CONDITIONAL INDORSEMENT
that person as INDORSER, specifically an
Basically, it is one which contains or imposes a
CONDITION on the negotiable instrument. For an instrument
to be negotiable, is it not supposed to be unconditional? YES,
Sec. 1 provides an UNCONDITIONAL promise or order to pay
a sum certain in money. But going with your conditional
obligation, does it affect the negotiable character of the
instrument? The answer is NO.
Note that in (your) acceptance (later on), there
could also be a general acceptance and a conditional
acceptance. If we are talking about a BoE, there is now a
demand made upon the drawee.
So how does a conditional indorsement affect an
instrument? The answer is NONE.
What will be the effect of the condition? Actually, it’s
useless.
What about on the part of the indorsee (the person to
whom the instrument is given) whether there is a
conditional indorsement)? The indorsee may choose to
follow the condition or even completely disregard the
condition, under what reason or ground? Sec. 1 requires all
NIs to be unconditional. Yun nga lang in Sec. 1, the
requirement of ‘unconditional instrument’ must appear on
its face. Meaning, yung face mismo ng instrument. Dapat dun
sa face or front portion of the instrument, there must be NO
condition. If the condition will appear anywhere else – in the
acceptance, in the indorsement, or any other place other
than the face of the instrument; then the instrument remains
to be negotiable. If it so happens that the condition appears
on the face, then the instrument becomes NON-negotiable. Of
course, the condition may be suspensive or resolutory.
What if the condition is illegal or immoral, will the
instrument be affected? The answer is NO. An indorsement
is only an accessory to the NI. If the condition is illegal or
immoral, then the indorsement is rendered ineffective BUT
the instrument remains to be valid.
------------------------------------------------------------------Recap
of special, blank, restrictive, and qualified indorsement
with some additional information and details: Going with
your special indorsement vs. a blank indorsement, we are all
about identifying the payee. In a special indorsement, the
payee is specified. That means to say, the payee is secured in
the instrument kasi sya yung nakapangalan eh, the
instrument will not be given to anyone else because
precisely, a certain person is named as payee in a special
indorsement. Simple definition, a special indorsement
specifies the payee. A blank indorsement, on the other hand,
does not specify the payee. Know that you also have regular
and irregular indorsements, those are overshoots of these
types of indorsements.
A regular indorsement is an indorsement indicated by a
person in the process of negotiation.
An irregular indorsement, on the other hand, is a signature
appearing in the instrument without us knowing who this
person is.
 Remember the ambiguities? If there is a signature
indicated in the instrument and we do not know in
what capacity this signature was indicated, we treat
IRREGULAR INDORSER. Why do we treat him as an
indorser? Because there is no other way to treat
him.
In a blank indorsement, the payee was not specified.
What is its effect? Still, the instrument remains to be
negotiable but as to negotiability, dun tayo
magkakaproblema because if the instrument is originally
payable to order, how should that order instrument be
negotiated? By indorsement coupled with delivery.
How should a bearer instrument be negotiated? By
simple delivery.
Can a bearer instrument be negotiated by an
indorsement with delivery? YES.
Does it change the character of the instrument? No. Ano
yung rule natin, pag ka originally bearer and it is discharged,
it is still payable to bearer (once a bearer, always a bearer xD
rhymes with once a cheater, always a cheater. Haha
charaught lunggsss xD).
What about if it is payable to order? It now dependes on
the kind of indorsement. Let’s say payable to order sya, it was
indorsed specially, it is still payable to order, indorsed
specially 7 more times, it is still payable to order. What if the
8th indorsement is an indorsement in blank, then the order
instrument is converted into a bearer instrument. It may
now be negotiated by simple delivery. Ang problema, what if
may sumulpot na naman na special indorsement, balik sya
ngayon sa payable to order.
But in talking about indorsements in blank. We may expand
the provision further, HINDI porke sinabing the payee is not
specified, ibig sabihin blangko na sya, signature land sya. It
may be:
Pay to cash.
Sgd. X
You will also apply the principles applicable to instruments
payable to bearer. If the name of the payee does not purport
to be the name of any person, or the person to be paid is
inexistent or otherwise fictional. Same rules yan.
In a restrictive indorsement, it is also a special
indorsement in the sense that the indorsement must specify
the payee.
Can there be a restrictive indorsement in blank? No.
Example:
Pay to __________________ ONLY.
Sgd. X
It looks like a restrictive indorsement. But it is STILL AN
INDORSEMENT IN BLANK because the payee is not specified.
Any person may be the holder because any person may
indicate his name.
Your book says that a restrictive indorsement is essentially a
special indorsement. Why? because it specifies the payee.
Example:
Pay Y ONLY.
Sgd. X
Does it affect the validity of the instrument? NO.
Does it affect negotiability? YES. It ends negotiable
character.
NOTE: For there to be a restrictive indorsement, it must also
be a special indorsement (specified the kasi yung payee).
* If an instrument is restrictively indorsed, it CANNOT be
further negotiated.
* A restrictive indorsement ends the character of
negotiability. The instrument remains to be valid but it is no
longer negotiable. It cannot be further negotiated BUT it can
be transferred by other modes like sale, donation,
assignment, succession.
The problem is with the qualified indorsement. There is
what we call in practice a QUALIFIED ADMISSION (you will
learn this in your law on evidence). We use the qualified
admission if we would like to attack a proposition without
necessarily showing any vulnerability. Kumbaga, for the sake
of argument. When you write your pleadings, you can use
“for the sake arguendo” etc. it means you are NOT technically
admitting but you are making an admissi0on for the sake of
arguing your position. You do that when you have
affirmative defences. “For the sake of argument, sabibin
nating tama ka, sabihin nating may utang talaga ako sayo,
actually bayad na yun eh.” You are not actually admitting it
but you are theoretically admitting it just for the purpose of
you going to be making an argument.
In a qualified indorsement, there is an indorsement of an
instrument BUT you are reserving your liability. Ang
mangyayari, you are negotiating the instrument, you are
going to be making a special indorsement: “Pay to Y
WITHOUT RECOURSE/SANS RECOURSE.” Whar do you
mean by that? In effect, sinasabihan mo si drawee, “Bayaran
mo si Y pero wala na akong liability jan, hands off na ko.” That
means to say, if ever the instrument would be dishonoured,
secondary liability would set in diba? When the instrument
is dishonoured, there is secondary liability. Question, if you
are a qualified indorser, will you be secondarily liable?
NO. Who will be secondarily liable? Other indorsers, if
there are; or the drawer, if there is. Ikaw hindi ka liable.
Q: Is it not unfair? That is what the law provides. The law is
not always fair.
That means to say, what happened here was an
ASSIGNMENT not a negotiation.
NEGOTIATION VS. ASSIGNMENT OF RIGHT
When you negotiate an instrument, you are making payment
using the instrument. That means to say, you transfer
whatever rights you have as a HiDC or as a holder not in due
course. Kung anong meron ka, ibibigay mo, along with all the
other rights that a holder has under the law. Ano bang rights
ng HiDC? To sue for the instrument for the full amount, to
hold the instrument free from defects acquired by prior
parties, right to demand payment. If you are a HiDC, mas
marami kang karapatan. But if you are making a qualified
indorsement, you are transferring the instrument NOT as a
holder BUT as an assignor.
In NEGOTIATION: You transfer your rights at the same time
you transfer to your transferee all of the rights of a holder
under the law.
In ASSIGNMENT: You also transmit the rights that you have,
if any.
To illustrate: You took the instrument under a defect of title
or by reason of a mistake which affects your title. Are you a
HiDC? No. if you transfer the instrument by negotiation, will
your transferee be a HiDC? It depends (go back to the
requisites of HiDC).
If you are not a HiDC but you negotiated the instrument to a
HiDC, what rights does your transferee have? All your rights
at the same time all the rights of a HiDC because that is
negotiation. What if gumawa ka ng qualified indorsement
and you are not a HiDC, your title is defective. The title that
you will transmit to your assignee is also a defective title.
Does he have rights of a HiDC? None. Why? Because the
instrument was not negotiated by you. It was just assigned
to him.
In assignment of a contract, you can assign your
rights to another person but you can assign only the rights
you have, if any. If your right is defective, then so be it, you
transmit a defective right. That is what assignment is.
So ito:
Pay to Y WITHOUT RECOURSE.
Sgd. X
You will note here that when X made this indorsement, he is
limiting his own liability. Now under the law, whenever you
negotiate an instrument, you subject yourself to potential
secondary liability. Using NIs have several benefits but this
one is a risk – secondary liability. Because when you
indorsed an instrument and it so happens that the
instrument was dishonoured later on, you may be
subsidiarily liable.
When a qualified indorser (which we cannot
actually call an indorser because there is no negotiation)
transmits the instrument, there is only an assignment. Going
back, whenever you transmit/transfer an instrument by way
of negotiation, remember this: you are also subjecting
yourself to potential secondary liability. That is one of the
risks of using a NI and that is also one of the risks of
negotiating an instrument by way of indorsement with
delivery. Eh paano kung order instrument yan where you
have to indorse? Whenever you negotiate an order
instrument, you do have to indorse and deliver, that means
to say automatically secondarily liable ka. How do we limit
that liability? What if bearer instrument sya, what is now the
effect of specially indorsing a bearer instrument? As far as
the instrument is concerned, payable to bearer pa rin sya,
diba BUT as far as the indorser is concern, magiging
secondarily liable sya kahit bearer instrument because he
indorsed the instrument.
Note: Coverage for Midterm Exam: From Sec. 1 up to the end
of Chapter III.