Beruflich Dokumente
Kultur Dokumente
CONSIDERATION
What is consideration?
Consideration means inducement to a contract, that is, the cause, motive, price or impelling
influence which induces a contracting party to enter into a contract. It is different from motive
which is the personal or private reasons of a party in entering into a contract
Under this section, the mere introduction of negotiable instrument raises a disputable
presumption of a sufficient consideration. Like all other contracts, a negotiable instrument must
have a consideration or cause. It is not necessary, however, that the consideration be expressly
stated in the instrument. The presumption is that it has been issued for a valuable consideration
and that every person whose signature appears thereon has become a party thereto for value. It
is unnecessary to aver or prove consideration, for consideration is presumed from the fact that it
is a negotiable instrument. Consideration being presumed, it need not be alleged and proved.
But the presumption is only prima facie. It may, therefore, be rebutted by evidence to the
contrary. Thus, the person (maker/drawer or indorser) claiming that a payee or indorsee did not
give valuable consideration for an instrument must prove that there really was no valuable
consideration given.
Let us say M was indebted to P in the amount of P10,000.00. M issued a promissory note which
reads: I promise to pay P or order P10,000.00. Sgd. M. Here, although the promissory note
does not mention the consideration, the law presumes that M must have received a
consideration for the note and the same is lawful. The law does not require that there must be a
statement of consideration because the same is already presumed. The note need not be
written as: I promise to pay P or order P10,000.00 as payment of my debt. Sgd. M.
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 means valuable consideration. Valuable consideration consists either in some right,
interests, profit or benefit accruing to the party who makes the contract, or so, forebearance,
detriment, loss or some responsibility to act or labor, or service given, suffered or undertaken by
the other side.
Consideration founded on (1) love and affection, or (2) upon gratitude, is good consideration,
but does not constitute such valuable consideration as is sufficient to support the obligation of a
bill or note, as between original parties. Included on this are gifts, services without expectation
of compensation, moral obligations. These are not valuable consideration contemplated by the
NIL, although the same are considered so by the Civil Code. A valuable consideration need not
be adequate. It is sufficient if it is a valuable one.
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.
One who gives valuable consideration for an instrument issued or negotiated to him is a holder
for value. A holder of a negotiable instrument is presumed to be a holder for value until the
contrary is shown.
Illustrations
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.
Suppose: Erwin, out of love and affection, issued a promissory note in favor of Anne Marie, “I
promise to pay Anne Marie or order 1,000.00. Sgd. Erwin,” as a birthday gift. But Anne Marie
owes Peter P600.00. Because of the persistence of Peter for Anne Marie to pay him, she
surrenders the instrument to him. Peter is now the holder. Can Peter go against Erwin?
Given the lack of valuable consideration between Anne Marie and Erwin applying Sec. 27, Peter
is considered a holder for value to the extent of his debt or lien of P600.00 and can go against
Erwin for such amount. As to the P400 remaining, as Peter is not considered a holder for value
to such extent, he may not collect it. Absence of consideration, being a personal defense (Sec.
28), can be used as against those not HIDC. Since being a holder for value is one of the
requisites of a HIDC, Peter cannot be considered as HIDC and thus, the defense of lack of
consideration is available to Erwin as against Peter. HOWEVER, if sufficient consideration
existed between Anne Marie and Erwin, Peter may collect the entire sum subject to the
obligation to return the excess to Anne Marie. But if the defense of Erwin is a real defense,
Peter may not recover from the instrument despite his lien.
Absence of consideration is a total lack of any valid consideration such as when the
consideration for commercial paper is clearly fraudulent.
Absence of consideration means a total lack of any valid consideration for the contract, in
consequence of which the alleged contract must fall.
M makes a promissory note to P in payment for a parcel of land which does not exist.
Here, as between the original parties/immediate parties, that is, between M and P, there can be
no recovery on the note as there is absence of consideration. But if P indorses the note to A as
would make him a holder in due course (HIDC), A can recover from M because absence of
consideration is only a personal defense not available against a holder in due course (HIDC)
What is failure of consideration?
Failure of consideration is the neglect or failure of one of the parties to give, to do or to perform
the consideration agreed upon. In other words, something was agreed upon as consideration
but for some cause, such agreed consideration failed to materialized.
In the example given above, if there is really a land owned by P which was sold, but P failed to
deliver to M because P sold it again to X who in good faith took possession of the land, there is
failure of consideration so that P cannot recover from M.
Example 1: Let us assume that in the example above the price of the land is P900,000.00 and
only 2/3 portion of the land was delivered, there would be partial failure of consideration which
would bar/prevent recovery only pro tanto (proportionate). Hence, P could only recover 2/3 of
the note, that is, P600,000.00 as M is not liable to the extent of 1/3, that is, P300,000.00 which
is the price of the undelivered portion.
Example 2: Suppose that in a note for P1,000.00 the extent of want of consideration is only
P600.00, that is, B, payee, gave A, maker, valuable consideration to the extent of P400.00. A
can interpose want of consideration pro tanto, or proportionate only to the extent of P600.00. C,
holder, if he is not a HIDC, can only collect from A P400.00. But, if he were a HIDC, he can
collect the entire amount.
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.
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.
The requisites therefore are: (1) he must be a party to the instrument, signing as maker, drawer,
acceptor or indorser; (2) he must not receive value therefor; and (3) he must sign for the
purpose of lending his name or credit. Thus, it is not a valid defense that the accommodation
party did not receive any valuable consideration when he executed the instrument as the law
requires such absence. (In contrast, under the Civil Law, the absence of consideration renders
the contract defective.) The placing on the note of the words “value received” does not negate
the character of the note as an accommodation paper. The phrase without receiving value
therefor “means without receiving value by virtue of the instrument and not as it apparently is
supposed to mean, without receiving payment for lending his name.
ILLUSTRATION:
ACCOMODATION MAKER—A wanted to borrow money from B. But B would not lend the
money to A because of the former’s bad reputation. B would only lend A the money if the latter
were able to secure the signature of C. A asks C to execute a PN in his (B’s) favor. C makes a
PN, “I promise to pay B or order P1,000.00. Sgd. C.” A then indorses the note to B and A gets
the P1,000.00 from B.
ACCOMMODATION ACCEPTOR— Instead of asking C to accept the bill drawn by him (B) in
this own favor. Then, B indorses the bill (that was accepted by C) to who gives the money.
A holder despite his knowledge that the party he holds liable is just an
accommodation party can still recover from such party as if there was no contract
of accommodation. The knowledge of the holder does not affect his being an
otherwise HIDC. Thus, to hold the accommodation party liable, the holder, except
for the knowledge of want consideration, must meet all the requisites under Sec.
52, that is, the holder for value must have acquired the instrument complete and
regular on its face, before it is overdue and without notice of previous dishonor.
Where he does not meet all these, thus not a HIDC, Sec. 28 not a Sec. 29
applies. The accommodation party may interpose the defense of its being an
accommodation party to a holder not HIDC.
A solidary accommodation party (1) may demand from the principal debtor
reimbursement of the amount he paid; and (2) may demand contribution from his
co–accommodation makers without first directing his action against the principal
debtor provided that (a) he made the payment by virtue of a judicial demand; or
(b) the principal debtor is insolvent.