MIDTERM REVIEWER

VALUABLE CONSIDERATION means an inducement to a contract, that is, the

cause, price or impelling influence which induces a contracting party to enter
into the contract.
A valuable consideration need not be adequate. It is sufficient if it is a
valuable one. Mere inadequacy of the consideration is not a sufficient ground
for relief unless there is fraud, mistake or undue influence.

ABSENCE OF CONSIDERATION mean 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 of the parties to do,
perform, or comply with the consideration agreed upon.
Absence or inadequacy of consideration will not invalidate the
instrument. Inadequacy of consideration will not affect a holder in due course
provided he has no knowledge of such inadequacy.
A holder for value must at least be a holder in due course minus the
knowledge of lack of consideration on the part of accommodation party.

IMPORTANCE OF CONSIDERATION, because the NI is being used as substitute

for money. It creates secondary contracts. It is being encouraged by our
system.

A HOLDER FOR VALUE is one who has given a valuable consideration for the
instrument issued or negotiated to him. A holder of a negotiable instrument
is presumed to be a holder for value until the contrary is shown.

ACCOMMODATION PARTY is one who has signed the instrument (a) as maker,
drawer, acceptor, or indorser, (b) without receiving value for the signature,
and (c) for the purpose of lending his name to some other person. In lending
his name to the accommodated party, the accommodation party is, in effect,
a SURETY for the former and is bound equally and absolutely with the
principal.
Absence of consideration between the accommodation party and the
accommodated party does not of itself constitute a valid defense against a
holder for value even though he knew of it when he became a holder.

NEGOTIATION is the transfer of a negotiable instrument from one person to

another made in such a manner as to constitute the transferee the holder
thereof.

In ASSIGNMENT, the assignee is merely placed in the position of the

assignors and acquires the instrument subject to all the defenses that might
have been set up against the original payee.

NEGOTIATION AND ASSIGNMENT DISTINGUSHED:

1. Negotiation is strictly the transfer of a NI to a holder. While a NI may either
negotiated or assigned, a non-NI can only be assigned or transferred, not
negotiated.
2. Negotiation refers only to NI, while assignment refers generally to an
ordinary contract.
3. In negotiation, the transferee is a holder, while in assignment, the
transferee is an assignee.
4. A holder in due course is subject only to real defense, while an assignee is
subject to both real and personal defenses.
5. A holder in due course may acquire a better title or greater rights under
the instrument than those possessed by the transferor or a prior party, while
generally an assignee merely steps into the shoes of the assignor.
6. A general indorser warrants the solvency of prior parties, while an assignor
does not warrant the solvency of prior parties unless expressly stipulated or
the insolvency is known to him.
7. An indorser is not liable unless there be presentment and notice of
dishonor, while an assignor is liable even without notice of dishonor.
8. Negotiation is governed by the NI Law, while assignment is governed by
Articles 1624 to 1635 of the Civil Code.
The difference between negotiation and assignment may be of no
material significance if there is no defense to the obligation and only the
maker is sought to be held.

DELIVERY OF NI:
1. Actual
2. Constructive
Delivery is an essential part of every negotiation. INDORSEMENT, as
defined by the Act, means an indorsement completed by delivery. An intent
to be bound is necessary to the creation of an obligation, and delivery of the
NI is the operative fact that evidences the intention of the maker or drawer
to become bound by it.

PLACE OF INDORSEMENT:
1. On the instrument itself
2. Upon a paper attached thereto.
ALLONGE is a piece of paper that is attached permanently to an
instrument for the purpose of accommodating or allowing additional
indorsements. The majority rule is that an allonge is allowed only when the
back portion of the instrument is already filled up with indorsements.

The NI, originally negotiable continues to be negotiable in spite of the

absence of such words in an indorsement. But if in their place a restrictive
word such as ONLY is employed so as to prevent further negotiation, the
instrument is not only restrictively indorsed but it also ceases to be
negotiable.

QUALIFIED INDORSEMENT use words without recourse, sans recourse, at

indorsees own risk, indorser not holder.
An indorsement without recourse does not affect the negotiable
quality of an instrument. It shows only an unwillingness to be answerable for
the solvency of prior parties a prudent precaution, particularly where the
note has a long time to run before it matures. To state this in another way, it
passes title without making the indorser liable upon the instrument if the
primary party defaults on it.

EFFECTS OF QUALIFIED INDORSEMENT

1. Indorser, a mere assignor
2. Indorsers liability limited
3. Negotiability of instrument not effected

ABSOLUTE AND CONDITIONAL INDORSEMENTS EXPLAINED. P 184

EXCEPTIONS TO THE RULE REQUIRING JOINT INDORSEMENT:

1. Where the payees or indorsees are partners; and
2. Where the payee or indorsee indorsing has authority to indorse for the
others.

RIGHTS OF THE HOLDER:

1. To sue
2. To receive payment
 A transferee of unindorsed instrument is certainly not a holder as
defined by Section 191, and, therefore, cannot be a holder in due course
under Section 52.

WAYS OF DISHONOR:
1. By non-acceptance
2. By non-payment

HOLDER IN GOOD FAITH p. 214

EFFECTS OF CROSSING A CHECK

1. The check may not be encashed but only deposited in the bank;
2. The check may be negotiated only once to one who has an account with
a bank; and
3. The act of crossing the check serves as warning to the holder that the
check has been issued for a definite purpose so that he must inquire if he
has received the check pursuant to that purpose; otherwise, he is not a
holder in due course.

WHAT CONSTITUTES NOTICE OF INFIRMIT OR DEFECT

1. Mere negligence to make inquiries not sufficient
2. Knowledge amounting to bad faith
3. Effect of notice of defect. A holder with knowledge of failure of
consideration is subject to the defense that a note was obtained by fraud.
This does not, however, modify the rule that one holding from a holder in due
course may have all the rihgts of the latter.

RIGHTS OF A HOLDER IN DUE COURSE

1. He may sue on the instrument in his own name;
2. He may receive payment and if the payment is in due course, the
instrument is discharged;
3. He holds the instrument free from any defect of title of prior parties;
4. He holds the instrument free from defenses available to prior parties
among themselves; and
5. He may enforce payment of the instrument for the full amount thereof
against all parties liable thereon.

REAL DEFENSE are those that are available against all parties, both
immediate and remote, including holders in due course or holders through
the latter. They are called real because they attach to the res, that is, the
instrument itself regardless of the merits and demerits of the holder or the
conduct or agreement of the parties to it.

PERSONAL DEFENSE are those which grows out of the agreement or conduct
of a particular person in regard to the instrument which renders it inequitable
for him, thought holding the legal title, to enforce it against the party sought
to be made liable but which are not available against the holder in due
course or holders with all the rights of a holder in due course.

While a REAL DEFENSE questions the legal validity of the instrument

itself, a PERSONAL DEFENSE affects only the validity of the agreement for
which the instrument was issued.

PROOF OF BEING A HOLDER. He does not have a prove that he acquired the
instrument under all the circumstances required under Section 52. However,
when it is shown that the title of any person who has negotiated the
instrument was defective as when the instrument is not payable to him or
tho bearer, then the burden of proof shifts to the holder who must show he is
a holder in due course although he is not himself a holder in due course.
***A person who acquires title from a prior holder in due course is referred to
as HOLDER THROUGH A HOLDER IN DUE COURSE.

LIABILITIES OF PARTIES. P 251