant
that the instrument is genuine and in all
respects what it purports to be)
3. PNBD – liable if immediate transferor
4. Perpetrator – ultimately liable

SIGNATURE OF INDORSER IS FORGED

Prior parties
A. Order instrument – not liable
B. Bearer instrument – liable (because
indorsement is not necessary to the title
of the holder)

Subsequent parties
1. Acceptor – not liable (because he only
warrants the genuineness of the
signature of the drawer and not that of
the indorsers)
2. Indorsers – liable (because they warrant
that the instrument is genuine and in all
respects what it purports to be)
3. PNBD – liable if immediate transferor
4. Perpetrator – ultimately liable
 Prior parties
Liable, but only on the original tenor of the
instrument
Material alteration Real defense Subsequent parties
1. Indorsers – liable (because they warrant
that the instrument is genuine and in all
respects what it purports to be)
2. PNBD – liable if immediate transferor
3. Perpetrator – ultimately liable
Same rules as HDC apply
because a HTHDC acquires
the rights of a holder in due
course.
Prior parties
Not liable
Subsequent parties
1. Indorsers – liable (because they warrant
that the instrument is genuine and in all
respects what it purports to be)
2. PNBD – liable if immediate transferor
3. Perpetrator – ultimately liable