I.

1. Differentiate holder for value from holder in due course.

 Holder for value is the person whom the instrument is negotiated because of a valuable
consideration given by him while holder in due course is a person who has received a negotiable
instrument in good faith and without notice that it is overdue, that there is any prior claim, or that
there is a defect in the title of the person who negotiated it.
2. Differentiate accommodation party from accommodated party. Give example and state their liability.
 Accommodation party is the one who purposely lends his name to another without receiving any
value through the act of signing an instrument as the maker, drawer, acceptor or Indorser. While,
accommodated party is a party to an instrument for whose benefit an accommodation party signs
and incurs liability on the instrument. S/he is the person for whose benefit an accommodation is
made.
3. State the liability of a maker of a promissory note when there is:
a. Absence of consideration
 The note would not be recovered between the maker and the payee but the maker
will be liable between him and a holder in due course because absence of
consideration is not a personal defense against the latter.
b. Failure of consideration for the note
 the maker is liable only to the extent of consideration delivered to him known as
partial failure of consideration otherwise the payee could not recover if the
consideration is not complied with.

II. Explain or state briefly the rule or reasons for your answer.

1. X indorses and delivers to Y as security (pledge) for X’s debt in the amount of P10,000, a promissory note
for P12,000 issued by W in favor of X. How much can Y collect from W?
 He can collect the P12,000 and apply it to X’s debt and deliver the excess to him under Section 27
as Y is deemed a holder for value to the extent of his lien.
 If the note is subject to real defenses, Y cannot collect anything.
 If the note is subject to personal defenses, Y can only collect 10,000.

2. A promissory note was issued by W without consideration to X who indorsed it to Y, from Y to Z for value.
Give the rights of Z.
