Can you see our presentation?

NEGOTIATION
Group 1
 What constitutes negotiation?
Sec. 30. What constitutes negotiation. - An instrument
is negotiated when it is transferred from one 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 and
completed by delivery.
What is indorsement?
Indorsement is the writing of the name of the payee
on the instrument with the intent either to transfer
the title of the same, or to strengthen the security of
the holder assuming a contingent liability for its
future or both.
How is it made?
Section 31: Indorsement; how made-
The instrument must be written in the instrument itself
or upon a paper attached thereto. The signature of the
indorser, without additional word, is a sufficient
indorsement.
Indorsement involves the certainty of two things
.

1. The Identity of the indorser.

2. The genuineness of his signature.
FORM OF INDORSEMENT
Written or In Writing

As "writing" includes "print", the indorsement made by rubber stamp or typewritten on the instrument complies
with the requirement. The use of the word "assign" does not make a negotiation a mere assignment.

For example:
"I hereby assign all my rights and interests in this note. (Sgd.) P."

Clearly, it cannot be said that P intends to limit the rights of the person to whom he transfers the Instrument.
Blank Indorsement
Instrument

According to Section 31, the signature of the indorser,

without additional words, is a sufficient
indorsement.
 SPECIAL INDORSEMENT
The name of the indorsee is specified
The indorser, however, may add words which prohibit or limit the further negotiation of the instrument.

ILLUSTRATIVE CASE:
(Hutson v. Rankin, 213 Pac. 345.)
Guaranty by payee at the back of the note is followed by his signature.
Facts:
At the back of a promissory note payable to order issued by M, the following notation appears: "For value received I
hereby guarantee payment of the within note including interest and costs at maturity or at any time thereafter
demanded." (Sgd.) P (payee) Before maturity of the note, A became the bona fide purchaser thereof, for value and
without notice of any defense thereto. A brought suit to recover upon the note. M argued that the guaranty provision
on the back standing alone was not an indorsement and the note was not thereby negotiated but merely transferred
or assigned subject to defenses existing in favor of the maker against the original payee.
Issue: Did the guaranty followed by the signature of P amount to an indorsement?
Held: There are two conflicting lines of authority. The reasoning of authorities which support the position of M is
that the indorsement is not in blank, but is filled up; that it expresses fully the contract, and can raise no implication
of another. The majority of decisions hold that the guaranty operates as an indorsement with enlarged liability. But
such a guaranty is wholly inoperative until the note is transferred by the payee to a third party.
PLACE OF INDORSEMENT
Where made?
- On the instrument itself

Indorsement is derived from the Latin word indorsa. Literally,

it means "writing on the back/'. While indorsement is usually
written on the back, it may be written on the face of the
instrument; or
Upon a paper attached thereto. — Where the indorsement is on
a slip of paper physically attached to the instrument so as to
become part of it, die paper is known as allonge.

NB: The place is not essential. The law looks to the intention of
the parties rather than to the form as to indorsement. When it
is not clear in what capacity a person intended to sign, he shall
be deemed an indorser.
USE OF ALLONGE FOR INDORSEMENT

The question as to whether an allonge can be used whether or not there is still room in the
instrument has given rise to much conflict. Although the law makes no distinction, the better
view seems to be that it is immaterial whether there is still room or not.

"Why should such a space be material when some indorsements are on an attached piece of
paper?"

In neither case does the leaving of a blank space facilitate fraud, since nobody would gain any
advantage by inserting his name in the space and rendering himself liable to those who
indorsed below him upon the note or the allonge.
Sec. 32. Indorsement must be of entire instrument. – The indorsement must be an
indorsement of entire instrument. An instrument which purports to transfer to the
indorsee a part only of the amount payable, or which purports to transfer the instrument
to two or more indorsee severally, does not operate as a negotiation of the instrument. But
where the instrument has been paid in part, it may be indorsed as to the residue.
 Illustration:

“Pay to A P8,000.” Leaving the balance without

indorsement is not a valid negotiation of the instrument.

An indorsement of a note for P10,000 which is “Pay to

A” or “Pay to A P10,000” is a good indorsement.
INDORSEMENT TO MULTIPLE PAYEES

(1) JOINT PAYEES. – Similarly, an indorsement purporting to transfer the instrument to two
or more persons SEVERALLY does not operate as a negotiation of the instrument for again the
cause of action is split. However, the negotiation is valid where the indorsees are JOINT.

(2) ALTERNATIVE PAYEES. – instruments are sometimes payable to two or more alternative
payees. In such case, the negotiation of the instrument may be made by the indorsement of
either of the payees.
Example:

An indorsement of a note for P10,000 as follows: “Pay to A P8,000, and pay to B, P2,000”
does not operate as a negotiation of the note; neither A nor B can sue or further indorse. But
“Pay to A and B” is valid negotiation.

If the note provides: “Pay to A or B”, either A or B may indorse the instrument.
WHEN PARTIAL INDORSEMENT IS ALLOWED

If part of the amount has already been paid,

the unpaid balance may be indorsed as this is
expressly authorized by law.
SECTION 33.Kinds of Indorsement. — An indorsement may be either special or in blank; and it
may also be either restrictive or qualified, or conditional.
CLASSIFICATION OF INDORSEMENT
SECTION 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.
SPECIAL INDORSEMENT
Definition:

- One where the name of the payee is specified.

- Also known as “specific indorsement” or indorsement in
full
- “Unqualified indorsements”
FORMS OF SPECIAL INDORSEMENT

(a) One that specifies the person to whom the instrument is payable. Ex: “Pay to A”
(b) One that specifies the person to whose order the instrument is to be payable. Ex:”Pay to
the order of A” or “Pay to A or order”
NEGOTIATION OF ORDER OR BEARER INSTRUMENT

A. If instrument is originally payable to order – if it is negotiated by the payee by special

indorsement, the indorsement of the indorsee is necessary to the further negotiation of the
instrument.

B. If instrument is originally payable to bearer – may be negotiated by mere delivery even if the
original bearer indorsed it specially. However, the indorser is liable only to such holders as may
make title through his indorsement.
BLANK INDORSEMENT
Definition:

One which specifies no particular indorsee.

Such generally consists only of the signature
of the payee or indorser.

Effect of a blank indorsement

An instrument indorsed in blank becomes
payable to bearer. Thus, it may be negotiated
by mere delivery regardless of whether the
instrument is originally payable to bearer or
not.
SECTION 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.
Conversion of blank indorsement to special indorsement