V

NEGOTIATION and INDORSEMENTS

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 t h e ~ and completed by
delivery. Je c ,
/ qI
Sec. 31. Jndorsement; 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.
Sec. 32. Jndorsement 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 two or more indorsees 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.
Sec. 33. Kinds of indorsement.-An indorsement may be
either special or in blank; and it may also be either restrictive or
qualified or conditional.
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 {urther 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.

. Sec. 35. Blank indorsement; how changed to special

indorsement.-The holder may convert a blank indorsement into a

118
 V. NEGOTIATION
AND INDORSEMENTS
119

ecial indorsement by writing

sP t . over the si
blank any con ract consistent with th gnature of the indorser in
e characte Of th ·
Sec. 36. When indo r e indorsement.
. . . rsement restr. . .
restrictive which either: ictive.-An 1ndorsement is
(a) Prohibits the further negoti t ·
. . a ion of the instrument; or
(b) Constitutes the 1ndorsee the
. . agent of the indorser; or
(c) Vests the title 1n the indorsee · t t
other persons. in ruS for or to the use of some

But the mere absence of words i~ 1 . .

es not make an indorsement . . P ying power to negotiate
do restrictive.

. A Effect
Sec. 37. . . of. restrictive in
. d orsement; rights
. of
indorsee.-
· ht· restrictive 1ndorsement con£ers th · d h
upon e 1n orsee t e
rig .
(a) to receive payment of the instrument·
'
(b) to bring any action thereon that the indorser could bring;
(c) !o transfer his rights as such indorsee, where the form of the
1ndorsement authorizes him to do so.
But all subsequent indorsees acquire only the title of the first
indorsee under the restrictive indorsement.

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 indorser's signature
the words "without recourse" or any words of similar import. Such
an indorsement does not impair the negotiable character of the
instrument.
Sec. 39. Conditional indorsement.-Where an indorsement
is conditional, the 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.
Sec. 40. Jndorsement of instrument payable to be~rer.- .
Where an instrument, payable to bearer, is ~ndorsed specially, 1t
may nevertheless be further negotiated by delivery; but the person
 INSTRUMENTALLY YOURS, A HANDBOOK IN
120 NEGOTIABLE INSTRUMENTS LAW

indorsing specially is liable as indorser to only such holders as make

title through his.indorsement.
Sec. 41. Jndorsement where payable to two or more
-Where an instrument is payable to the order of two 0•
persons. 11 t ·
more payees or indorsees who are _not P:111'ners, a mus mdorfl(!
unless the one indorsing has authority to mdorse for the others.

Sec. 42. Effect of instrument drawn or indorsed to a

person as cashier.-Where an instrument is drawn or indorsed to
a person as "cashi,er" 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 illdorsement of the
officer.
Sec. 43. Jndorsement 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.
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.

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 was overdue.
Sec. 46. Place of indorsement; presumption.-Except
wh~re the contrary appears, every indorsement is presumed prima
facie to have been made at the place where the instrument is dated.

Sec. 47
instrument n; Contin
. . u? t·'°": _
0 f ne!fotiable
• character.-An
it has bee go:I~b~e m Its ongm contmues to be negotiable until
otherwise. n res rictively indorsed or discharged by payment or

. Sec.
time strike48. an . d out in d orsement.-The holder may at anY
outStriking
The mdorser
. Y in. orsement
whose d wh.ICh IS
. not necessary to his title,
1
I
I
~ubsequent to him, ::rs~ment is s~ruck out, and all indorsers
mSt rument. t ereby relieved from liability on the
 V. NEGOTIATION AND IND
ORSEMENTS 121

Sec. 49. Transfer without ind

holder of an instrument bl orse"!'ent; effect of.-Where
the Paya e to his O d t c ·t £
al without indorsing it th t £ r er rans1ers 1 or
v ue £ ' e rans er vests in the transferee such
title .as the trans eror had therein and th t £ . .
addition, the right to have the indorseme:t :::hseetree a;qu1resB1nt
. . rans1eror. u
for the purpose of det erm1n1ng whether the t c . h ld
th t· . rans1eree 1s a o er
in due cours~, e nego iation takes effect as of the time when the
indorsement 1s actually made.

Sec. 50_- When prior party may negotiate instrument.

-Where an in~trument is negotiated back to a prior party, such
party may, subJect to the provisions of this Act, reissue and further
negotiable the same. But he is not entitled to enforce payment
thereof against any intervening party to whom he was personally
liable.

DISCUSSIONS
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.

Negotiation, defined
Negotiation is the transfer of a negotiable instrument from one
person to another in such manner as to constitute the transferee the
holder of the instrument.

Holder, defined
A holder is the payee or indorsee of a bill or note who is in
possession of it or the bearer thereof. (Sec. 191)
Example
Drew Werr issues a bill of exchange payable. to Fay Yee or
order. Fay Yee takes the bill. In this case, Fay Yee 1s the holder of
the said bill.
Suppose Drew Werr delivers the said . bill to Cindy
. . Cato instead
Of Fay Yee. Here, ne1'ther Fay Yee nor Cindy Cato 1s a holder.
 122 INSTRUMENTALLY YOURS, A HANDBOOK IN
NEGOTIABLE INSTRUMENTS LAW

Negotiable instrument, how negotiated

The negotiation of a negotiable instrument depe nd s on whether
it is payable to bearer or payable to order. As such,
a) Ifit is payable to bearer, it may be ~egotiated by mere delivel'y
or by indorsement completed by delivery.
b) If payable to order, it is negotiated by indorsement of the holder
and completed by delivery.

Modes of transfer other than negotiation

The other modes of transfer are by assignment or by operation
of law.
Assignment is a method by which a negotiable or non-negotiable
instrument may be transferred from one person to another. In
assignment, the assignee takes the place, or steps into the shoes,
of the assignor. The assignee cannot have a better right than. the
assignor. Thus, defenses that can be raised against the assignor can
raised against the assignee.
The other method is by operation of law. The full title to a
bill or note may pass, without either assignment, indorsement, or
delivery, that is, by operation of law, (1) by the death of the holder
where the title vests in his personal representative, or (2) by th~
bankruptcy of the holder, where the title vests in his assignee or
trustee, or (3) upon the death of a joint payee or indorsee in which
case the ?eneral rule is that the title vests at once in the 'survivin
payee or 1ndorsee. (Ogden, p. 182) g

Delivery to payee is also negotiation

Under this section and Section 191 an in t . .

when it is transferred to a holder and h ;:u~ent IS negotiated
indorsee. The term "negotiation" i~ n0 t a O er Is a payee or an
delivery to the payee. (Beutel, p. 591) confined to transfer after
~ec. 31. lndor~ement; how made.- .
be wntten on the instrument 1't If The 1ndorsement must
thereto. The signature of the ind se 0 ~ upon a paper attached
a sufficient indorsement orser, without additional w d •
. or s, 1s
lndorsement, defined

lndorsement is a cont
a writing of one's own n ract or legal transact·
ame on the back h ion, effected by
, w ereby
one not only
 V. NEGOTIATION AND IND
ORSEMENTS 123

transfe:s one's. full .legal title to the paper transferred but likewise
enters into an implied guaranty that the not . t ' t ·n b
duly paid. (Ogden, p. 183) e or ins rumen w1 e

lndorsement, how made

The indorsement must be written on the instrument itself or
on an attache~ paper calle~ an allonge. Customarily, it is written on
the back, but it may be written on the face, of the instrument, but
not on a separate, unattached paper. (8 Am. Jur. 53-54) An allonge
is a separate paper attached to the instrument.
Section 31 expressly provides that the signature of the
indorser, without additional words, is a sufficient indorsement. It
is not essential that the indorsement should be written with a pen,
indorsements in pencil have been held valid. No particular form of
signature is necessary to the formal indorsement of a negotiable
instrument. The indorser may become bound by any mark or
designation which he thinks proper to adopt, provided it is used as
a substitute for his name and he intends to bind himself thereby.
Thus, the initials of the indorser, or his mark, or figures written
on the back of the instrument have been held sufficient. (10 C.J.S.
603-604) Additional words may be employed to express the intent
to negotiate. It may contain a pledge or a guaranty or may refer
to the object for which it is made and may be, nevertheless, an
unconditional indorsement. (8 Am. Jur. 52)
Examples
a) Pay to Endor See
(Sgd.) Fay Yee
b) Pay to the order of Endor See
.(Sgd.) Fay Yee
c) (Sgd.) Fay Yee

Who can indorse

whose order the instrument is made payable
The part y t o 185)
should indorse the instrument. (Ogden, p.
t must be of entire instrument.-The
Sec. 32. Indorsem~n t of the entire instrument. An
·in dorsement must be an 1ndorsemen £er to the indorsee a part only
· d . h
in orsement wh1c purpo
rts .toh trans rts to transfer the instrument
of the amount payable, or whic purpo ...
 ~BooJ{IN
LyyotJRS, .A N'fS LAW
INSTRlJMENTALLEINSTRlJME
124 NEGOTI.AB teas a negotiatio
t opera 'd. 11
allY, does no has been pa1 in Part
. dorsees sever . strurnent '
to two or more in B t where the in
of the instrument. u to the residue. .
. be indorsed as . rnent, effect of Partial
1t roaY ntire 1nstru
t be of the e
1ndorse
ment t
mus t rnust be of the entire
indorsemen . tiation by indorsernen indorsement of only a
The rule is neg~e instrument and a; as a negotiation unless
o:
amount written payable does not oper:. e dorsed was the residue
part of the am~un . Uy and the amoun in .
it bas been paid partia
Example ble to order amounting
f a note paya y
Fay y ee is the payee O the maker. If Fay ee wants
8
to Pl0,000.00, with May Kerr a t 1'ndorse the full amount of
to negotiate the said note she mus as a negotiation. But if Fay
Pl0,000.00 to make the transfer operate P7 000 00" such trans£
Yee indorses it as follows: "Pay to Ador Sy ' · ' . er
does not operate as a valid negotiation but a mere assignment of
the note to Ador Sy. Ador Sy will not be considered as a hol~er but a
mere assignee. Consequently, if May Kerr has a defens~ ag~1nst Fay
Yee, such as absence of consideration, May Kerr can raise it against
Ador Sy as he is subject to the same defense May Kerr may raise
against Fay Yee, even ifhe is a purchaser in good faith. However, in
the absence of defenses against Fay Yee, May Kerr is liable to Ador
Sy to the extent of P7,000.00. On the other hand, had the note been
paid to the extent of P3,000.00 before its indorsement to Ador Sy,
the indorsement for P7,000.00 shall operate as a valid negotiation.

lndorsement to two or more indorsees severally

. An indorsement to transfer the instrument to two or more
~ndorsees severally does not operate as a negotiation of the
instrument.
Example
If the amount payable is P12
P6,000.00 to Pedro and p ,000.00, and the payee indorses
6 000 0
share and share like ten 't . · Oto Juan or "Pay to A, B and C,
an s 1n commo " h · d es
not op~rate as a negotiation but n, .sue indorsement o
are assignees and are not c 'd as an assignment. The indorsees
ons1 ered "hold " · ble
Inst ruments Law. (Blake vs. iv; . ers under the Negot1a .
Beutel, p. ·605) eiden, 29 1 N. Y. 134; 51 N.E. (2d) 671,
 V. NEGOTIATION AND INDORSEMENTS 125

On the other han~, an indorsement to two or more indorsees

. - t1y operates as a vahd negotiation , e•g . "Pay t o X an d y"
JO .
111
Sec. ~3. Ki~ds 0 1 indorsement.-An indorsement may be
either special or. 1~ blank; and it may also be either restrictive or
qualified or cond1t10nal.

Kinds of indorsement

a. Special (Sec. 34)

b. Blank (Sec. 34)

c. Absolute

d. Conditional (Sec. 39)

e. Restrictive (Sec. 36)

f. Qualified (Sec. 38)

g. Joint (Sec. 41)
h. Successive (Sec. 68)
1.
Irregular (Sec. 64)

J. Facultative (Sec. 111)

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.

Special indorsement
A special indorsement specifies the person to whom, or to
whose order, the instrument is to be payable.
Example
a) Pay to Ador Sy
(Sgd.) Fay Yee
b) Pay to the order of Ador Sy
(Sgd.) Fay Yee
In the above example, the indorsement of Ador is necessary
to the further negotiate the instrument, unless the instrument is
 A HANDBOOK IN
:ALLyyoURS, LA.W
INsT~~~LEINSTRl.JM'.ENTS
126
. which case it may nevertheless be
bl to bearer' in i\
originallY pa~a by delivery. (Sec. 401
further negotiate

Blank indorsement d not state the name of the indorsee

.
A blank 1n od rsement oes ee placing his. s1gna
. t ure 1n
. wr1tin
. '
• ly of the pay
consists s1IDP t 1io,e1den p 1963) An ins · t rument 8g
an d f h . strumen . \, o , . . o
on the back o t e in b isec 9'e 7\ and may be negotiated b,,
. ble to earer \' . ,, 11, • . d d. J
indorsed is paya t yable to order which is in orse in blank
•
delivery. An instrumen
. t pa ·
payable to bearer 1nstrumen t an d can be
becomes an instrume~
negotiated by mere delivery.
Example
(Sgd.) Fay Yee
Sec. 35. Blank indorsement; how change~ to special
indorsement.-The holder may convert a blank 1nd~rsement
into a special indorsement by writing ove~ the s1g_nature
of the indorser in blank any contract consistent with the
character of the indorsement.

Converting blank indorsement to a special indorsement

The holder of negotiable instrument indorsed in blank may
write above the signature of the indorser in blank any contract
consistent with the character of the indorsement or the intention of
the parties. (10 C.J.S. 699) Writing the name of a transferee and a
date above a blank indorsement was held within the authorization
of this section and not a material alteration. (Magill vs. Davenport,
120 Cal. App. 387, 8 p. (2d) 169; Beutel, p. 610)
Example
Ma~ Kerr issues a note payable to the order of Fay y ee, as payee.
Fay Yee indorsed the note in blank "(Sgd ) Fay Yee " d d 1· d
it to Ar B Ar ' · , an e 1vere
1 "ay. 1 B~y, the holder, may place above the signature of
Ar
FayBYee (SPayd )to Ah Bay'' so as t O make the 1ndorsement
. as "Pay to
I ay. g . Fay Yee" thus co t th bl . .
a special indorsement ' nver s e ank 1ndorsement into

In the above example th . .

with the indorsement Ali Ba ?1~e~bon of the parties is consistent
was added as to ch~n thy is t e 1ndorsee and no other statement
Yee. Accordingly, a co:t:act con~rd~c~ of the blank indorser, Fay
or a itional statement added to the
r

V. NEGOTIATION
ANDJNnoRSEMENTS
127

k indorsement inconsist
~Jallrseillent or the intentionent with the le al .
Jlldo e a blank indorsement /f the Parties !a meamng of the
B~~k indorsement the phr~s~
e. J5 NW 951) or" 'th
;-J.S.699)
guaranty
Lik! t~:t bJd~nserted
a mg over
f[an,n,, . w1 out recourse" payment" (Belden vs
4101,,i or "protest
. hwaived" are cons1'dered a(Freile vs
. · Rudiger,
' 106 Atl.·
J11~ s
ade without t e consent of the 1· d
t B k n orser
material alteration d 'f
N •d
(SetLllYer ta e an vs. Suterland 36 avoI s the indorsement
, an I
Beutel, p. 610) ' .D. 493, 162 N. W. 696;

Sec. 36. When indorsement . .

restrictive which either: restnctme.-An indorsement is

a) Prohibits the further negotiat'ion of t he Instrument·

. or
(
°
(b) Constitutes the indorsee the agent f t he mdorser-
. '
or
(c) Vests the title in the indorsee int 1 £ '
other persons. . rus or or to the use of some

But the mere· absence

d of words implving
J power t o negot·Iat e
does not mak e an 1n orsement restrictive.

Restrictive indorsement
A restrictive indorsement is one which restrains the
negotiability of the instrument to a particular person or for a
particular purpose (10 C.J.S. 704) thus, prohibits the further
negotiation of the instrument. This section enumerates the three
kinds of restrictive indorsements.

Kinds of restrictive indorsement

The three kinds of restrictive indorsement, all of which
prohibits the further negotiation of the instrument, are:
a) Prohibits the further negotiation of the instrument;
b) Constitutes the indorsee as an agent of the indorser; and
c) Vests title to the indorsee for the benefit of the indorser or a
third party.
Examples
a) Pay to Ador Yu only
(Sgd.) Fay Yee
who can receive payment.
Here, Ador Yu is the only one
 INSTRUMENTALLY YOURS, A IfANDBOOK IN
128 NEGOTIABLE INSTRUMENTS LAW

b) Pay to Ador Yu for collection

(Sgd.) Fay Yee
· t'tl over the instrument wh·
Here, Ador Yu does not acqmre i e Ich
is only for his collection.
c) Pay to Ador Yu in trust for Darcy See
(Sgd.) Fay Yee
Here, legal title is transferred to Ador Yu but only as trustee of
Darcy See, the beneficial owner.
All of the above examples give notice that Ador Yu has no
authority to negotiate the instrument and for e_x amples (b) and (c),
Ador Yu cannot use the instrument to pay for his own debt or use it
for his own benefit.

Omission of words of negotiability, effect

The absence of words of negotiability ("to order" or "to
bearer") does not make an indorsement restrictive. Accordingly, an
indorsement "Pay to Ador Sy" is equivalent to "Pay to the order of
Ador Sy." The absence of the word "order," which implies power to
negotiate, does not render the indorsement restrictive nor affect the
negotiability of the instrument. However, if the omission of words of
negotiability is in the body of the instrument, the same is rendered
non-negotiable.

. Sec. 37. Ef(ec~ o( restrictive indorsement; rights of

indorsee.-A
· ht restrictive indorsement confers upon the 1·ndorsee the
rig :
(a) to receive payment of the instrument·
'
(b) to bring any action thereon that the in
• dorser could bring·
.
(c) to transfer his rights as such i d '
indorsement authorizes hi" t nd orsee, where the form of the
m o o so.
But alldsubsequent indorsees acqui
· dorsee . of the first
m un er the restrict· • d re on1Y the title
ive in orsement.
Rights of an indorsee .
Th. . m a restrictive indorsement
. is sect10n enumer t
mdorsement wh. h a es the rights of an . d .
a . ' ic are: in orsee in a restrictive
) Right to receive payment·
'
 V. NEGOTIATION AND
INDORSEMENTS 129

Right to sue; and

b)
Right to transfer his rights wh en a11owed.
c)
Right to receive payment
The indorsee has the right to .
11 .11ever if the restrictive · d receive or to enforce payment.
pOY> , in orsement i I £
benefit of the indorser with t . s mere Y or the use
?ran intent to part with his t·tolu bpartmg with his title, or there
1s "' . i e ut a trust i t d £ h
b efit of a third person th · d s crea e , as or t e
tf1~;;;:J '
en t b h ' e in orsee cannot sue the indorser on his
ut e may sue other parties to enforce payment. (10

Right to sue
Tbh~ indorsee has the right to bring any action that the indorser
could ring.
An indorsee_ of a note "for collection" can sue in his own name,
but he takes the instrument subject to all equities existing between
his indorser and !he maker. Thus, payment by the maker to the
indorser after the ~ndorsement is a good defense, and parol evidence
to show that the indorsee was actual owner of part of the note is
inadmissible as tending to contradict the indorsement. (Smith vs.
Bayer, 46 Oreg. 143, 79 Pac. 497, 114 Am. St. Rep. 858; Beutel, p.
619)
Also, an indorsee -"for · collection" cannot hold the acceptor
where the drawer paid the amount of the bill before maturity to the
indorser and released the acceptor, although said indorsee has paid
the amount to the indorser. (Williams, Deacon & Co. vs. Shadbolt, 1
Cababe & Ellis, 529; Beutel, p. 619)

Right to transfer his rights when allowed

The indorsee has the right to transfer his rights as such
indorsee, where the form of the indorsement authorizes him to do
so. Under Section 47, an instrument when restrictively indorsed
ceases to be negotiable only to the extent of the restriction indicated
by the indorsement. (Ogden, p. 200) The three kinds of restrictive
indorsement impose some degree of limitation of negotiability but
do not have the same degree of limitation. The kind of restrictive
indorsement discloses the extent of the limitation.
An indorsement, "Pay to Ador only'' makes the instrument non-
negotiable. However, the indorsements "Pay to Ador for collection"
 INSTRUMENTALLY YOURS, A HANDBOOK IN
NEGOTIABLE INSTRUMENTS LAW
130

or "Pay to Ador for deposit" does not destroy the transferability of 1, ,

instrument and it can be reindorsed where the indor_see can •oe ''• ;
bis own name but he cannot use the instrument for his own heneJi't, ·

sulJSe(!Uent indorsees acquire only the title of first indorsee

A restrictive indorsement operates as notice to all Pers0 I
that the indorser has not parted with his title to the instrun, 1\o
and did not intend to transfer it or its proceeds to the indor:nt, ,
but constituted him merely as his agent for collection; and •""• ·
subsequent holder taking the instrument from the indorsee tak11),
it as trustee of the real owner, and will be liable to him for:
instrument or its proceeds when collected. (10 C.J.S. 704) '

Examples
a) Suppose a promissory note for P75,000.00 is indorsed: "Pa
to Ador Sy for collection. (Sgd.) Fay Yee." Ador indorsed th:
I
note, "Pay to Darcy Tan." The rights of Darcy are subject to the

I
restrictive indorsement made by Fay to Ador. As such, Darcy
can collect only from the maker of the note for the _benefit of
Fay, because he acquires only the title of Ador whose right is
merely to collect for the benefit of Fay.
b) Suppose a promis~ory note for P25,0,?0.00 is indorsed: "Pay to
I Ador Sy for deposit. (Sgd.) Fay Yee. Ador indorsed the note-
"Pay to _Maya Lam." Maya cannot transfer the note to anothe;
person 1n payment for her own debt. The right of May is to
collect from the maker of the note and then safely keep th
amount coJlected o'!- deposit until Fay, the restrictive indorse:
demands for the said amount. '

Sec. 38. Qualified indorsement -A 1

rfi •
constitutes the ·nd · qua ed 1ndorsement
1 orser a mere assi f h .
instrument. It may be made b . gnor t e title to the
the words "without reco ,, y adding to the 1ndorser's signature
. urse or any word Of • .1 .
an mdorsement does not . . s s1m1 ar import. Such
instrument. imparr the negotiable character of the

Qualified indorsement, howmade

. A qualified indorsement i .
~dorse: by adding the words "s ;~e wluch limits the liability of the
(o
. at_the mdorsee's own risk" w1 out recourse," "sans recourse," or
is liable for breach of any ~f h. ,gden, p. ~00) But a qualified indorser
is warranties under Section 65.
 V. NEGOTIATION AN
D INDORSEMENTS 131

Example
Pay to Faye Yee, without recourse.
(Sgd.) Drew Werr

Effect of qualified indorsement

A qualified indorsement rend th .
title to the instrument, and reli ersh. e 1ndorser an assignor of the
·ts payment except as to the w eves . im from all responsibility for
~oo·JO C.J.S. 702) A qualified i:~rantie~ implied by law. (Ogden, p.
he may be liable for dam obrser is not free from all liabilities
aS ages ecause he t () h h
· strument is genuine and· 11 warran s a t at t e
1n in a respects wh t ·t b (b)
that he has a good title to it; (c) that 11 . a I _purports to ~;
tract· and (d) that heh k a pr10r parties had capacity to
::dity.' (Sec. 6S) as no nowledge of any facts to impair its

In other words.' anyone who makes a qualified · ·

1ndorsement
states: that all parties to the paper are genuine; I am the lawful
holder of that paper, and I have title to it and know of no reason
why you could not recover on it as a valid instrument, but one thing
I do not guarantee; I do not guarantee the financial responsibility
of the parties on that paper, but I do say that I hold the title to it
just the same as any other personal property. (Ogden, p. 201) Thus
a qualified indorser is not liable to the holder for mere failure of the
maker to pay. But he is liable ifhe violates any of his four warranties.
Example
May Kerr makes a promissory note payable to the order of
Fay Yee. Fay indorses the note as follows: "Without recourse, Pay
to Ador Sy. (Sgd.) Fay Yee." If Ador cannot collect from May because
she refuses to pay Fay, who is a qualified indorser, May cannot be
compelled to pay. But if her refusal to pay is based on forgery of
her signature, Ador can recover from Fay, as Fay warranted the
genuineness of the signature of May.

Effect of qualified indorsement on negotiability of instrument

A qualified indorsement does not impair the negotiable
character of the instrument. (Sec. 38, last sentence)
·t ·onal indorsement.-Where an indorsement
Sec. 39. Con d i i .
is c d't' 1 th ty required to pay the instrument may
on 1 1ona , e par · d h'
d1's d h d't' nd make payment to the 1n orsee or 1s
regar t e con 1 10n a ·
 132 INSTRUMENTALLY YOURS, A HANDBOOK IN
NEGOTIABLE INSTRUMENTS LAW

transferee whether the condition has been fulfilled or not. But a

person to whom an instrument so indorsed is negotiated will h ~Y
the same, or the proceeds thereof, subject to the rights of the Pers: d
indorsing conditionally. ll

Absolute indorsement
An absolute indorsement is one whereby the indorser bind
himself to pay, upon no other condition than the fa.ilure of Prio;
parties to do so, and after due notice to him of such failure. (Ogden,
p. 194)

Conditional indorsement
A conditional indorsement is whereby the indorser attaches
some other condition to his liability, that is, where there is some
condition in the indorsement. (Ogden, p. 194)
Example
May Kerr makes a note payable to the order of Fay Yee for
Pl00,000.00. Fay Yee indorses it as follows: "Pay to Darcy Tan if she
tops the 2020 Bar Examinations. (Sgd.) Fay Yee."
In such a case, under Section 39, the maker, May Kerr, may
pay Darcy Tan even before the happening of the condition but Darcy
Tan does not acquire ownership of the sum and holds the money in
trust until the condition is fulfilled. If the condition is not fulfilled
she must turn over the amount to Fay Yee. '

Effect on maker or acceptor

a)
Before condition is ful~Ued, the maker or acceptor may refuse
to pay or may pay the mdorsee or his transferee.
b) After fulfillment of the condition they a bl' d
, re o 1ge to pay.
Effect on indorser
a)
When condition is not fulfilled .t 1. . .
A conditional indorsement ? 1
' ~ ~ot nd1ng on the indorser.
expressed, and is not b• d ~arries wit~ It notice of the condition
is not fulfilled and onmt Ikn~ on the mdorser, if the condition
.. , e a mg a t . d
conditions expressed . no e in orsed as subJ. ect to
ma separate. t
sueh conditions. (JO C.J.S. 701) ms rument takes subject to
 V. NEGOTIATION
AND INDORSEMENTS 133

When condition is fulfilled . . .

b) con ditiona . dorsement · ' 1t lS bm d'mg on the indorser. A
. . 1 1n
.. b 1s a contr t
makes it is ound by it, pro 'd• ac , and the person who
(Ogden, p. 195) VI ing th e conditions are fulfilled.

effect on indorsee
Before condition is fulfilled
a) conditionally indorsed is n~;;- pe~son to whom an instrument
proceeds thereof in trust s ob ~ate ' will hold the same, or the
indorsing conditionally. ' u Ject to the rights of the person

b) After condition is fulfilled th

is conditionally indors d' e per~on to whom the instrument
e ' or his trans£ ·11 .
ownership of the instr eree, wi acquire
ument or the proceeds thereof.

Effect of conditional indorsement on negot·1ab'l'ty

1 1 o f .instrument

A. conditional
. indorsement does not af'I1ect
! the negotiability of a
negotiable
. instrument, but. when the condi'ti'on is · wri·tten on the 1ace
c
of the
. instrument,
. making the promise or order t o pay con d't' i 10na1,
the instrument is not negotiable. (Ogden, p. J95)
Sec. ~O. 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.

Applicability
This section applies to negotiable instruments originally
payable to bearer. When an instrument, originally payable to
bearer, is indorsed specially, it may still be further negotiated by
mere delivery. It means that an instrument originally payable to
bearer is always a bearer instrument.
This section does not apply to negotiable instruments originally
payable to order which was indorsed in blank. Under Section 9(e),
a note or bill which, on its face, is payable to order can become an
instrument payable to bearer if the only or last indorsement is in
blank but when such blank indorsement is followed by a special
indorsement the instrument is converted back to an instrument
payable to order and is not within the purview of Section 9(e). To
illustrate, if a check drawn to the order of Fay Yee indorsed in blank
r 134
A HANDBOOK IN
INSTRUMENTALLY YOURS, NTS LAW
NEGOTIABLEINSTRUME

S d he indorses it to the ord

by her, and delivered to Ador Y, a~ trument payable to be er
of Darcy Tan, it. is not any morh~ ahnby1n;ection 9(e) is made the ~l'er
because the last 1ndorsement, w 1c st,
213
is a special indorsement. (Ogden, P· )

Liability of indorser of a bearer inStrument

. • d nt a paper negotiable b
One transferring, by in orseme. d (Sec 67. • Jo c ':!
delivery incurs all the liabilities of an in orser. . ·d ' .J.S.
71 J) But the person indorsing specially is liable as Ill orser only to
. · d ment
such holders who make title through h IS In orse ·
Example
May Kerr makes a note payable to Fay ee or. bearer· Fay Yee
specially indorses it to Ador Sy. Ador Sy delivers It to Darcy Tan.
Fay Yee is liable to Ador Sy, but not to Darcy Tan because Darcy
Tan did not obtain her title through the indorsement of Fay Yee.
An instrument originally payable to bearer is always a bearer
instrument even if specially indorsed. The indorser who indorsed
specially is liable only to the holder who acquires title through his-
indorsement.

Sec. 41. lndorsement where payable to two or more

persons.-Wher~ an instrument is payable to the order of two or
more payees or. 1ndorsees
. who are not partners , all m us t 1n
· dorse
th
un ess e one mdors1ng has authority to indorse for the others.
1

Applicability
T~i~ section applies only to instruments ·
payees Jomtly like: "Pay to the order of Fa y payable to two or more
not to instruments payable to two o y ee and Cara Cruz " and
t h r more pay ,
o t e order of Fay Yee or Cara C " . ees severally like· "Pay .
d . ruz, which£ II8 .
an can be negotiated by the indor a under Section 8(c)
. . sement of either payee.
Jomt mdorsement, how made
If a bill or note be mad
~;n
not partners, the transfer e payable to several
o~ a~l of them. (Ogden, P
2
only be made by a P_e~son_s jointly are
~1s mterest. (Schoolfield vs A transfer by one Joint indorsement
f
indorsement made by one Barnes, 77 S W (2~)ly passes at most
operate as a valid negotiatfo:evheral payee's ~rind 66) However, an
a) h w en· orsee · ·
t e payees or indo · s Jointly will
rsees are
Partners·, or
 V. NEGOTIATION
AND INDORSEMENTS 135

b) the onetK_iindorsing the in8t

them. \' au,1man vs. State rument
Sav · authorized to act for all of
is
. Bank, 114 N. W. 963).

Sec. 42. Effect

. of inst rument d
erson as cas h ier.-Where a . rawn or indorsed to a
" h. " n instrument 18
a person as cas ier or other fl 1 f
. d
ra wn or indorsed to
P
it is eemed prima
· ;.acie to be sea ob fleer of a ban k or corporation,
d he is suchI officer an~aya le to the bank or corporation
of which
indorsement of the bank ; co ma~ be negotiated by either the
officer. 0 rporahon or the indorsement of the

Applicability
This section applies to inst
indorsed, to "cashier'' or oth f m~nts made or drawn payable, or
instrument is deemed prim er s~a officers of a corporation. Said
,nay be contradicted by ffi '1: facie payable to the corporation but
8 u cient proof to the contrary.

Example
_check payable "to the order of Fay y ee, Cashier of ABC
Corp., 1s a check for the ABC Corp unless F y h
the check really belongs to her. ·• ay ee can prove t at

Who may indorse

The said instrument may be indorsed by the:
a) Corporation or any other authorized officer of the corporation;
or
b) Officer to whom the instrument was made payable.

As to municipal or public corporations

An instrument payable to the "Treasurer of the Town of Bustos,
Bulacan," in legal effect stands on the same footing as if it is payable
to the town, which is the real payee. (Quincy Mut. Fire Ins. Co. vs.
Int. Trust Co. , 217 Mass. 370,104 N.E. 845, L.R.A. (N.S.) 1915 B,
725) However, the town treasurer has no authority to indorse the
said instrument, since "corporation" in Section 42 does not include
cities and towns. (Franklin Savings Bank vs. Framingham, 212
Mass. 92, 98 N.E. 925)
Sec. 43. Jndorsement where name is _misspelled, '!'nd so
forth.-Where the name of a payee or indorsee 1s wrongly designated
 VRS AHANDBOOK IN
i
JNSTRIJMENTALLL I~~TRUMENTS LAw
NEGOTIAB
136
·nstrument as therein describ
.rnaY indorse the 1 eq
r misspelled, ~e fit his proper signature.
odd'
a in g, if he thinks '

Applicability . 1· to instruments where the name of th

. ect1on app ies e
This s . 11
. dorsee is m1sspe e •
d
payee or 1n .
nt of payee or indorsee whose name was misspelled
In dors eme .
A payee or indorsee whose name was misspf:dt:,a{8mdorse
1
the instrument as he was described and may add, e . m fit, his
correct name and proper signature.

Example
a) Indorse the instrument as therein described: when an
instrument is drawn payable to the order of "Faye Yee" when it
should be "Fay Yee," she may indorse it by signing, "Faye Yee."
b) In addition to the misspelled name, the proper signature may
be added: she may sign, "Faye Yee" Fay Yee.

Sec. 44. Indorsement in representative capacity.-Where

any per~on is un~er obligation to indorse in a representative capacity,
he may 1ndorse 1n such terms as to negative personal liability.

Applicability
This section applies to instruments indorsed b th . d
agents. Y au onze

How authorized agent should indorse

by:
Authorized agents, tone gative personal hab1hty,
. . . must indorse

a. disclosing the name of h. . .

. . is principal; and
b. descr1bmg himself as
representative capacity. an agent or person acting in a
Example
"Pay to Ben Teh.
Prince Sipal
By: Ace Jentako (Sgd.)
. Agent"
 V. NEGOTIATION
AND INDORSEMENTS 137

Sec. 45. Time of indorsement· r .

·ndorsement bears date aft h' P esumption.-Except where
an 1 negotiation is deemedp •er t" e .ma t uri'tY of t he instrument,
.
everY rima ,acie t 0 h b f"' db £
the instrument was overdue. ave een e 1ecte e ore

Applicability
This section. ap~lies to indorsements which are not dated
and the presumption is that the indorsement was made before the
. strument was overdue. However , th e presumption
10 · 1s· d'1sputable.

importance of presumption
The presumption is important to a holder in due course. A
holde~ cannot b~ a holder in due course if he acquires the instrument
after its maturity. (Sec. 52[bl) The indorsement of an instrument
without a date establishes that it was negotiated before maturity,
and one who denies that the holder of such instrument is a holder in
due course has the burden to prove otherwise.

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.

Applicability
This section applies when the place of indorsement was
not indicated by the indorser and the presumption is it is at the
place where the instrument is dated. However, the presumption is
disputable.
Example
A note is dated "Makati, Philippines, October 20, 2020" and
subsequently indorsed by the payee without writi~g !he place ~here
. d d ·t It 1·s presumed that he indorsed it in Makat1. The
he 1n orse 1 . k ·· th
burden of proof that it was not indorsed in Ma ati is on e person
who alleges otherwise.

Importance of presumption
. . . ortant because it will determine the
The presumption 18 imp neral the transfer of a bill
I
venue i~ case of a legal controver;il~enr:cewh~re the transfer took
or note 1s governed by the law O
P
place. (10 C.J.S. 499)
r 138
INSTRUMENTALLY YOURS, A HANDBOOK IN
NEGOTIABLE INSTRUMENTS LAW

Sec. 4 7. Conti'!'u?'tion_ _of ne~otiable chara_cter.-A-ri_

instrument negotiable 1n its origin contu~ues to be negotiable until
it has been restrictively indorsed or discharged by payment or
otherwise.
Duration of negotiability of negotiable instruments
As a general rule, an instrument negotiable in origin remains
negotiable until restrictively indorsed, or discharged by payment or
otherwise. (JO C.J.S. 425) The fact that a bill or note is transferred
after maturity is of no importance except as to equities between
prior parties. An indorsement after maturity does not change the
character of the original contract as to its negotiability or effect
the rule being that an indorsee or a transferee after maturity take~
subject to defenses between the original parties. (JO C.J.S. 427)
Thus, mere expiration of the date of maturity does not render the
instrument non-negotiable.

When instrument rendered non-negotiable

An instrument is rendered non-negotiable when restrictively
indorsed, e.g. "Pay to A only'' or when it is paid at or after maturity
by or on behalf of the principal debtor or otherwise. (Sec. 119)

Sec. 48. Striking out indorsement.-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.

Striking out indorsement

Th~ holder of a negotiable instrument may at any time strike
out_ any 1ndorsement not necessary to his title. He may strike out
~11 intervening indorsements and aver that the first blank indorser
mdor~ed the instrument immediately to him. The striking out of
such 1n?or~ement does not destroy the presumption that the one in
possess10n is the holder thereof. (Ogden, pp. 207-208)
Examples
a) Ma
F YyKer~ is· t h e maker of a note payable to Fay Yee
ay ee 1ndorsed it: "Pay to Ador S (S ,,
can strike out th • d y. gd.) Fay Yee. Ador Sy
of an instrumen: in_ ~rselrent of Fay Yee because indorsement
origina Y payable to bearer is not necessarY
 V. NEGOTIATION AN
D INDORSEMENTS 139

to consti~ute the_transferee the h - .

delivery is sufficient to negot. t older ?f the instrument. Mere
. i~ e such 1nstrum~nt.
May Kerr is the maker of a n t
b)
Fay Yee ind~rsed it in blan~ ea~7abl~ to the order of Fay Yee.
Sy. Ador Sy indorsed it· "P delivered the note to Ador
.
Darcy Tan can strike out th . ay to Darcy Tan. (S gd •) Ador Sy."
nd0
the blank indorsement mad: ~ rsement of Ador Sy because
an instrument payable to b Y Fay _Yee converts the note to
. earer which can be negotiated by
mere d e1ivery.

When holder cannot strike out indorsement

.A holder
. cannot strike
. out an indorsement wh'ich 1s
. necessary
to his title. When an instrument is transferred by a special
indorsement, the holder has no right to strike out the name of the
person mentioned in such indorsement and insert liis own name
in the place thereof; nor can he strike out such name and convert
such special indorsement into a blank indorsement. The holder who
acquires title subsequent to the succeeding special indorsement
must trace his title not only through the blank indorsement but
through the special indorsements as well. (Ogden, p. 209)
Example
May Kerr is the maker of a note payable to the order of Fay
Yee. Fay Yee indorsed it: "Pay to Ador Sy. (Sgd.) Fay Yee." Ador Sy
indorsed it: "Pay to Darcy Tan. (Sgd.) Ador Sy." Darcy Tan cannot
strike out the indorsements of Fay Yee and Ador Sy because he
traces his title through the latter's indorsements.

Effect of striking out indorsement

An indorsement not necessary to the title of the holder can be
striken out and the effects are:
a) The indorser whose indorsement was struck out is exonerated
from liability; and
b) . d orsers sub sequent to the indorser, whose
All in . . . indorsement
was striken out, are likewise relieved from liability.

Example
£ Pl00 000 00 payable to Fay Yee or
May Kerr makes a note or ' · t the back of the note:
bearer. The following indorsements appear a
 J,IANDBOOK} N
INSTRUMENTALLY YOUR~:,_~ENTS LAW
140 NEGOTIABLE JNSTRu.1v.i

Pay to Ador Sy
(Sgd.) Fay Yee
Pay to Darcy Tan
(Sgd.) Ador Sy
Pay to Ben Teh
(Sgd.) Darcy Tan
Pay to Cara Cruz
(Sgd.) Ben Teh
st
If the indorsement of Ador Sy to Darcy Tan is riken out
by Cara Cruz, Ador Sy, whose signature was struck out, as we]]
as Darcy Tan and Ben Teh, indorsers subsequent to Ador Sy, are
discharged from liability on the instrument. However, May Kerr
and Fay Yee are still liable on the instrument.
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
due cours~, the negotiation takes effect as of the time when the
1ndorsement 1s actually made. .

Applicability
This section applies only to inst
and when there is delivery and ruments payable to order,
the transferee but the instru pt ayment of value was made by
t £ c men was not i d d
. rans eree 1or value acquires title ov . n orse to him. The
ind~rseme~t and has the right tor er ~he instrument even without
to him the instrument Th' . :quire the transferor t . d
payable t b · is section is not 1. o 1n orse
Beutel, p. ~49jrer. (Marlar vs. Smith 1//Xltable to instruments
' iss. 842, 89 So. 667;
Rights of transferee '
,or value
The foUowin
g are the right Of
a) H s a tran £
e acquires the . h s eree for value·
may be . rig ts of th .
hi . raised agains e transferor Wh
m, .and t the transferor . atever defenses
may be .
raised against

)
 V. NEGOTIATION
AND INDORSEMENTS 141

He has the right to requ.

b) instrument to him. Th tire the transferor to indorse the
an unqualified indorse e :ansferee for value is entitled to
contrary. (Lawrence v mC~n. unless the parties agreed to the
s. itizens State B k 113 v 724 216
Pac. 262; Beutel, p. 658) an , .n.an ;
However, the transferee , w1·thout 1n
· dorsement of a note payable
to order, cannot be a ho~der in due course notwithstanding Section
49' because· dunder Section 191 he is nei'th er "holder, " h e 1s
· not a
payee or in orsee, nor a ''bearer," because the instrument is not
payable to bearer. (In re Home Furniture Co., 7 F. (2d) 399; Beutel,
p.648) Thus, th~ tra~sferee of an order not~ without indorsement
from the p~yee is subJect to the defense that the payee obtained the
note in an illegal transaction. (Jackson State Bank vs. Laurel Nat.
Bank, 111 Neb. 744, 197 N. W. 389; Beutel, p. 648)
Examples
a) May Kerr issues a promissory note payable to the order of Fay
Yee. Fay Yee delivers the note to Ador Sy without indorsing it.
The transfer made by Fay Yee to Ador Sy vests title in his favor
of who, although not a holder, may sue May Kerr and recover
the amount on the note.
b) Bill Moco executes a note for an illegal consideration, payable
to the order of Cara Cruz. Cara Cruz transfers it to Ely Chon
without indorsement. Ely Chon cannot enforce payment
against Bill Moco because the right of Ely Chon is subject to
the defense that Cara Cruz obtained the note for an illegal
consideration.

When transferee becomes a holder in due course

For the purpose of determining whether the trans~eree is a
. d the negotiation takes effect at the time when
hoIder 1n ue course,
the indorsement is actually made.
Example
· able to the order of Juan Ted.
Jose Santos executes a note pa~ consideration. On March 5,
Juan Ted did not pay Jose Santos ap yd O Cruz On March 15, 2021,
f
2021, Juan Ted delivered the note ~o e d did ·not pay Jose Santos
Pedro Cruz knew of the fact th a: ; ; ; ;uan Ted indorsed the note
consideration. If before March 1 'id 1-~ due course and can enforce
to Pedro Cruz, Pedro Cruz is a hHo er r if Juan Ted indorsed the
payment against Jose Santos. oweve '
r he is not a holder ·
note to Pedro Cruz on March 17, 2021 ' ainst Jos in ch.11 .
course and therefore, cannot enforce payment ag e Sant08_

Effect of transfer without indorsement

The transfer of a negotiable instrument payable to orqei ,
without indorsement has the following effects:
. . · d and not negotiated th
a) The instrument 1s merely ass1gne . t Us
the transferee for value cannot negotiate the inS rument; '
b) The transferee for value does not become a holder but a llleie
· ht Ofa hold ·
assignee and thus, cannot have the rig s er in due
cour'se;
c) The transfer vests in the transferee for value such title as the
transferor had therein; and
d) The transferee for value acquires the right to require the
transferor to indorse the instrument to him.

Sec. 50. When prior party may negotiate instrument.

-Where an instrument is negotiated back to a prior party, such
party may, subject to the provisions of this Act, reissue and further
negotiate the same. But he is not entitled to enforce payment thereof
against any intervening party to whom he was personally liable.

Applicability
. This section applies t? a holder of an instrument who negotiates
1t and. thenh later
· reacquires
• the said instrument • He can agam ·
negot iate t e said instrument but will not be ent1'tl d t . .c.
(Ogden~/~;;/
payme t · t · . e o en1orce
any mtervemng party he was personally liable to.

Example
Art makes a note for P50 000 0
Ben indorsed the note t C 'c . 0 payable to the order of Ben.
Fely, Fely to Gary and arab, kara to Dan, Dan to Efren Efren to
' ary ac to Dan. '
it. HoDan · can furth er negotiate
• the note t . .
F I wever, Dan cannot enforce o anybody willing to accept
e Y, and Gary who are inte p~yment of the note against Efren,
~;rs~tnally liable. This is to aZ::~1n~ p~rties and to whom he was
) su1 s. c1rcu1ty of a ct·ion or multiplicity