 COMPARE HOLDER FOR VALUE FROM HOLDER IN DUE COURSE

a) Holder for value is someone who has given something of value in exchange for a negotiable
instrument. This can include acquiring a security interest in the instrument and accepting the
instrument in payment of an antecedent claim. Another term for this is a bona fide holder
for value.
RIGHTS OF THE HOLDER
1. A holder may sue in his own name.
2. A holder may receive payment.

EXAMPLES: If you led someone money and they give you a promissory note as collateral, you
became a holder for a value because you have given something of value (money/loan)in exchange
for the negotiable instrument (promissory note).

If you sell a car and accept a check as payment. You became a holder for value because
you have given up ownership of the car in exchange for a negotiable instrument.

THE PERSON WHO HOLDS THE NEGOTIABLE IMNSTRUMENT HAS CERTAIN RIGHTS AND
PROTECTIONS UNDER THE LAW, INCLUDING THE ABILITY TO ENFORCE THE INSTRUMENT IF
NECESSARY.

b) A holder in due course holds the instrument from any defect of title of prior parties and
payee form defenses available to prior parties among themselves and may enforce payment
of the instrument for the full amount thereof against all parties liable thereon.

REQUISITE OF A HOLDER IN DUE COURSE

1. Receives the instrument complete and regular on its face.

2. Became a holder before maturity and had no idea it was dishonoured if that’s the case.
3. Takes the instrument for value and in good faith.
4. At the time he took the instrument, no defect on the title of the person negotiating.

RIGHTS OF A HOLDER IN DUE COURSE

1. Holds the instrument free from any defect.

2. Free from defenses available to prior parties among themselves.
3. May enforce payment of the instrument for the full amount against all parties liable.

MAIN DIFFERENCE: A person who has obtained the negotiable instrument legally through a third party
by delivery or endorsement is known as a holder. He is usually the payee of a negotiable instrument.
Holder in due course obtains the negotiable instrument in good faith for consideration prior to it
becomes due for payment. In holder for value, there is no prior parties yet, so concept about good faith
can’t be applied but in holder in due course, the negotiable instrument has been indorsing multiple
times so acquiring it without any issue must be assess.

ADDITIONAL INFO:

I. Every holder is presumed to be holder in due course.

II. The person who questions such has burden of proof to prove otherwise.
III. If one requisite is missing, it is not HDC.
IV. Instrument is considered complete and regular on its face if he omission is immaterial and the
alteration on the instrument was not apparent on its face.
V. An instrument is overdue after its maturity.
VI. On the date of maturity, the instrument is not overdue, and holder is HDC.
VII. Acquisition on the transferee must be in good faith.
 SHELTER PRINCIPLE

Status as a holder in due course (HDC) may strengthen the rights of a holder to receive payment on a
negotiable instrument. When a holder may not qualify as an HDC, the shelter rule is a separate
principle that may protect her rights. Pursuant to the shelter rule, the transferee of a negotiable
instrument receives all of the rights of the transferor of the instrument, unless the transfer is carried
out by fraud or illegal means. This is important in situations where the transferor is a holder in due
course, but the transferee is not.

Example: A HDC may gift the negotiable instrument to the transferee. In this case, the transferee did
not provide value for the instrument and does not qualify as a holder in due course. The shelter rule
will allow the transferee to receive all of the rights of the transferor (a holder in due course) and
receive the heightened protection. This rule makes the paper more marketable for the holder in due
course.

The shelter rule provides liquidity to a HDC who, after accepting an instrument, learns of a defense
against its enforcement. The HDC could validly transfer the instrument to another holder who has
notice of the underlying defense. The new holder would have the same rights as the HDC. It is
important to note that, if a holder in due course learns that there is a valid defense against
enforcement or that the underlying obligation has been discharged, she must disclose that
information to the transferee who provides value for the instrument. If not, the transfer by the HDC
to the new holder could be deemed fraudulent. This would destroy the shelter principle protections.

Note: An exception to the shelter rule is that it does not apply if the holder in due course transfers
the instrument back to a prior holder who was aware of its non-enforceable status and proceeded to
transfer it to a holder in due course.

 ACCOMODATION PARTY

Accommodation Party is a person who signs negotiable instrument or commercial paper or

agreement for the purpose of being a surety for another party (called accommodated party) to the
instrument to help accommodated party obtain a loan or an extension of credit. Accommodation
party can sign in any capacity such as maker, drawer, accepter, or endorser. Accommodation party
signs negotiable instrument without any direct or indirect benefit, compensation, or consideration.
Accommodation Party signs it as a favor to the person who owes money, and becomes liable on it to
all parties except the accommodated party. Accommodated party agrees to pay the instrument and
to indemnify accommodation party for any losses incurred in paying it. Generally accommodation is
done when the creditworthiness of the accommodated party does not satisfy the person taking the
negotiable instrument. Accommodation Party is also called, in the case of a promissory note, an
accommodation maker.

BOUNCING CHECKS LAW

1. Elements for Violation of BP 22

A. That person makes or draws and issues any check.
B. The check is drawn or issued to apply on account or for valuable consideration.
C. At the time of issue, the person is aware of having insufficient funds.
D. At the time, the check was presented for payment at due date, the same was
dishonoured for insufficiency of funds or credit, or would have been dishonoured for
the same reason had not the drawer, without any valid reason, ordered the bank to stop
payment.
E. The person has sufficient funds in or credit with the drawee bank when he makes or
draws and issues check.
 F. That he fails to keep sufficient funds or to maintain credit to cover the full amount of the
check if presented within a period of 90 days from the date appearing thereon.
G. That the check is dishonoured by the drawee bank.

NOTE: Knowledge of insufficiency of funds is a state of mind, hence, the hardest element to prove.

2. Checks Without Sufficient Funds

Any person who makes or draws and issues any check to apply on account or for value, knowing
at the time of issue that he does not have sufficient funds in or credit with the drawee bank for
the payment of such check in full upon its presentment, which check is subsequently
dishonoured by the drawee bank for insufficiency of funds or credit or would have been
dishonoured for the same reason had not the drawer, without any valid reason, ordered the
bank to stop payment, shall be punished by imprisonment of not less than thirty days but not
more than one (1) year or by a fine of not less than but not more than double the amount of the
check which fine shall in no case exceed Two Hundred Thousand Pesos, or both such fine and
imprisonment at the discretion of the court. The same penalty shall be imposed upon any
person who, having sufficient funds in or credit with the drawee bank when he makes or draws
and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full
amount of the check if presented within a period of ninety (90) days from the date appearing
thereon, for which reason it is dishonoured by the drawee bank. Where the check is drawn by a
corporation, company or entity, the person or persons who actually signed the check on behalf
of such drawer shall be liable under this Act.

3. Evidence Of Knowledge of Insufficient Funds

The making, drawing and issuance of a check payment of which is refused by the drawee
because of insufficient funds in or credit with such bank, when presented within ninety (90) days
from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of
funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or
makes arrangements for payment in full by the drawee of such check within (5) banking days
after receiving notice that such check has not been paid by the drawee.

4. Duty of Drawee; Rules of Evidence

It shall be the duty of the drawee of any check, when refusing to pay the same to the holder
thereof upon presentment, to cause to be written, printed, or stamped in plain language
thereon, or attached thereto, the reason for drawee's dishonour or refusal to pay the same:
Provided, that where there are no sufficient funds in or credit with such drawee bank, such fact
shall always be explicitly stated in the notice of dishonour or refusal. In all prosecutions under
this Act, the introduction in evidence of any unpaid and dishonoured check, having the
drawee's refusal to pay stamped or written thereon or attached thereto, with the reason
therefor as aforesaid, shall be prima facie evidence of the making or issuance of said check,
and the due presentment to the drawee for payment and the dishonour thereof, and that the
same was properly dishonoured for the reason written, stamped or attached by the drawee on
such dishonoured check.

5. Credit Construed
The word "credit" as used herein shall be construed to mean an arrangement or understanding
with the bank for the payment of such check.