Negotiable Instruments Notes: Consideration (Sec. 24 - 29)

II. CONSIDERATION

*Sec. 24. Presumption of consideration. - Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.
  •   proven lack of consideration - w/o effect and payment is NOT demandable

Sec. 25. Value, what constitutes. — Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time. 
  • Value - induce/cause/motive/price/influence to enter a contract

  • includes:

    • 3rd party's pre-existing debt

    • bank credits

    • surety or guarantor

  • excludes: 

    • love and affection

    • gratitude

Sec. 26. What constitutes holder for value. - Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time. 

  • NOT limited to known, even if NOT known = holder for value


Sec. 27. When lien on instrument constitutes holder for value. — Where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.

Sec. 28. Effect of want of consideration. - Absence or failure of consideration is a 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 amount or otherwise. 
  • Absence v. failure of consideration - personal or equitable defense (as against holder NOT holder in due course) (see Sec.52 inadequacy of consideration)

    • want or absence of consideration - transactions where NO consideration was intended to pass

    • failure of consideration - giving of valuable consideration was contemplated but it failed to pass

  • acceptor - liable to holder even in absence of consideration

  • partial = defense pro tanto (proportionate)

Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. 

  • Applies only when holder in due course (sec. 52) (includes holder for value); otherwise apply sec. 28

  • GR: accodation party -liable to holder for value even if knew only for accodomation

  • EX: corp. - NOT liable even to holder for value - ultra vires - officers personally liable

  • req

    • signed the instrument as 

      • accomodation maker

      • accomodation drawer

      • accomodation acceptor - liable primarily

      • accomodation indorser

    • without receiving value

    • signed for the purpose of lending his name or credit

  • parol evidence - valid

  • rights of accomodation party (secondarily liable)

    • right to sue the accomodated party (real debtor) for reimbursement

    • solidarily liable w/ other accomodation party

    • accomodated party is to

1.           reimburse 
2.           pay directly to holder