Negotiable Instrument Law 2 Flashcards
What constitutes a holder in due course?
Section 52. A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.
What are the rights of a holder in due course?
Section 57. A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.
What is the Shelter Rule?
Section 58. In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were nonnegotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.
Who are primarily liable for NI?
MAKER (for Promissory Note) - The maker of a negotiable instrument by making it engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to indorse.
ACCEPTOR/DRAWEE (Bill of Exchange) - The acceptor by accepting the instrument engages that he will pay it according to the tenor of his acceptance.
Who is secondarily liable?
DRAWER - Admits the existence of the payee and his capacity to indorse; Engages that the instrument will be accepted or paid by the party primarily liable; and Engages that if the instrument is dishonored and proper proceedings are brought, he will pay to the party entitled to be paid.
What are real defenses?
Those that attach to the instrument itself and are available against all holders, whether in due course or not, but only by the parties entitled to raise them. (a.k.a absolute defenses)
What are examples of real defenses?
- Material Alteration;
- Want of delivery of incomplete instrument;
- Duress amounting to forgery;
- Fraud in factum or fraud in esse contractus;
- Minority (available to the minor only);
What are personal defenses?
Those which are available only against a person not a holder in due course or a subsequent holder who stands in privity with him. (a.k.a. equitable defenses)
What are examples of personal defenses?
- Absence or failure of consideration, partial or total;
- Want of delivery of complete instrument;
- Insertion of wrong date in an instrument;
- Filling up of blank contrary to authority given or not within reasonable time;
What are the effects of alteration of document?
Section 124. Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration, and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder in due course, not a party to the alteration, he may enforce payment thereof according to its original tenor.
What constitutes a material alteration?
Any alteration which changes—
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration.
