CHAPTER 4 2.
He may receive payment and if the
Rights of the Holder
SEC. 51. Right of the holder to sue;
payment. – The holder of the negotiable
instrument may sue thereon in his own
name; and payment to him in due course
discharges the instrument.
Holder of the negotiable instrument means
the payee or indorsee of a bill or note, who
is in possession of it, or the bearer thereof.
It includes:
Persons possessing bearer
instruments, and
Payees and indorsees possessing
order instruments.
In an ascending order of rights, the classes
of holders are:
1. Holders simply (Sec. 51)
2. Holders for value (Sec. 26)
3. Holders in due course (Secs. 52, 57)
Ordinary or mere holder (or assignee or
transferee) – person who qualifies as a
holder but does not meet all the conditions
to qualify as a holder in due course.
(1.) In the hands of any holder OTHER
THAN A HOLDER IN DUE COURSE, a
negotiable instrument is subject to
any and every defense or defect in
the instrument, whether real or
personal, as if it were non-
negotiable.
(2.) The holder of a negotiable
instrument is not necessarily the
owner.
Rights of holder in general.
1. He may sue on the instrument in his
name
payment is in due course, the
instrument is discharged.
Right of transferee of unendorsed
instrument to sue.
A transferee of unindorsed
instrument is certainly not a holder.
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SEC 52. What constitutes a holder in due
course. 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 has 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.
A holder in due course is a holder who
took the instrument under the conditions
enumerated in section 52. He takes the
instrument free of most defenses or
adverse claims to it by other parties.
1. Presence of all conditions. – all the
four conditions must concur in order
to qualify a person as a holder in due
course.
2. Status as mere assignee. – the
holder of a non-negotiable
instrument cannot attain the status
of a holder in due course.
A transferee who receives an
instrument other than by issue or
negotiation cannot acquire the
status of a holder in due course
 regardless of the other
circumstances under which the
acquisition of the instrument took
place.
3. Rights of holder in due course/not in
due course. – a holder who is not a
holder in due course has all the
rights of the latter except that the
instrument is subject to every
available defense as if it were non-
negotiable.
On the other hand, a holder in due
course, is afforded the most favored
status under the law.

CHAPTER 2
Consideration
SEC. 24. Presumption of consideration.
Every negotiable instrument is deemed
prima facie to have been issued for a
valuable consideration, and every person
whose signature appears thereon to have a
party thereto for value.
Consideration (or cause) is the immediate,
direct, or essential reason which induces a
party to enter into a contract.
Presumption of Consideration
A negotiable instrument must have a
consideration or cause.
The presumption is only prima facie. It may,
therefore, be rebutted or disproved by
evidence to the contrary.
SEC. 25. Value; what constitutes. – Value is
any consideration sufficient to support a
simple contract. An antecedent or pre-
existing debt constitutes value; and is
deemed such whether the instrument is
payable on demand or at a future time.
A valuable consideration need not to be
adequate. It is sufficient if it is a valuable
one.
An antecedent or pre-existing debt is a
valuable consideration.
SEC. 26. What constitutes holder for value.
– Where value has at any time been given
for the instrument, the holder is deemed a
holder for value in respect to all parties who
become such prior to that time.
Holder for value is one who has given a
valuable consideration for the instrument
issued or negotiated to him.
1. The holder is deemed as such not
only as regards to the party to
whom value has been given by him
but also in respect to those who
became parties prior to the time
when value was given.
2. A holder of a negotiable instrument
is presumed to be a holder for value
until the contrary be shown by any
party who claims otherwise.
SEC. 27. When lien on instrument
constitutes holder for value. – Where the
holder has a lien on the instrument arising
either from contract or by implication of
law, he is deemed a holder for value to the
extent of his lien.
NOTE: ONE WHO HAS TAKEN A
NEGOTIABLE INSTRUMENT AS COLLATERAL
SECURITY FOR A DEBT HAS A LIEN ON THE
INSTRUMENT.
1. If the amount of the instrument is
more than the debt secured by such
instrument, the pledgee is a holder
for value to the extent of his lien.
He can collect the full value of the
instrument and apply the same to
the payment of the debt but he
must deliver the surplus to the
pledgor.
2. If the amount of the instrument is
less than the debt secured by such
instrument, the pledgee is a holder
for value for the full amount and
may recover all.
3. If between the pledgor and the party
liable on the instrument, there are
existing defenses, then the pledgee
can collect on the instrument only to
the extent on the amount of the
debt.
But if the defenses of the party
liable on the instrument are real
defenses, then the pledgee can
recover nothing upon the
instrument.

SEC. 28. Effect of want of

consideration. – Absence or failure
of consideration is a matter of
defense as against any person not a
holder in due course; and partial
failure of consideration is a defense
pro tanto, whether the failure is an
ascertained or liquidated amount or
otherwise.

Absence of consideration means a

total lack of any valid consideration
for the contract, in consequence of
which the alleged contract must fail.

Failure of consideration means the

failure or refusal of one party to do,
perform or comply with the
considerations agreed upon. In
other words, something was agreed
upon as consideration but for some
cause, such agreed consideration
failed to materialize.

SEC. 29. Liability of accommodation

party. – An accommodation party is
one who has signed the instrument
as maker, drawer