Republic of the Philippines

OCCIDENTAL MINDORO STATE COLLEGE

Labangan, San Jose, Occidental Mindoro
Website: [Link] Email address: omsc_9747@[Link]
Tele/Fax: (043) 457-0231

College of Business, Administration, and

Management
ACCOUNTING EDUCATION DEPARTMENT
Bachelor of Science in Accounting Information System

Defenses and Incident

in Life of a Negotiable
Instrument

In Partial Fulfillment of the Requirements for the Subject

REGULATORY FRAMEWORK AND LEGAL
ISSUES IN BUSINESS

Oderio, Marian
Sagre, Cristine Mae
Fajardo, Mergie
Torres, Erica

Instructor:
ABANILLA, CARLA AZALEA S.

Date Submitted:
 January 25, 2025
Defenses
Sec. 58. When subject to original defenses- 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:
1.) who derives his title through a holder in due course, and
2.) 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 to the latter.

Defenses
1. Mistakes
2. Absences of failure of consideration
3. Minority and other forms of incapacity to contract
4. Lack of authority of an agent

REAL DEFENSES
Those that applies to all holders (holder in due course or not in due course). It is hitched to
the instrument. On the principle that the right sought to be enforced never existed/there was no
contract at all.
Examples of Real Defenses
1. Forgery
2. Wants of authority, apparent or real
Sec.23. Forged signature; effects of – When a signature is forged or made without the
authority of the person whose signature it purports be, its wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature, unless the party against whom it
is sought to enforced such right is precluded from setting up the forgery or want of authority.
3. Want of delivery of incomplete instrument
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.
4. Fraud in factum or in esse contractus
Fraud inducing obligor to sign instrument without a reasonable opportunity to learn of
its fraudulent character or essential terms; this depends upon consideration of “all relevant
factors”.
5. Discharge after maturity
Sec. 88. What constitute payment in due course- Payment is made in due course when it
is made at or after the maturity of the instrument to the holder thereof in good faith and without
notice that his title is defective.
6. Material alternation
Sec.125. What constitutes a material alternation- any alternation which changes
(a) The date
(b) The sum payable, either for principal or interest
(c) The time or place of payment
(d) The number or the relations of the parties
 (e) The medium or currency in which payment is to be made; or which adds a placed of
payment where no place of payment is specified. Or any other change or addition which
alters the effect of the instrument in any respect, is a material alternation.
7. Illegality
Result in the transaction’s status as voidable, as opposed to outright void, would be
grounds for a personal defense.
8. Incapacity
9. Insolvency
10. Prescription

PERSONAL DEFENSES
Those that not applies against to a holder in due course but it applies only against a person
that is not a holder in due course.

Examples of Personal Defenses

1. Filling up of wrong date
Sec.13. When date may be inserted- where an instrument expressed to be payable at a
fixed period after date is issued undated, or where the acceptance of an instrument payable at a
fixed period after the sight is undated, any holder may insert therein the true date of issue or
acceptance, and the instrument shall be payable accordingly.
2. Filling up blank not within authority
Sec. 14. Blanks; when may be filled- where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it by filling up
the blank therein. And a signature on a blank paper delivered by the person making the signature
in order that the paper may be converted into a negotiable instrument operates as a prima facie
authority to fill it up as such for any amount.
3. Want of delivery of complete instrument
Sec. 16. Delivery; when effectual: when presumed- every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving
effect thereto. As between immediate parties, and as regards a remote party other than a holder in
due course, the delivery, in order to be effectual, must be made either by or under the authority
of the party making, drawing, accepting, or indorsing, as the case may be; and in such case the
delivery may be shown to have been conditional, or for a special purpose only, and not for the
purpose of transferring the property in the instrument.
4. Failure or absence of consideration
Sec. 28. Effect of want of consideration- absence or failure of consideration is 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 and liquidated or otherwise.
5. Simple fraud or fraud in inducement
6. Acquisition of instrument by duress, or force, or fear
7. Acquisition of instrument by unlawful means
8. Acquisition of instrument for an illegal consideration
9. Negotiation in breach of faith
10. Negotiation under circumstances that amount to a fraud
 Sec.55. When title defective – the title of a person who negotiates an instrument is
defective within the meaning of this Act when he obtained the instrument, or any signature
thereto, by fraud, duress, or force and fear, or other lawful means, or for an illegal consideration,
or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.

11. Innocent alternation or spoliation

Sec.124. Alternation of instrument; effects of- where a instrument is materially altered
without the assent of all parties liable thereon, it is avoided, except as against a party who has
himself made, authorized, or assented to the alteration, and subsequent indorsers. But when an
instrument has been materially altered and in the hands of a holder in due course, not a party to
the alternation, he may enforce payment thereof according to its original tenor.
12. Set-off between immediate parties
Sec. 58. When subject to original defenses- 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 to the latter.
13. Discharge by payment or renunciation or release before maturity; (Sec. 121/122)
Sec. 50. When prior party may negotiate instrument- where an instrument is negotiated
back to a prior party, such party may, subject to the provisions of this act, reissue and further
negotiate the same. But he is not entitled to enforce payment thereof against any intervening
party to whom who was personally liable.
14. Discharge of party secondarily liable by discharge of prior party
Sec. 120. When persons secondarily liable on, discharged- A person secondarily liable on
the instrument is discharged-
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by the holder;
(c) By the discharged of a prior party;
(d) By a valid tender of payment made by prior party;
(e) By a release of the principal debtor, unless the holder’s right of recourse against the party
secondarily liable is expressly reserved;
(f) By any agreement binding upon the holder to extend the time of payment, or to postpone
the holder’s right to enforce the instrument, unless made with the assent of the party
secondarily liable, or unless the right of recourse against such party is expressly reserved.

Sec. 59. Who is deemed holder in due course- Every holder is deemed prima facie to be a
holder in due course; when it is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove that he or some person
under whom he claims acquired the title as holder in due course. But the last-mentioned
rule does not apply in favor of a party who became bound on the instrument prior to the
acquisition of such defective title.