SEC.

52 of the NIL provides that in order for a holder to be considered a holder in due course, he must
have received it under the FF requirements:

1. It is complete and regular upon his face


2. He became a holder of it before it was overdue and without notice that it was previously dishonored, if
such was the fact.


3. He took it in good faith and for value.


4. That at the time it was negotiated to him, he had no notice or knowledge or any infirmity on the
instrument or defect on the time of the person who negotiated it to him.

Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:

(a)! By payment in due course by or on behalf of the principal debtor; 


(b)! By payment in due course by the party accommodated, where the instrument is made or accepted

 for his accommodation; 


(c)! By the intentional cancellation thereof by the holder; 


(d)! By any other act which will discharge a simple contract for the payment of money; 


(e)! When the principal debtor becomes the holder of the instrument at or after maturity in his own

 right. 


On the other hand B, being an indorser through delivery warrants the following to his immediate
transferee:


1. That the instrument is and what it purports to be.


2. That he has good title over it.

3. That he has no notice of past indorser’s incapacity to indorse or anomaly in indorsement.

4. That the has no knowledge of any fact that would render the indorsement valueless.

Although the instrument is a bearer instrument, the indorsement of A warrants the following:

1. That the instrument is regular and what it purports to be.


2. That he has good title over it.


3. That he has no notice of past indorser’s incapacity

4. That the has no knowledge of any fact that would render the indorsement valueless. In addition, he
warrants that:


5. The instrument is valid and subsisting.


6. That upon due presentment the instrument shall be honored and paid.

Presentment for payment may be committed for both the indorser and the drawer in the following: -

1. After reasonable diligence presentment could not be made.


2. The drawee is fictitious.


3. Or when presentment was waived.

4. With regard to drawer – presentment need not also be made when: the drawer has no reason to expect
that the presentment shall be honored.


5. With regard to the indorser – instrument need not be made when: Indorser has no reason to expect that
instrument shall be honored or Indorser is an accommodation party.

However in the following, notice of dishonor may be dispensed with:

1. If the drawer and the drawee is the same 


2. If the presentment is actually made to the drawer 

3. If the drawee is fictitious 

4. Drawer has no reason to believe that the instrument shall be honored 

5. Drawer stopped the payment order (or countermanded payment)
 


The exception to this is when the fraud is not in the contract between buyer and seller, but in the
documents of the LOC or the agreement between bank and seller. Transfield enumerates three
requirements:

1.There must be clear proof of fraud


2.Fraud must go into the principle of independence and not merely in the agreement between buyer
and seller; and


3.There will be substantial injury or difficulty in recovering payment should no injunction be issued.

The Negotiable Instruments Law provides that a Notice of Dishonor is not required to be given to the
Drawer in either of the following cases:
1. When the drawer and the drawee are the same person;
2. When the drawee is fictitious or has no capacity to contract;
3. When the drawer is the person to whom the presentment is made;
4. When the drawer has no right to expect that the drawee or acceptor will honor the instrument;
5. By any other act which will discharge a simple contract to pay a sum of money; or
6. When the drawer has countermanded payment

What are the requirements for negotiability of a commercial document? (5 pts.)

a. It must be in writing and signed by the maker or drawer;
b. Must contain an unconditional promise or order to pay a sum certain in money;
c. Must be payable on demand, or at a fixed or determinable future time;
d. Must be payable to order or to bearer; and
e. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty

Acceptor and hence warranted the following, pursuant to Section 62 of the NIL:
a. He engages to pay the instrument according to the tenor if his acceptance;
b. Warrants the existence of the drawer and his then capacity and authority to draw the instrument;
c. Warrants the genuiness of the drawer’s signature;
d. Warrants the existence of the payee and his then capacity to contract.