CLASSES OF HOLDERS

HOLDER the payee or indorsee of a bill or

note, who is in possession of it, or the bearer
theeof.
1. Holders simply
2. Holders for value
3. Holders in due course

ORDINARY HOLDER / MERE HOLDER

Does not meet all the conditions to

qualify as a holder in due course

the holder is not necessarily the owner
1. May sue on the instrument in his name
2. May

receive payment and if the

payment is in due course, the
instrument is discharged

HOLDER IN DUE COURSE (HDC)

He took the instrument under the ff. conditions:

The instrument is complete and regular on its face;

2. He became the holder of it before it was overdue,
and without notice that it had been previously
dishonored;
3. He took it in good faith and for value;
4. 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
1.

Note:
All four conditions must concur
HDC takes the instrument free of most

defenses or adverse claims to it by other

parties
A payee may be a holder in due course,
but a drawee cannot

RIGHTS OF HDC:
1. He may sue on the instrument in his own name;
2. May receive payment and if the payment is in due
course, the instrument is discharged;

3. Holds the instrument free from any defect of title

of prior parties;
4. Holds the instrument free from defenses
available to prior parties among themselves; and
5. May enforce payment of the instrument for the

full amount thereof against all parties liable

thereon.

HOLDER IN GOOD FAITH

Honesty in fact in the transaction concerned
Subjective test

HOLDER IN BAD FAITH

: He must have knowledge of facts which render it
dishonest for him to take a particular piece of
negotiable paper

NOTICE
1. Holder must have actual or chargeable

knowledge of the infirmity or defect; or

2. He must have acted in bad faith

HOLDER FOR VALUE

a person who takes the instrument for valuable

consideration
not necessary that the instrument be adequate

EFFECT OF NOTICE BEFORE

FULL PAYMENT
1. NO AMOUNT HAS YET BEEN PAID

Purchaser is relieved from the obligation

to make payment

2. AN AMOUNT HAS BEEN PAID

He is under no legal obligation to pay the

balance of the amount he has agreed to
pay on discovering the infirmity or defect

DEFECTIVE TITLE
1. ACQUISITION

Obtains the instrument or signature thereto by fraud,

duress, or force and fear, or other unlawful means, or
for an illegal consideration
2. NEGOTIATION

He negotiated the instrument in breach of faith, or

other circumstances amounting to fraud

RIGHTS OF A HOLDER NOT IN

DUE COURSE (NOT HDC)
1. he may sue on the instrument in his own name;
2. may receive payment and if the payment is in due

course, the instrument is discharged;

3. entitled to the instrument but holds it subject to the
same defenses as if it were non-negotiable; and
4. has all the rights of the holder in due course from
whom he derives his title in respect of all parties prior
to such holder, provided he is not himself a party to
any fraud or illegality affecting the instrument

LIABILITIES OF PARTIES
The obligation of a party to a negotiable

instrument to pay the same according to its

terms
No person is liable on an instrument unless his
signature appears thereon
1. Primarily liable
2. Secondarily liable (conditionally liable)
3. Not liable

PRIMARILY
SECONDARILY
LIABLE
LIABLE
Absolutely
Undertakes to
required to pay
pay only after
the instrument
certain
upon its maturity conditions have
been fulfilled

PERSONS PRIMARILY LIABLE

1. Maker of the promissory note
2. Acceptor of a bill of exchange

3. Certifier of a check

SECONDARILY LIABLE
1. Drawer of a bill
2. Indorser of a note or a bill

LIABILITY AS GUARANTOR OR
AS SURETY
GUARANTOR
Benefit of
exhaustion

SURETY
Benefit of
exhaustion is not
available

IRREGULAR OR ANOMALOUS
INDORSER
A person not otherwise a party to an

instrument (he is not a maker, drawer, acceptor,

or regular indorser thereon), places his
signature in blank, before delivery

INDORSER VS DRAWER
INDORSER
Party to either a note or
bill
Does not make any
admission regarding the
existence of the payee
and his then capacity to
indorse
Has warranties

DRAWER
Bill only

He makes such
admission

No warranties

GENERAL INDORSER VS
IRREGULAR INDORSER
GENERAL INDORSER

IRREGULAR INDORSER

Makes a blank or special

indorsement

Always a blank indorsement

Indorses the instrument after

delivery to the payee

Indorses before its delivery to

the payee

Liable only to parties subsequent

to him

Liable to the payee and

subsequent parties unless he
signs for the accommodation of
the payee in which case he is
liable only to all parties
subsequent to the payee

PRESENTMENT FOR PAYMENT

The presentation of an instrument to the

person primarily liable for the purpose of

demanding and receiving payment

PRESENTMENT
The act of

the holder of a negotiable

instrument of exhibiting a note to the maker
and demanding payment, or showing a bill to
the drawee and requesting its acceptance or
payment

NOTE:
Presentment and demand for payment are not

necessary in order to charge the person

primarily liable
Demand for payment must first be made upon
the person primarily liable. Failure to do so
would discharge the persons secondarily liable
unless presentment is excused

When drawer is excused

Drawer has no funds with the drawee unless

arrangement has been made for payment of the

bill
Where the drawer of a check has stopped
payment thereof
Where the drawer of the check has withdrawn
funds from the drawee bank leaving nothing
which to pay the check

DATE OF PRESENTMENT
1.

INSTRUMENT PAYABLE AT A FIXED OR

DETERMINABLE FUTURE TIME : on the date it falls
due 9otherwise, no liability shall set in)

2. INSTRUMENT PAYABLE ON DEMAND

a. Promissory note: within reasonable time after issuance
b. Bill of exchange: within reasonable time after the last
negotiation

What constitutes presentment

for payment?
The production of a BOE to the drawee for his

acceptance, or to the drawee or acceptor for payment or

the production of a PN to the party liable for the
payment of the same.
a. Personal demand for payment at the proper place
b. Readiness to exhibit the instrument, if required; and
c. To receive payment and to surrender the instrument if

the debtor is willing to pay

To whom must presentment

for payment be made?
The instrument must be exhibited to the person from

whom payment is demanded, and when it is paid,

must be delivered up to the party paying it.
The purpose of exhibition is to enable the debtor to
determine the genuineness of the instrument and the
indorsements thereof and the right of the holder to
receive payment; and to enable the debtor to take
possession of it to guard against a lawsuit by a
subsequent holder

PRESENTMENT WHERE
INSTRUMENT IS PAYABLE AT
BANK
During banking hours unless the person to

make payment has no funds there to meet it at

any time during the day, in which case
presentment at any hour before the bank is
closed on that day is sufficient

PRESENTMENT WHERE PRINCIPAL

DEBTOR IS DEAD AND NO PLACE IS
SPECIFIED
To his personal representative, if such there be,

and if, with the exercise of reasonable

diligence, he can be found

PRESENTMENT TO PERSONS
LIABLE AS PARTNERS
To any one of them, even though there

has been a dissolution of the firm

PRESENTMENT TO JOINT
DEBTORS
Where there are several persons, not partners,

primarily liable on the instrument and no place

of payment is specified, presentment must be
made to them all

REQUISITES FOR PRESENTMENT

1. Must be made by the holder or by an authorized
person

2. At a reasonable hour on a business day

3. At a proper place
4. To the person primarily liable, or to any person
fund at the place where the presentment is made

What will be the effect if there is failure to observe

the above stated requisites?

PLACE OF PRESENTMENT
1. Place specified
2. Address of the person to make payment

3. Usual place of business or residence of the

person to make payment
4. At any other place

PN is the holder of a negotiable promissory note

within the meaning of the Negotiable Instruments
La. The note was originally issued by RP to XL as
payee. XL indorsed the note to PN for goods bought
by XL. The note mentions the place of payment on
the specified maturity date as the office of the
corporate secretary of PX Bank during the banking
hours. On maturity date, RP was at the aforesaid
office ready to pay the note but PN did not show up.
What PN later did was to sue XL for the face value of
the note, plus interest and costs. Will the suit
prosper?

Yes, as far as the face value is concerned and

not with respect to the interest due subsequent
to the maturity of the note and the costs of
collection. As PN did not show up at the time
RP was ready to pay, PN lost his right to recover
the interest and the cost of collection

NOTICE OF DISHONOR
/ PROTEST
Bringing to the knowledge of the drawer or
indorser of an instrument, the fact that that a
specified negotiable instrument, upon proper
proceedings taken, has not been accepted or
has not been paid and that the party notified is
expected to pay it

REQUISITES OF NOTICE OF
DISHONOR
1. Given by holder or his agent, or by any party

who may be compelled by the holder to pay

2. Given to secondary part or his agent
3. Given within the periods provided by law
4. Given at the proper place

Who are the parties to be

notified?
Drawer and to each indorser
Any drawer or indorser to whom such notice is

not given is discharged

To whom shall notice be given?

IN CASE OF NON-ACCEPTANCE (bill) to persons

secondarily liable
IN CASE OF NON-PAYMENT (both bill and note) -

indorsers

EFFECT OF GIVING NOTICE

a. When given by on or behalf of a holder, it

inures to the benefit of:

All parties prior to the holder, who have a
right of recourse against the party to whom
the notice is given; and
All holders subsequent to the holder giving
notice

b. When given by or on behalf of a party entitled

to give notice, it inures to the benefit of:
the holder; and
All parties subsequent to the party to whom

notice is given

WHEN
As soon as the instrument is dishonored

FORM OF NOTICE
In writing or merely oral

When may notice be waived?

either before the time of giving notice has

arrived or after the omission to give due notice,

and the waiver may be expressed or implied

When may notice be dispensed with?

When, after the exercise of reasonable
diligence, it cannot be given to or does not
reach the parties sought to be charged

How is delay in giving notice excused?

When the delay is caused by circumstances

beyond the control of the holder and not

imputable to his default, misconduct, or
negligence. When the cause of delay ceases to
operate, notice must be given with reasonable
diligence

When is notice not required to be

given to drawer?
1. Drawer and drawee are the same person
2. Drawer is fictitious person or a person not having
capacity to contract
3. Drawer is the person to whom the instrument is

presented for payment

4. Drawer has no right to expect or require that the
drawee or acceptor will honor the instrument
5. Drawer has countermanded payment

When is notice not required to be

given to indorser?
1. Drawee is a fictitious person or person not

having capacity to contract, and the indorser

was aware of the fact at the time he indorsed
the instrument;
2. Indorser is the person to whom the
instrument is presented for payment
3. Instrument was made or accepted for his
accommodation

Effect of omission to give notice of

non-acceptance?
Does not prejudice the rights of a holder in due
course subsequent to the omission