SECTION 52: RIGHT OF HOLDER TO

SUE; PAYMENT
- definition
- payees v. indorsees
- order v. bearer instruments
- right to enforce payment v. right to
sue
- 3 Classes of Holders
1. holders simply (sec. 51)
2. holders for value (sec. 26)
3. holders in due course (sec. 52,
57)
- ordinary holder or mere holder
(assignee or transferee)
rights of holder in general
1. to sue
- person not payee, holder of
bad check cannot sue
2. to receive payment
- if in due course discharged
- payment in due course:
1. payment at or after
maturity
2. to holder
3. in good faith and without
notice that his title is defective
- right of transferee of unendorsed
instrument to sue
- inconsistent views
- not a holder
- if transferor had legal title,
then transferee can pass it, subject
to defenses
SECTION 52: WHAT CONSTITUTES
HOLDER IN DUE COURSE
- free of most defenses
- bona fide holder/for value w/o
notice
- presumption that every holder is a
HIDC
- negotiation = valid transfer HIDC
- holder of non-negotiable
instrument cannot be HIDC =
assignee

- HNIDC
- can still recover
- only subject to defenses as if
non-negotiable
- drawee does not become a
HIDC
- on acceptance &
payment, NI as mere proof of
payment
A. Complete and regular on its face
- COMPLETE = with all its particulars
- if incomplete & omission not
particular, then completed by holder
= OK
- REGULAR = no alteration,
tampering
- EXAMPLES
B. Before overdue
- after date of maturity
a. if w/o period, on
demand/presentment
b. fixed maturity date/certain event,
beginning of day after fixed date
c.
- an overdue instrument = notice to
all that it is dishonored
- sill negotiable
C. Without notice of dishonor
- 2 Ways of dishonor
1. by non-acceptance (even before
maturity)
2. by non-payment (only at maturity)
- can be HIDC
- non-payment of interest, but paid
principal = not dishonored
D. In good faith
- good faith of indorsee/transferee
- not to the seller of paper
- honesty in fact in the transaction
- no knowledge of infirmity
crossing a check:
- drawer has intention to deposit
check to right person

1. cannot be encashed, only

deposited
2. may be negotiated only once, to
one who has an account w/ a bank
3. a warning to the holder that the
check has been issued for a definite
purpose
E. For value
- value
- no need to be adequate
- love, affection no economic
value
- can be enforced against
accommodation party
F. Without notice of infirmity in
instrument or defect in title
- no bad faith
- notice = holder actual knowledge
of infirmity or defect /acted in bad
faith
SECTION 53: WHERE PERSON NOT
DEEMED HOLDER IN DUE COURSE
- applies to NI payable at a
fixed/determinable future time
- must be presented for payment
within a reasonable time from its
issue, not after maturity
- reasonable = depends on
circumstances (nature of NI, usage
of trade, facts)
SECTION 54: NOTICE BEFORE FULL
AMOUNT PAID
- upon discovery of infirmity, he is
relieved from further obligations
- if not payment yet, no need to pay
- if paid, no need to pay in full; HIDC
to the extent of his payment
- EXAMPLE
SECTION 55: WHEN TITLE DEFECTIVE
- Defective Title: all situations w/c
are known as personal/equitable
defenses

- Infirmities: things that are wrong w/

the instrument itself v. things that
are lacking in the contracts on the
instruments
- EXAMPLES
A. When title is defective
- in the acquisition: by duress
- in the negotiation: breach of
faith/fraud
SECTION 56: WHAT CONSTITUTES
NOTICE OF DEFECT
- notice of defect:
- cannot be HIDC
-subject to defenses
- transferee must have actual
knowledge of infirmity or defect or
w/ knowledge of his actions are in
bad faith
- mere negligence NOT
- bad faith/good faith question of
fact
- w/ suspicious circumstances &
means of being informed of such
defects, but refrained from inquiring
intentional ignorance bad faith
- knowledge that his actions = bad
faith
- doctrine of constructive notice N/A
- EXAMPLE
- must be received in such a manner
as to give the holder a reasonable
opportunity to act on the information
- receive notice, before receive
instrument
facts that are not notice:
1. antedated/postdated
2. issued/negotiated in return for an
executory promise or accompanied
by a separate agreement, unless the
purchaser has notice that a defense
or claim has arisen from terms
3. party signed for an
accommodation party

4. incomplete NI, completed, unless

purchaser has notice of improper
completion
5. person negotiating was a fiduciary
6. default in payment of interest on
instrument
SECTION 57: RIGHTS OF HOLDER IN
DUE COURSE
Rights:
1. sue on instrument in his own
name
2. receive payment, if in due course,
NI is discharged
3. holds instrument free from any
defect of title of prior parties
4. holds instrument free from
defenses available to prior parties
among themselves
5. may enforce payment of NI for the
full amount against all parties liable
- Sec 57: commercial importance of
due course holding
- HIDC acquires better rights than his
predecessors
- takes instrument free from
defenses from prior parties
- doctrines which protects HIDC:
from public policy utility, free
circulation, and credit of negotiable
paper in commercial world
- one who made the wrong possible
is estopped by his neglect
- personal defenses cannot be set up
against HIDC cut off by
negotiation of the instrument to a
HIDC
- real defenses available against
all persons, including HIDC
- HNIDC (as mere assignee of nonnegotiable paper), subject to
personal and real defenses
SECTION 58: WHEN SUBJECT TO
ORIGINAL DEFENSES

- Defenses grounds/reasons
pleaded or offered by the defendant
in a case, showing why the plaintiff,
as a matter of law or fact, should not
be given the relief he seeks
- 2 kinds of defenses
1. real/absolute/universal defenses
2. personal/limited/equitable
defenses
- some are either real/personal,
depending on facts
Real defenses available against all
parties, both immediate and remote,
including HIDC or holders through
the latter
- cases where HIDC is not entitled to
payment
- attach to the res (instrument
itself) regardless of
conduct/agreement of parties
- no contract, cannot be enforced
- only unenforceable against the
party entitled to set up the defense
(not to persons precluded from
setting up defense of forgery)
- usually applies to the person who
has made or drawn the instrument
EXAMPLES OF REAL DEFENSES
1. incapacity of incapacitated person
2. contract declared illegal by law
(except maker/drawer is party to
illegality)
3. incomplete and undelivered
instrument
4. forgery
5. lack of authority (apparent/real)
6. duress amounting to forgery as
where one takes the hands of
another and forces him at gunpoint
to sign his name
7. fraud in factum or fraud in esse
contractus
8. fraudulent alteration by holder
9. prescription

10. other infirmities appearing on

face of instrument
11. discharge at or after maturity
Personal defenses grow out of
agreement or conduct of a particular
person in regard to the instrument
which renders it inequitable for him,
though holding the legal title to
enforce it against the party sought to
be made liable but which are not
available against a HIDC
- personal available only against
that person or subsequent holder
who has privity w/ him
- can be used only between
original/immediate parties
- real, questions validity of
instrument itself
- personal, affects only validity of the
agreement for which the instrument
was issued
EXAMPLES OF PERSONAL DEFENSES
1. filling of wrong date
2. filing up of blanks not in
accordance w/ authority given & w/n
reasonable time
3. compete undelivered instrument
4. absence or failure of consideration
5. simple fraud or fraud in
inducement
6. acquisition of instrument (not
signature) by duress, force/fear
7. acquisition of instrument by
unlawful means
8. acquisition of instrument for an
illegal consideration
9. negotiation of breach of faith
10. negotiation under circumstances
that amounts to fraud
11. innocent alteration or spoliation
(spoliation alteration mad eby a
stranger to a NI)
12. set-off between immediate
parties

13. discharge by payment or

renunciation or release before
maturity
14. discharge of party secondarily
liable by discharge of prior party
15. usury (contract of loan itself is
not void, only the interest)
16. lack of authority of agent who
has apparent authority, but if
principal can show that the agent
had no express, implied or apparent
authority to sign, the defense is real
- immediate parties privity not
mere proximity; subject to both
defenses
- remote parties one who takes
title to an instrument by negotiation
from either the original payee or any
subsequent holder; subject to real
defense
- prior parties
- EXAMPLES
- mere assignee or one who is not a
HIDC takes the instrument subject to
all valid claims of any party which
would be available in an action or an
ordinary contract
defenses subject to estoppel
through estoppel, an admission or
representation is rendered
conclusive upon the person making
it, and it cannot be denied as against
person relying thereof
fraud in factum (fraud in the
execution)
- a person, w/o negligence, has
signed an instrument w/c was in fact
a NI, but was deceived as to the
character of instrument
- real defense
- no contract ; person did not know
fraud in inducement/simple fraud

- relates to the quality, quantity,

value or character of consideration
of NI
- was induced to sign for a worthless
NI
- personal defense
SECTION 59: WHO IS DEEMED A
HOLDER IN DUE COURSE
- every holder is presumed/deemed
prima facie a HIDC only arises in
favor of a person who is a holder; a

payee or indorsee who is in

possession of the instrument or the
bearer thereof
- once someone receives an
instrument, no need to prove the
instruments under circ. in Sec 52,
presumption applies
- holder through a holder in due
course person who acquires title
from a prior HIDC
- EXAMPLES