NEGOTIATION

 Negotiation – transfer of negotiable instrument from one person to another made in

such manner as to constitute the transferee the holder thereof.

 Indorsement should not use the word “assign” because it will constitute assignment instead of
indorsement.

 Place of Indorsement
1. On the back of the instrument itself; or
2. Upon a paper attached thereto

 Indorsement as to method of negotiation

1. Special Indorsement – one where the name of payee is specified
 If instrument is originally payable to order and is indorsed by special indorsement,
indorsement of indorsee is necessary to further negotiation of instrument

2. Blank Indorsement – one which has no specified indorsee.

 If blank indorsement is followed by special indorsement, its further negotiation can only
be effected by the indorsement of the special indorsee.

 A blank indorsement can be converted into a special indorsement by writing

over the signature of the blank indorser any contract consistent with the
character of the indorsement.
 Bearer instrument remains payable to bearer even last indorsement is special.

 Indorsement as to kind of title transferred

1. Restrictive indorsement – one that worded that it restricts entirely the further negotiation
of the instrument.
2. Non-restrictive indorsement

 Indorsement as to the scope of liability of indorser

1. Qualified Indorsement – constitute the indorser a mere assignor of the title of the
instrument (no liability)
 How made: by adding words “without recourse” or words with similar imports.
2. Unqualified indorsement – with liability

 Indorsement as to presence or absence of limitation

1. Conditional indorsement – indorsement w/c is subject to happening of condition
2. Unconditional Indorsement – no condition.
 When an instrument is payable to order of two or more payees or indorsees , all must indorse
except:
1. When they are partners
2. When a payee or indorsee has an authority to indorse for the others

 As a general rule, when an instrument is indorsed to a cashier or other fiscal officer of a

bank or corporation it is assumed that it is to be payable to the bank or corporation. It may
be negotiated by either the indorsement of officer or through any authorized officer.
 When name of payee or indorsee is misspelled it is still negotiable. He can negotiate by
either by signing on the misspelled name or by adding his real name, if he thinks fit.
 As a general rule, negotiation is assumed to have effected before the instrument has been
overdue.
 As a general rule, indorsement is assumed to have been made at the place where
instrument is dated.

 Instances where instrument negotiable in origin becomes non-negotiable

1. When instrument is restrictively indorsed
2. When it has been discharged by payment or otherwise.

 Effects of transfer without indorsement of an instrument payable to order

1. Transferee acquires the right to have the indorsement of the transferor.
2. Transfer vest in the transferee such title as the transferor has in the instrument