Sec. 58.

When subject to original defense –

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 non-negotiable. 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.

What are Defenses?

- Are grounds or reasons pleaded or offered by the defendant in a case, showing why the
plaintiff, as a matter of law or fact, should not be given the relief he seeks.

2 Kinds of defenses Commented [JEPTB1]: *some defenses are either

real or personal depending on the factual
a. real, absolute, or universal defenses; and situations out of which arise the particular
defense.
b. personal, limited, or equitable defenses.

REAL DEFENSES PERSONAL DEFENSES

Instrument Title of holder
Can be invoked even as against HDC Immediate parties and the original holder

What are real defenses? Commented [JEPTB2]: -Are those that are
available against all parties, both immediate
- Attaches to instrument; on the principle that the right sought to be enforced never existed / and remote, including holders in due course or
there was no contract at all. holders through the latter.

What are personal defenses? -Are called “real” because they attach to the
res, that is, the instrument itself regardless of
- Growing out of agreement; renders it inequitable to be enforced vs. defendant the merits or demerits of the holder or the
conduct or agreement of the parties to it.
Defenses

Examples of real defenses Commented [JEPTB3]: -Are those which grow

out of the agreement or conduct of a
- Incapacity as far as the incapacitated person is concerned; particular person in regard to the instrument
- Illegality of contract when declared by law (see Art. 1409, ibid)-, except where the maker or which renders it inequitable for him, though
holding the legal title, to enforce it against the
drawer is himself a party to the illegality; thus, a note for a gambling debt (an illegal
party sought to be made liable but which are
consideration) is a mere personal defense; not available against a holder in due course,
- Want of delivery of incomplete instrument or holders with all the rights of a holder in due
- Forgery course.
- Want of authority, apparent and real
Available only against that person or
- Duress amounting to forgery as where one takes the hands of another and forces him at
subsequent holder who stands in privity with
gunpoint to sign his name. him. They can be used only between original
- Fraud in factum or fraud in esse contractus parties or immediate parties or against one
- Fraudulent alteration by holder who is not a holder in due course.
- Prescription
- Other infirmities appearing on the face of the instrument; and
- Discharge at or after maturity.

Examples of personal defenses

- Filling of wrong date

- Filling up of blanks not in accordance with the authority given and within reasonable time
- Want of delivery of complete instrument
- Absence or failure of consideration
- Simple fraud or fraud in inducement
- Acquisition of instrument (not signature) by duress, or force and fear
- Acquisition of instrument by unlawful means
- Acquisition of instrument for an illegal consideration
- Negotiation under circumstances that amounts to fraud
- Innocent alteration or spoliation
- Set-off between immediate parties
- Discharge by payment or renunciation or release before maturity
 - Discharge of party secondarily liable by discharge of prior party
- Usury – because the contract of loan itself is not void but only the agreed interest; and
- Want of authority of the agent who has apparent authority, but if the principal can show that
the agent had no express, implied, or apparent authority to sign, the defense is real.

DEFENSES

1. INCAPACITY: real; indorsement/assign by corp/infant: passes property but corp/infant no

liability
2. ILLEGALITY: personal, even if no K because void under CC 1409
3. FORGERY: real (lack of consent):
a. Forged
b. Made without authority of person whose signature it purports to
4. MATERIAL ALTERATION
a. Where NI materially altered w/o asset of all parties liable thereon, avoided, except as vs.
a:
i. Party who has himself made, authorized or assented to alteration
ii. And subsequent indorsers
b. But when an instrument has been materially altered and is in the hands of a HDC not a
party to the alteration, HDC may enforce payment thereof according to original tenor
c. Material alteration is a personal defense when used to deny liability according to original
tenor of instrument, but real defense when relied on to deny liability according to altered
terms.
5. FRAUD
a. Fraud in execution: real defense (didn’t know it was NI)
b. Fraud in inducement: personal defense (knows it’s NI but deceived as to value/terms)
6. DURESS
a. Personal, unless so serious as to give rise to a real defense for lack of contractual intent
7. COMPLETE, UNDELIVERED INSTRUMENT
a. Personal defense (Sec. 16)
b. If instrument not in possession of party who signed, delivery prima facie presumed
c. If holder is HDC, delivery conclusively presumed.
8. INCOMPLETE, UNDELIVERED INSTRUMENT
a. Real defense (Sec. 15)
b. Instrument will not, if completed and negotiated without authority, be a valid contract in
the hands of any holder, as against any person whose signature was placed thereon
before delivery
9. INCOMPLETE, DELIVERED
a. Personal defense (Sec. 14)