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1.

Delivery & Issuance


a. 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
i. 191 par 6 NIL: delivery of the instrument = transfer of
possession, actual or constructive, from one person to another
ii. Without the initial delivery of the instrument from the maker to
the payee, there can be no liability on said instrument + such
delivery must be intended to give effect to the instrument
1. Giving of instrument to another for mere safekeeping
delivery
2. 16 NIL Where the instrument is no longer in the
possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed until the
contrary is proved. Where the instrument is in the hands
of a holder in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to him is
conclusively presumed.
3. NIL 191 par 10: 1st delivery of the instrument complete in
form to a person who takes it as a holder =
issue/issuance of the instrument
b. In Re Martens Estate
i. TC denied appellants claim against the estate because of the
failure to establish that the note was delivered during the
lifetime of the deceaseddeed was prepared and executed; she
told others that she wanted the plaintiffs to have the property
and that she had prepared papers for providing. She put the
deeds in her safety box and retained the key
2. Negotiation
a. Sec 30 WHAT CONSTITUTES NEGOTIATION.- An instrument is
negotiated when it is transferred from 1 person to another in such
manner as to constitute the transferee the holder thereof. If payable to
bearer it is negotiated by delivery; if payable to order it is negotiated
by the indorsement of the holder completed by delivery
b. Sec 191 DEFINITIONS AND MEANINGS OF TERMS.
i. Bearer means the person in possession of a bill or note which
is payable to bearer
ii. Holder means the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof; payee is a holder
therefore an issuance is a negotiation
iii. Assignee cannot be a holder and a holder cannot be an assignee
c. Transfer is a broader term than negotiation. If an instrument is
transferred without negotiation, the transfer is a mere assignment
which constitutes the transferee as a mere assignee, not a holder,

subject to all defenses existing among prior parties. Transfer thus


includes both an ordinary assignment and a negotiation
3. Methods of negotiation
a. Instrument payable to order
i. Indorsement by the payee or present holder
1. NIL 31 Consists of the signature of the indorser usually on
the back of the instrument
2. NIL Sec 66 double significance of indorsement
a. Constitutes a transfer or sale of the instrument to
the indorsee or transferee
b. Signifies the agreement of the indorser to answer
for the amount represented by the instrument in
case of default of the maker or the party primarily
liable
ii. Delivery to the transferee or indorsee who now becomes the
holder
b. Instrument payable to bearer
i. Negotiated by mere delivery
ii. Indorsement by a bearer instrument does not impair the
negotiation but serves as an additional security to the
transferee, since he can hold the indorser liable as such i.e. not
only his warranties as the seller of the bill or note, but also his
warranty that he will pay in case of default of the primary party
iii. One who negotiates by mere delivery, although he assumes the
liabilities of a seller or transferor of the note or bill, does not
warrant that he will pay in case the primary party fails to pay
c. Mere transfer of negotiable instrument
i. When an order instrument is delivered by the payee or special
indorsee without his indorsement or where the indorsement is
not made properly as required by the law
1. The transfer is an ordinary assignment of the transferors
rights and places the assignee in the place of the
assignor, subject to the defenses which may be existing
between the prior parties.
4. How indorsement made
a. By signature or instrument or on allonge/separate paper
i. Sec 31 INDORSEMENT; HOW MADE.- The indorsement must be
written on the instrument itself or upon a paper attached
thereto. The signature of the indorser, without additional words,
is a sufficient indorsement.
ii. Clark v. Thompson, et al
1. An allonge can be validly used only when there is no
longer any room on the instrument for further
indorsements, otherwise the transfer will not be sufficient
to constitute the transferee a holder. He will thus be
subject to defenses such as failure of consideration

2. A written transfer of a note, made on a separate paper to


which it was pinned, there being room on the back of the
note itself for the transfer, was an assignment merely,
and not a commercial indorsement.
b. In case of joint payees
i. Payable or indorsed to A and B joint payees and an
indorsement by either A or B only will note constitute a valid
negotiation so as to free the instrument from defenses, unless
the one indorsing is authorized by the other.
ii. Payable to A or B alternative payees and either one may
validly negotiate
c. If name misspelled
i. Sec 43 INDORSEMENT WHERE NAME IS MISSPELLED, AND SO
FORTH.- Where the name of a payee or indorsee is wrongly
designated or misspelled, he may indorse the instrument as
therein described, adding, if he thinks fit, his proper signature
ii. Young v. Hembree
5. Indorsement must be of entire instrument
a. Sec 32 INDORESEMENT MUST BE OF ENTIRE INSTRUMENT.- The
indorsement must be an indorsement of the entire instrument. An
indorsement which purports to transfer to the indorsee a part only of
the amount payable, or which purports to transfer the instrument to 2
or more indorsees severally, does not operate as a negotiation of the
instrument. But where t instrument has been paid in part, it may be
indorsed as to the residue
b. Purpose of provision is to protect obligors from more than 1 action on
the instrument
c. Where the payees or indorsees are joint, i.e., Pay to A and B, the
negotiation is valid
d. Provision does not prohibit discounting of the instrument
e. An indorsement which does not comply with sec 32 is not necessarily
a void transfer because it could still be an assignment which subjects
the holder to all defenses on the instrument
f. Blake v. Weiden
i. When there has been a purported indorsement of the whole
instrument, in separate parts to 2 or more transferees, the
purported indorsees take legal title to their several shares and
may sue together, or any one or more may sue provided all the
other indorsees are brought in as parties
6. Kinds of indorsements
a. Sec 33 KINDS OF INDORSEMENTS.- An indorsement may be either
special or in blank; and it may also be either restrictive or qualified or
conditional.
b. Basis of Classification
i. Only the signature of the indorser appears blank indorsement

ii. Additional words may be added which modify the rights of


subsequent holders or the liabilities of the indorser
c. Special & blank indorsements (has to do with the future method of
negotiation whether my indorsement and delivery or delivery alone)
i. Sec 34 SPECIAL INDORSEMENT; INDORSEMENT IN BLANK.- A
special indorsement specifies the person to whom, or to whose
order, the instrument is to be payable; and the indorsement of
such indorsee is necessary to the further negotiation of the
instrument. An indorsement in blank specifies no indorsee, and
an instrument so indorsed is payable to bearer, and may be
negotiated by delivery
1. 2 kinds of special indorsement
a. Pay x or pay x or order words of negotiability
dont need to appear in indorsement
ii. Sec 40 INDORSEMENT OF INSTRUMENT PAYABLE TO BEARER.Where an instrument, payable to bearer, is indorsed specially, it
may nevertheless be further negotiated by delivery; but the
person indorsing specially is liable as indorser to only such
holders as make title through his indorsement.
1. The apparent conflict between sections 34 and 40 can be
settled by applying 40 only to originally bearer
instruments common law rule
2. A person who negotiates by mere delivery is liable
only to his immediate transferee. A special indorser
however is liable to subsequent holders, unless the
instrument is an originally bearer instrument in
which case he is liable only to those who take title
through his indorsement
iii. Sec 35 BLANK INDORSEMENT; HOW CHANGED TO SPECIAL
INDORSEMENT.- The holder may convert a blank indorsement
into a special indorsement by writing over the signature of the
indorser in blank any contract consistent with the character of
the indorsement
iv. An instrument payable to order on its face may be converted
into a bearer instrument by means of a blank indorsement, and
may later be reconverted into an order instrument by a
subsequent special indorsement, the last indorsement always
controlling the means of further negotiation
v. An instrument payable to bearer on its face always remains a
bearer instrument whether the last indorsement is a blank or
special one. An indorsement of a bearer instrument does not
convert it to an instrument payable to order
d. Qualified indorsement lies in the scope of the liability assumed by
the indorser

i. Sec 38 QUALIFIED INDORSEMENT.- A qualified indorsement


constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorsers
signature the words without recourse or any words of similar
import. Such an indorsement does not impair the negotiable
character of the instrument.
ii. By adding the words without recourse above his signature, the
indorser expressly rids himself of the second implied contract
entered into by an indorser (a contract to pay the instrument if
the maker is unable to pay on maturity)
iii. Words of similar import = sans recourse, at indorsees own
risk
iv. A qualified indorser agrees merely to transfer legal title to the
instrument
v. The transfer would still be a negotiation and the transferee
would still be a holder capable of acquiring a title free from
defenses of prior parties. The only effect of the qualified
indorsement is to relieve the qualified indorser of his liability to
pay the instrument should the maker be unable to pay at
maturity. He does not guarantee the solvency of the maker, but
merely his legal title to the instrument. The qualification has no
effect on the negotiability of the instrument and it may be
further negotiated with the same freedom as if it had not been
so indorsed
vi. In the absence of clear and unmistakable language qualifying his
liability, an indorser will be liable on both his contracts
vii. Words guaranteeing the makers payment on maturity will not
impliedly exclude the contract of sale or assignment
viii. Fay v. Witte words expressing assignment of title to the
instrument cannot by implication exclude the indorsers second
contract
ix. Copeland v. Burke
x. Hutson v. Rankin it has become the generally established rule
that an indorsement written on the back of a note in the form of
a guaranty of the payment thereof, and signed by the payee,
passes title to the paper the same as an indorsement in blank
e. Conditional indorsement has to do with the presence or absence of
express limitations put by the indorser upon the primary obligors
privileges of paying the holder
i. A conditional indorsement is one where an additional condition
is annexed to the indorsers liability.
ii. Such condition must be express; it does not affect the
negotiability of the instrument because the original promise or
order remains unconditional

f.

iii. Sec 39 CONDITIONAL INDORSEMENT- Where an indorsement is


conditional, a party required to pay the instrument may
disregard the condition, and make payment to the indorsee or
his transferee, whether the condition has been fulfilled or not.
But any person to whom an instrument so indorsed is
negotiated, will hold the same, or the proceeds thereof, subject
to the rights of the person indorsing conditionally (he becomes a
trustee)
Restrictive indorsementhas to do with kind of title transferred
i. Sec 36 WHEN INDORSEMENT RESTRICTIVE.- An indorsement is
restrictive, which either:
1. Prohibits the further negotiation of the instrument; or
a. May still be transferred but it will be a mere
assignment
2. Constitutes the indorsee the agent of the indorser; or
a. Ex. pay to x for collection
3. Vests the title in the indorsee in trust for or to the use of
some other person.
a. Ex. pay to x for ys use
But the mere absence of words implying power to negotiate
does not make an indorsement restrictive.
ii. Sec 37 EFFECT OF RESTRICTIVE INDORSEMENT; RIGHTS OF
INDORSEE.- A restrictive indorsement confers upon the indorsee
the right:
1. To receive payment of the instrument;
2. To bring any action thereon that the indorser could bring
3. To transfer his rights as such indorsee, where the form of
the indorsement authorizes him to do so.
But all subsequent indorsees acquire only the title of the first
indorsee under the restrictive indorsement

iii. Subsequent indorsees acquire only the title of the first indorsee
under a restrictive indorsement
iv. White v. National Bank
7. Indorsement to or by collecting bank
a. Where the holder deposits the check with a bank other than the
drawee, he would in effect be negotiating the check to such bank,
since he would have to indorse the check before the bank will accept it
for deposit
b. Leonardi v. Chase National Bank
i. Leonardi: holder
ii. Bank of manhattan: drawee
iii. Bank of bay: collecting bank
iv. Chase: correspondent bank

v. When does relationship change from principal-agent to creditordebtor?


c. See concept of irregular indorsement in rcbc case
8. Negotiation by joint or alternative payees or indorsees
a. Sec 41 INDORSEMENT WHERE PAYABLE TO 2 OR MORE PERSONSWhere an instrument is payable to the order of 2 or more payees or
indorsees who are not partners, all must indorse, unless the one
indorsing has authority for the others.
i. Provision has to be interpreted in light of our own law of
partnership because under common law, a partnership has no
personality separate and distinct from the partners composing
it, unlike our civil law of concept of partnership as a juridical
person
ii. If one of several joint payees or joint indorsees indorses his own
name and, without authority from his co-obligee, indorses the
latters name and delivers the instrument to a purchaser, such
transaction does not constitute a negotiation of the instrument.
But it has been held that one of 2 joint payees, by indorsement
and delivery of the instrument to his co-payee, may transfer full
title to the latter.
9. Unindorsed instruments
a. Sec 49 TRANSFER WITHOUT INDORSEMENT; EFFECT OF.- Where the
holder of an instrument payable to his order transfers it for value
without indorsing it, the transfer vests in the transferee such title as
the transferor had therein, and the transferee acquires, in addition, the
right to have the indorsement of the transferor. But for the purpose of
determining whether the transferee is a holder in due course, the
negotiation takes effect as of the time when the indorsement is
actually made.
i. The transferee of an unendorsed instrument may become a
holder by obtaining the indorsement of his transferor. It is only
at this time that the instrument can be considered as having
been negotiated. As to what kind of indorsement such transferee
is entitled to, the majority view is that, unless there is proof of
an agreement to the contrary, he has a right to an unqualified
and not merely a qualified indorsement
ii. Gratuitous transferee of an unendorsed instrument has a right to
sue on an instrument as a legal owner thereof but does not have
the right to compel the indorsement of his donor
iii. What is a clearing endorsement? bitanga
b. Simpson v. First National Bank of Roseburg
c. Furbee v. Furbee
i. Wrong to say holder, he was a mere tran
d. Whistler v. Forster
10.Cancellation of indorsements

a. Sec 48 STRIKING OUT INDORSEMENTS.- The holder may at any time


strike out any indorsement which is not necessary to his title. The
indorser whose indorsement is struck out and all indorsers subsequent
to him are thereby relieved from liability on the instrument
i. Cancellation of indorsements would be proper in order
instruments where the instrument, after several negotiations, is
indorsed back to a previous indorser
ii. See NIL Sec 50 and 121
11.Indorsement by agent
a. Sec 44 INDORSEMENT IN REPRESENTATIVE CAPACITY.- Where any
person is under obligation to indorse in a representative capacity, he
may indorse in such terms as to negative personal liability.
i. NIL 19: an instrument may be indorsed either personally or
through an agent. And the authority of the agent need not be in
writing
ii. In so signing, an agent should make it plain that he is merely
signing in behalf of the principal, otherwise he may be held
personally liable
12.Presumption as to indorsements
a. Sec 45 TIME OF INDORSEMENT; PRESUMPTION.- Except where an
indorsement bears date after the maturity of the instrument, every
negotiation is deemed prima facie to have been effected before the
instrument is overdue.
b. Sec 46 PLACE OF INDORSEMENT; PRESUMPTION Except where the
contrary appears, every indorsement is presumed prima facie to have
been made at the place where the instrument is dated.
i. Although indorsements after maturity are good to transfer title,
they prevent a holder from becoming a holder in due course,
thus subjecting him to defenses, if any. The
ii. The law of the place of dating will govern any controversy
should there be a conflict of laws
c. Sec 42 EFFECT OF INSTRUMENT DRAWN OR INDORSED TO A PERSON
AS CASHIER.- Where an instrument is drawn or indorsed to a person as
cashier or other fiscal officer of a bank or corporation, it is deemed
prima facie to be payable to the bank or corporation of which he is
such officer and may be negotiated by either the indorsement of the
bank or corporation, or the indorsement of the officer.
i. The word corporation in Sec 42 does not include cities and
towns and confers no authority upon the town treasurer to
impose upon his town the liability of an indorser, although an
instrument payable to the treasurer of the town x in legal
aspects stands on the same footing as if payable to the town
which is the real payee
13.Continuation of negotiable character

a. Sec 47
CONTINUATION OF NEGOTIABLE CHARACTER.- An
instrument negotiable in its origin continues to be negotiable until it
has been restrictively indorsed or discharged by payment or otherwise.
i. Sec 37 recognizes the right of the restrictive indorsee to further
negotiate the instrument
ii. Sir ty: payment by primary party