of the instrument is prima facie a holder in due course does not apply.

Presumption not applicable when the holder’s title was defective or suspicious. As holder’s title was
defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of said defect in
holder’s title, and for this reason, the presumption that he is a holder in due course or that it acquired the instrument
in good faith does not exist.

 Reason for the rule. The guilty maker or holder of an instrument vitiated by fraud or illegality will naturally
seek to put it in the hands of some other person in order to cut off the defense to which the instrument is
subject, and a presumption arise against the bona fide of the transfer

CHAPTER 6: Parties who are Liable

NATURE OF LIABILITY

Primary and Secondary Liability

The holder is the person or entity who is given the right to demand the performance of the obligation
reflected in the negotiable instrument, that is, the obligation to pay a sum certain in money.

The passive subject (obligor/debtor) against whom the holder can enforce the right represented in the
instrument are the persons who are primarily liable and the persons secondarily liable.
1. Primarily liable: the person, who, by the terms of the instrument, is absolutely required to pay
the same.
2. Secondarily liable: if he engages that, on due presentment, the instrument shall be accepted or
paid, or both as the case may be, according to its tenor, and that if it be dishonoured and the
necessary proceedings on dishonour are duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to pay it. In other words, the
person secondarily liable promises to pay if the person primarily liable refuses or fails to pay.

Liability vs. Warranty

Liability: the primary or secondary liability of the parties makes them liable to pay the sum certain in
money stated in the instrument.

Warranty: affirmations of fact on the part of the parties that impose no direct obligation to pay in the
absence of breach thereof.

An action on the indorser’s special contract of indorsement is conditioned on presentment, and notice
of dishonour; his liability for breach of warranty is not so conditioned. Furthermore, the action on the
special contract cannot be brought until the maturity of the instrument while the action for breach of
warranty, occurring as it does at the time of the transfer, may be brought at any time.

Who is Liable for What?

Primary Liabilities

MAKER
1. Engages to pay according to the tenor of the instrument;
 2. Admits the existence of the payee and his capacity to indorse.

ACCEPTOR (Sec. 62 – as to the warranties)

1. Engages to pay according to the tenor of his acceptance;
2. Admits the existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument;
Admits the existence of the payee and