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BUSLAW3 – Lesson 4  He must not receive any value therefor

 He must sign for the purpose of lending his name or


PRESUMPTION OF CONSIDERATION credit.

Every negotiable instrument is deemed prima facie to have been LIABILITY OF ACCOMMODATION PARTY
issued for a valuable consideration and every person whose
signature appears thereon to have become a party thereto for value. 1. Absence of consideration is not a defense.
2. Liable not only to a holder in due course but also to a holder for
VALUE value.
3. Not liable to the accommodated party.
Any consideration sufficient to support a simple contract. An
antecedent or pre-existing debt constitutes value and is deemed ACCOMMODATION PARTY vs. REGULAR PARTY
such whether the instrument is payable on demand or at a future
time. Accommodation Party Regular Party
Signs the instrument without Signs the instrument for value
HOLDER FOR VALUE receiving any consideration
Signs for the purpose of lending Signs not for purpose of lending
Where value has at any time been given for the instrument, the his name his name
holder is deemed a holder for value in respect to all parties who May show by parol evidence Cannot limit liability by parol
become such prior to that time. that he is only an evidence
accommodation party
WHEN LIEN ON INSTRUMENT CONSTITUTES HOLDER FOR VALUE Cannot avail the defense of Can avail the defense of lack of
absence of consideration consideration
Where the holder has a lien on the instrument arising either from After payment may recover May not recover from any
contract or by implication of law, he is deemed a holder for value to from the accommodated party subsequent party
the extent of his lien.
NEGOTIATION
RULES ON LIEN ON INSTRUMENT
The transfer of negotiable instrument from one person to another
 When amount of instrument is more than the debt secured:
made in such a manner as to constitute the transferee the holder
 The pledgee is a holder for value to the extent of his lien
thereof.
 When amount of instrument is less than or equal to the debt
secured:
METHOD OF NEGOTIATION
 The pledgee is a holder for value for the full amount
 Party liable can set up a personal or real defense:  Instrument payable to order:
 Personal Defense – pledgee can collect only up to the  Indorsement by the payee or present holder
extent of the debt  Delivery to the next holder
 Real Defense – pledgee cannot collect on the instrument  Instrument payable to bearer:
 Negotiated by mere delivery
EFFECT OF WANT OF CONSIDERATION
METHODS OF TRANSFER OF NEGOTIABLE INSTRUMENT
 Absent of consideration
 Total lack of any valid consideration  By issue
 Failure of consideration  By negotiation
 Agreed consideration did not materialize  By assignment
 Partial failure of consideration
 Agreed consideration was not completely given or EFFECT OF DELIVERY OF ORDER INSTRUMENT WITHOUT
performed INDORSEMENT

ACCOMMODATION PARTY 1. Transfer operates as an ordinary assignment


2. Transferee does not become holder of the instrument
One who has signed the instrument as maker, drawer, indorser, 3. Assignee acquires the right to have the indorsement of assignor
acceptor, without receiving any value therefor and for the purpose 4. When indorsement is subsequently obtained, it operates as
of lending his name to some other person. negotiated only as of the time the indorsement is actually made

Requisites:

 He must be a party to the instrument, signing as maker,


acceptor, indorser, or drawer.
NEGOTIATION vs. ASSIGNMENT

Negotiation Assignment
Refers only to negotiable Refers generally to an ordinary
instrument contract
Transferee is a holder The transferee is an assignee
A holder in due course is Assignee is subject to both real
subject only to real defenses and personal defenses
A holder in due course may Assignee merely steps into the
acquire a better title than that shoes of the assignor
of a prior party

INDORSEMENT

It is the writing of the name of the indorser on the instrument with


the intent either to transfer the title to the same, or to strengthen
the security of the holder by assuming a contingent liability for its
future payment.

The indorsement must be written on the instrument itself or upon a


paper attached thereto. The signature of the indorser is sufficient.

NATURE OF INDORSEMENT

 It is not only a mode of transfer, it is also a contract


 Every indorse is a new drawer and the terms are found on the
face of the bill or note.
 The general indorser in effect, states to every person who
follows him – this instrument will be paid by the maker, if a
note, or accepted by the drawee, if a bill. If it is dishonored by
non-payment or non-acceptance, and you give me notice
thereof, I will pay it.

NECESSITY OF INDORSEMENT

 It is essential to the execution of an instrument payable to the


order of the maker or drawer.
 It is essential to the negotiation of an order instrument, but not
of a bearer instrument
 It is nor necessary to a mere assignment of a negotiable or non-
negotiable instrument.

REQUIREMENT OF A VALID INDORSEMENT

1. The indorsement must be written on the instrument itself or


upon a paper attached thereto
2. It must be an indorsement of the entire instrument
3. It must be completed by delivery