Chapter 4 – Modes of Transfer

Negotiation – the transfer of the indtrument from one person to another so as to

constitute the transferee the holder thereof.

Holder in due course – holder who is free from personal defenses of prior parties.

a non-negotiable instrument may be transferred only through assignment, and

cannot be considered a holder in due course... (essentially, he cannot enjoy the
rights of one who handles a negotiable instrument)

BDOI – Bearer, Deliver. Order, Indorse.

If the instrument is negotiable, voluntary transfer can be effected either

through negotiation or through assignment. If the instrument is merely
assigned, the transferee does not become a holder (in due course) and he
merely steps into the shoes of the transferor. “a mere assignee against whom
all defenses available to the assignor may be raised.”

Sesbreno vs CA

only and instrument qualifying as negotiable instrument under the relevant

statute may be negotiated either by indorsement thereof, coupled with
delivery, or by delivery alone where the negotiable instrument is in bearer
form.

A NEGOTIABLE INSTUMENT MAY, HOWEVER, INSTEAD OF BEING

NEGOTIATED, ALSO BE ASSIGNED OR TRANSFERRED.

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 The legal consequences of negotiation as distinguishd from assignment of a
negotiable instrument are, of course, different. A non-negotiable instrument may,
obviously, not be negotiated; but it may be assigned or transferred, absent no
express prohibition against assignment or transfer written in the face of the
instrument.

The words not negotiable stamped on the face of the bill of lading did not destroy
its assignability, but the sole effect was to exempt the bill from the statutory
provisions relative thereto, and a bill though not negotiable, may be transferred
by assignement.

money market transactions enjoys the presumption "the issuer of a commercial

paper in the money market necessarily knows in advance that it would be
expeditiously transacted and transferred to any investor/lender without need
of notice to the said issuer. In practice, no notification is given to the borrower
or issuer of commercial paper of the sale or transfer to the investor."

HOW NEGOTIATION TAKES PLACE

A. Issuance-

delivery is the transfer of possession of the instrument by the maker or drawer

with the intention to transfer title to the payee and recognize him as holder
thereof.

it imports such transfer of the instrument to another as to enable the latter to

hold it for himself.

B. Subsequent negotiation

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 attachement of the separate piece of paper where the indorsement is
supposed to be made is required under the law.

Such attachment must be firmly afficed to the instrument so as to become part

thereof. Otherwise, the paper on which the indorsement is made may be lost in
the process of negotiation.

INDORSEMENT:
sec 32. Indorsement must be of the entire instrument. If the instrument is
indorsed for a lesser amount, the transfer is still effective but is merely an
assignment of credit.

in a blank indorsement, no indorsee is specified and it is done by affixing the

sec 32. indorsers signature.
**DOES NOT OPERATE AS A NEGOTIATION**
(1)an indorsement which purports to TRANSFER TO THE INDORSEE a part only Special indorsement, idnetifies the person to whom he intends to make the
of the amount payable instrument payable.

(2)which purports to transfer the instrument to 2 or more indorsees severally.

sec 35.

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 the holder may convert a blank indorsment into a special indosement by "THE PARTY REQUIRED TO PAY THE INSTRUMENT MAY DISREGARD THE
writing over the signature of the indorser in blank any contract consistent with CONDITION AND MAKE PAYMENT... WHETHER THE CONDITION HAS BEEN
the character of the indorsement. FULFILLED OR NOT."

effect of indorsing an instrument:

sec 36.
actually entering into 2 contracts;
(1) the contract for the assignment or transfer of his right over the instrument
an indorsement is restrictive which either:
(2) secondary contract where he assumes secondary liability.
(1) prohibits the further negotiation of the instrument or
(2) constitutes the indorsee the agent of the indorser or
if the indorser wants to transfer his rights over the instrument but does not
(3) vest the title in the indorsee in trust for or to the use of some other persons.
want to assume responsibilities under the secondary contract... he may resort
to a QUALIFIED INDORSEMENT
But the mere absence of words implying power to negotiate does not make an
indrsement restrictive.
the effect of this is that the indorser disclaims his liability to any holder or any
subsequent party who might be compelled to pay by another. He is only liable
Sec 37 effect of restrictive indorsement
for breach of warranties under sec. 65 of NIL.

a restrictive indorsement confers upon the indorsee the right

sec. 38
(1) to receive payment of the instrument
a qualified indorsement constitutes the indorser as a mere assignor of the title
(2) to bring any action thereon that the indorser could bring
to the instrument. It may be made by adding to the indorsers signature the
(3) to transfer his rights as such indorsee, where the form of the indorsement
words "without recourse" or any words of similar import. Such an indorsement
authorizes him to do so.
does not impair the negotiable character of the instrument.

but all subsequent indorsees acquire only the title of the first indorsee under
the restrictive indorsement.
can a conditional indorsement be allowed under the law?

"conditional" ehh... does this negate the sec 1 requisites?
sec. 39. Where an indorsement is conditional, the party required to pay the
indtrument may disregard the condition an make payment to the indorsee or
his transferee whther 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.
mere absence in the indorsement of words implying power to negotiate
does not make an indorsement restrictive that prevents futher
negotiation....
Natividad vs CA
the banking rule banning acceptance of checks for deposit or cash payment
with more than one indorsement unless cleared by some bank officials does
not invalidate the negotiation or transfer of the said check. In effect, this rule

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 destroys the negotiability of bill/checks by limiting their negotiation by
indorsement of only the payee...

sec 36 (a)

in this kind of restrictive indorsement, the prohibition to transfer or negotiate

must be written in express words at the back of the instrument, so that any
subsequent party may be forewarned that it ceases to be negotiable. however,
the restrictive indorsee acquires the right to receive payment and bring any
action thereon as any indorser, but he can no longer transfer his rights as such
indorsee where the form of the indorsement does not authorize him to do so.

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