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 Holders1. 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 general1. to sue

- person not payee, holder of bad check cannot sue2. to receive payment - if in due course discharged- payment in due course:

1. payment at or after maturity

2. to holder3. 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 maturitya. 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 dishonor1. 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 deposited2. may be negotiated only once, to one who has an account w/ a bank3. 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/postdated2. 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 completion5. person negotiating was a fiduciary6. default in payment of interest on instrument

SECTION 57: RIGHTS OF HOLDER IN DUE COURSERights:1. sue on instrument in his own name2. receive payment, if in due course, NI is discharged3. holds instrument free from any defect of title of prior parties4. holds instrument free from defenses available to prior parties among themselves5. 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 non-negotiable 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 defenses1. real/absolute/universal defenses2. 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 DEFENSES1. incapacity of incapacitated person2. contract declared illegal by law (except maker/drawer is party to illegality)3. incomplete and undelivered instrument4. forgery5. 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 name7. fraud in factum or fraud in esse contractus8. fraudulent alteration by holder9. prescription

10. other infirmities appearing on face of instrument11. 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 DEFENSES1. filling of wrong date2. filing up of blanks not in accordance w/ authority given & w/n reasonable time3. compete undelivered instrument4. absence or failure of consideration5. simple fraud or fraud in inducement6. acquisition of instrument (not signature) by duress, force/fear7. acquisition of instrument by unlawful means8. acquisition of instrument for an illegal consideration9. negotiation of breach of faith10. negotiation under circumstances that amounts to fraud11. 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 maturity14. discharge of party secondarily liable by discharge of prior party15. 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