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NEGOTIATION: II. TRANSFER - Coggle Diagram

- - - - 4. HOW INDORSEMENT MADE
        
        5. INDORSEMENT MUST BE ENTIRE INSTRUMENT
        
        6. KINDS OF INDORSEMENTS
        
        a. BASIS OF CLASSIFICATION
        
        SIGNATURE IS ENOUGH FOR INORSEMENT THERE MAY BE ADDITIONAL WORDS
        Although the signature of the indorser is sufficient to constitute an indorsement, additional words may be added which may modify the rights of subsequent holders or the liabilities of the indorser.
        
        ADDITIONAL WORDS MAY CONSTITUTE SPECIAL, RESTRICTIVE, QUALIFIED, AND CONDITIONAL
        Indorsements containing such additional words are classified into special, restrictive, qualified and conditional.
        
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        b. SPECIAL & BLANK INDORSEMENTS
        
        SPECIAL INDORSEMENT SPECIFIES TO WHOM OR TO WHOSE ORDER THE INST IS PAYABLE
        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.
        
        INDORSEMENT IN BLANK = PAYABLE TO BEARER
        An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery
        
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        c. QUALIFIED INDORSEMENT
        
        INDORSER BY HIS INDORSEMENT IMPLIEDLY ENTERS INTO 2 CONTRACTS
        An indorser by his indorsement impliedly enters into two contracts:
        
        CONTRACT OF SALE/ASSIGNMENT
        A contract of sale or assignment of the instrument and
        
        CONTRACT TO PAY IF MAKER IS UNABLE TO PAYA contract to pay the instrument if the maker is unable to pay on maturity.
        
        EXPRESS TERMS REQUIRED TO RELIEVE ONE'S SELF FROM EITHER CONTRACT
        If he wants to relieve himself of either contract he must do so in clear and express terms.
        
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        In connection with NIL Section 65, the Qualified indorser may still be held liable based on the ff warranties:
        
        That the instrument is genuine and in all respects what it purports to be;
        
        That he has a good title to it;
        
        That all prior parties had capacity to contract;
        
        That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.
        
        But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee. The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes.
        
        d. CONDITIONAL INDORSEMENT
        
        INDORSERS ARE LIABLE TO PAY INST ON TWO CONDITIONS
        
        DUE DEMAND/PRESENTMENT
        
        NOTICE OF DISHONOR
        An indorser is liable to pay the instrument on two conditions: that due demand or presentment be made on the party primarily liable on the date of maturity, and that should the latter fail to pay on such presentment, a notice of dishonor be promptly sent to the indorser. These conditions are implied in every contract of indorsement and need not be expressed.
        
        ABSENT CLEAR AND UNMISTAKABLE LANGUAGE, INDORSER IS LIABLE ON BOTH CONTRACTS
        In the absence of clear and unmistakable language qualifying liability, an indorser will be liable on both his contracts. His liability cannot be limited by implication. Thus, words expressing assignment of title to the instrument cannot by implication exclude his second contract.
        
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        CONDITIONAL INDORSEMENT
        A conditional indorsement is one where an additional condition is annexed to the indorser's liability.
        Necessarily such condition must be express.
        
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        UNCONDITIONAL INDO: INDORSEMENT WITHOUT ANY OTHER CONDITION IS AN UNCONDITIONAL/ABSOLUTE INDORSEMENT
        An indorsement without any other condition upon which liability is based is referred to as an unconditional or absolute indorsement.
        
        e. RESTRICTIVE INDORSEMENT
        
        SEC. 36. WHEN INDORSEMENT RESTRICTIVE.-An indorsement is restrictive, which either:
        
        PROHIBITS FURTHER NEGOTIATION; OR
        (a) Prohibits the further negotiation of the instrument; or
        
        CONSTITUTES INDORSEE AS INDORSER'S AGENT; OR
        (b) Constitutes the indorsee the agent of the indorser; or
        
        VESTS TITLE IN INDORSEE IN TRUST FOR OR TO THE USE OF SOME OTHER PERSON
        (c) Vests the title in the indorsee in trust for or to the use of some other person.
        
        SEC. 37. EFFECT OF RESTRICTIVE INDORSEMENT; RIGHTS OF INDORSEE.
        IF RESTRICTIVE INDO, INDORSEE ACQUIRES THE RIGHT TO...
        A restrictive indorsement confers upon the indorsee the right:
        
        RECEIVE PAYMENT OF THE INSTRUMENT
        (a) To receive payment of the instrument;
        
        BRING ANY ACTION THEREON THAT THE INDORSER COULD BRING
        (b) To bring any action thereon that the indorser could bring;
        
        TRANSFER HIS RIGHTS AS INDORSEE, IF ALLOWED BY FORM OF INDORSEMENT
        (c) To transfer his rights as such indorsee, where the form of the indorsement authorizes him to do-so.
        
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        MERE ABSENCE OF WORDS IMPLYING POWER TO NEGOTIATE DOES NOT MAKE AN INDORSEMENT RESTRICTIVE
        But the mere absence of words implying power to negotiate does not make an indorsement restrictive.
        
        7. INDORSEMENT TO OR BY COLLECTING BANK
        
        A HOLDER OF A CHECK MAY EITHER
        
        CASH IT WITH THE DRAWEE BANK; OR
        
        DEPOSIT TO HIS CREDIT EITHER IN THE DRAWEE BANK OR IN ANOTHER BANK
        A holder of a check may either cash it with the drawee bank, or may deposit it to his credit either in the drawee bank or in another bank.
        
        IF HOLDER DEPOSITS WITH NON-DRAWEE BANK, HE NEGOTIATES THE CHECK TO SUCH BANK
        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.
        
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        IF ENCASHED WITH DRAWEE BANK, THEN PAYMENT DISCHARGES INSTRUMENT AND TERMINATES ALL RIGHTS & LIABILITIES
        Should he cash it directly with the drawee bank, then payment to him by the latter would discharge the instrument and terminate all rights and liabilities of the parties thereto.
        
        IF DEPOSITED AT DRAWEE BANK, SUCH BANK WILL CREDIT THE AMOUNT OF THE CHECK TO HIS ACCOUNT AND WOULD HAVE SAME EFFECT AS PAYMENT
        Should he deposit it in the drawee bank without immediately cashing it, such bank will credit the amount of the check to his account and the effect would be just like payment.
        
        8. NEGOTIATION BY JOINT OR ALTERNATIVE PAYEES OR INDORSEES
        
        IF PAYABLE TO 2 OR MORE PAYEES/INDORSEES NOT PARTNERS, ALL MUST INDORSE
        Sec. 41. Indorsement where payable to two or more persons. - Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others.
        (Sec. 41)
        
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        9. UNINDORSED (ORDER) INSTRUMENTS
        (Applicable only to instruments originally payable to order, not to those originally payable to bearer)
        
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        MULTIPLE PAYEES/INDORSEES SUMMARY:
        
        ALL MUST INDORSE TO NEGOTIATE
        
        ALTERNATIVE PAYEES/INDORSEES
        
        HOLDER IN POSSESSION MAY NEGOTIATE
        
        INDORSEMENT AT COLLECTING BANK SUMMARY:
        
        IF HOLDER DEPOSITS CHECK AT A NON-DRAWEE BANK, THIS SHALL BE THE COLLECTING BANK
        a. CB = AGENT
        b. RESTRICTIVE INDORSEMENT
        c. WHATEVER INDORSEMENT TO THE CB IS, IT IS A RESTRICTIVE INDORSEMENT
        
        SEC. 32. INDORSEMENT 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.
        
        INSTALLMENTS
        The provision does not cover a situation where part of the amount o~ the instrument has been paid, in which case, it may be negotiated for the balance.
        Thus, in a note payable by installments, where some installments have been paid the instrument may still be negotiated for the remaining unpaid installments.
        
        The purpose of this provision is to protect the obligors from more than one action on the instrument. The maker and all the prior parties, in assuming liability, took the risk of only one cause of action against them.
        If a bill for P100 is indorsed by the payee to A for P50 and to B for P50 there is no valid negotiation since it purports to transfer the instrument to two persons severally. Neither of them can be considered a holder. At the most, they are mere assignees, and even so, neither of them can sue on the instrument without bringing in the other as a party to the action. Neither may an indorsement of the instrument to only one person for PSO be valid for then it ;would only be a partial transfer. However, where the payees or indorsees are joint, i.e., "Pay to A and B." the negotiation is valid. In such a case, the instrument is indorsed in its entirety to both A and B, who can negotiate the instrument only by both their indorsements.
        
        The provision does not cover a situation where part of the amount o~ the instrument has been paid, in which case, it may be negotiated for the balance. Thus, in a note payable by installments, where some installments have been paid the instrument may still be negotiated for the remaining unpaid installments.
        
        DISCOUNT vs INSTALLMENT
        Neither does the provision prohibit a transaction where the indorsee pays the indorser less than the face amount of the instrument, title transferring to the indorsee. This is what is called a "discount" of the instrument. In this case, there is no splitting of the cause of action for it belongs wholly to the purchaser _who buys at a discount. The discount is given in co1:s1derat1on of the period during which the purchaser has to wait before he can cash the instrument with the maker or acceptor, which can be done only at the maturity of the instrument.
        
        When an indorsement_ does not comply with Section 32, the transfer is not necessarily void. It remains valid not as a negotiation, but as a mere assignment which subjects the holder to all defenses on the instrument.
        
        a. BY SIGNATURE ON INSTRUMENT OR ON ALLONGE
        
        The question as to when the indorsement on a separate paper called an allonge, may be valid, has given rise to much conflict. Although the law makes no distinction, the prevailing view follows the common law rule that 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 d!3fenses such as failure of consideration. A contrary rule would open the door to fraud. .
        
        Note that the law requires the allonge to be attached to the instrument. The Uniform Commercial Code is more specific and requires that the paper be so "firmly attached affixed thereto as to become a part thereof."
        
        b. IN CASE OF JOINT PAYEES
        
        Where the instrument is payable or indorsed to "A and B", they are joint payees and an indorsement by either A or B only will not constitute a valid negotiation so as to free the instrument from defenses, unless the one indorsing is authorized by the other. But where the instrument is payable to "A or B", the payees are merely in the alternative, and either one may validly negotiate the same.
        
        c. IF NAME MISSPELLED
        
        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.
        
        Under the above provision, the indorsement should be made by the holder in the manner he was designated, otherwise the signature will prima facie not be a valid indorsement of the instrument. After such indorsement, he may sign his correct name.
        
        ORDER INSTRUMENT MAY BE CONVERTED BUT A BEARER INSTRUMENT WILL ALWAYS BE A BEARER INSTRUMENT
        If the last indorsement is blank, the order instrument will be converted to a bearer instrument.
      - PAYABLE TO ORDER REQUISITES FOR NEGOTIATION
        An instrument payable to order requires for its negotiation:
        
        INDORSEMENT BY PAYEE/PRESENT HOLDER
        First, an indorsement by the payee or present holder.
        
        DELIVERY TO TRANSFEREE/INDORSEE
        Second, its delivery to the transferee or indorsee, who now becomes the holder.
        
        An indorsement consists of a signature of the indorser usually on the back of the instrument.
      - An instrument payable to order requires for its negotiation, first, an indorsement by the payee or present holder, and second, its delivery to the transferee or indorsee, who now becomes the holder. An indorsement consists of the signature of the indorser usually on the back of the instrument. An indorsement has a double significance: it constitutes a transfer or sale of the instrument to the indorsee or transferee, and it 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.
        
        An instrument payable to bearer can be negotiated by mere delivery. It is a common practice, however, to indorse a bearer instrument whenever it is transferred. It 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 on his warranties as the seller of the bill or note, but also on his warranty that he will pay in case of default of the primary party. One who negotiates by 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.1
        
        A transfer of a negotiable instrument is effected otherwise than by negotiation 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 law. In this case, the transfer is an ordinary assignment of the transferor's rights and places the assignee in the place of the assignor, subject to the defenses which may be existing between the prior parties.
    - - SEC. 191. DEFINITIONS AND MEANINGS OF TERMS.-
        ...
        "Bearer'' means the person in possession ot a bill or note which is payable to bearer;
        ''Holder" means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof;
    - - 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.
        
        A negotiation may be for value as in a sale, or by way of gift. In either case, there will be a valid transfer. However, the rights acquired by the transferee in each case may be different.
  - - - WITHOUT INITIAL DELIVERY FROM
        MAKER TO PAYEE, NO LIABILITY
        Without the initial delivery of the instrument from the maker to the payee, there can be no liability on said instrument.
    - - GIVEN FOR MERE SAFEKEEPING, NO DELIVERY
        Thus, if the maker gives the instrument to another for mere safekeeping, there is no delivery within the meaning of the above provision.
      - IF INST NO LONGER IN POSSESSION OF SIGNOR, VALID DELIVERY IS PRESUMED
        However, once the instrument is no longer in the possession of the person who has signed it, a valid delivery by him is presumed, until the contrary is proved, and
        
        CONCLUSIVE PRESUMPTION TO HIC
        as to the holder in due course, the presumption is conclusive, provided the instrument is complete.
      - Sir: Delivery by negligence.
        In AmJur, when the maker/drawer/indorser indorses an instrument to another and such MDI intended to negotiate it to a different person, the negotiation is valid as to the person it was negotiated to. Negligence is imputed to the MDI for such mistake.