Course Title : NEGOLAW Professor : Atty. Jose T.

Yayen
Section : BA 44 & 43
Chapter III
Learning Module No. 2
NEGOTIATION

I. Introduction / Overview

The different methods of transfer are by assignment, by operation of law and by negotiation which maybe by
indorsement plus delivery and by mere delivery only. The different kinds of indorsement shall be presented.

II. Learning Goals and Objectives

TO PRESENT the different methods of transfer, to identify and explain negotiation and the kinds of indorsement.

III. Lecture Notes

See attachment for power point presentation.

IV. Focus Questions

1. Definitions: Define the following:

a) Negotiation; – the act of transferring a negotiable instrument from one person to another to make the
transferee the holder thereof
b) Indorsement-it is a new contract and obligation making the transferee the holder thereof and it generates an
additional contract between the indorser who warrants the genuineness of the instrument and all subsequent
holders
c) Restrictive indorsement - an indorsement that destroys the negotiability of the instrument because it either
prohibits further negotiation, constitute that the indorsee is an agent of the indorser or vests title to the
indorsee for the benefit of a third party or the indorser.

2. Discussions:
a) Give and explain the distinctions of negotiation and assignment.
NEGOTIATION
Mode of Transfer Effected by delivery or
indorsement followed by
delivery.
Terms Negotiation refers only to
negotiable instruments.
Title The transferee becomes a
holder in due course that takes
the instrument free from defect
in the title of the transferor and
subject only to real defenses.
Liability Indorser is not liable unless
there be presentment and notice
of dishonor.
ASSIGNMENT
Done by writing signed by the
transferor
Assignment refers generally to
ordinary contracts
The assignee acquires all the
rights and all the defenses
available against the assignor.
Assignor is always liable even
if in the absence of notice of
dishonor.

b) Can there be negotiation to a payee? Why?

 Yes, there is negotiation to a payee when the first delivery of the instrument is other than the payee such as
the agent of the maker or drawer or when the instrument is delivered back to the payee by the last holder.

c) How and for what purpose or reason is a qualified indorsement made?

According to Section 38, a qualified indorsement constitutes the indorser a mere assignor of the title to the
instrument and it may be made by adding to the indorser’s signature the words “without recourse” or any
words of similar import which in effect limits the indorser’s liability to the instrument.

3. Problems:

a) X indorsed an instrument by W for P12,000 to Y, to wit: “Pay to Y or order P10,00.” Is there valid
negotiation? Why?

It depends because generally an indorsement must be of the entire instrument under section 32
otherwise it is not considered a valid negotiation unless the instrument is paid in part then it may be
indorsed as to the residue and be a valid negotiation.

b) A promissory note by W payable to X or his order is indorsed by X to Y payment of which is subject to

fulfilment by Y of a condition. W paid Y knowing that Y has not yet complied with the condition. Has X the
right to recover from W the amount paid by Y? Why?

No but he has the right on the proceeds from Y who would not become the owner thereof until the
condition is fulfilled as stated in Section 39 wherein the party required to pay may disregard the condition and
make the payment to the indorsee or his transferee even if the condition is not fulfilled but any person to
whom an instrument so indorsed is negotiated will hold the proceeds thereof subject to the rights of the
person indorsing conditionally.

V. Exercises / Learning Activities

A. Santos, Jr. finds and pockets a bearer check lying with other paper on his father’s desk. Santos, Sr.’s special
indorsement to Reyes is at the back of the check. Santos Jr. crosses out the special indorsement and writes his
own special indorsement as follows: “Pay to Rev. Fr. Cruz for his special project, Santos Jr.” and gives the
check to Fr. Cruz. Fr. Cruz indorses the check to Omega Hardware Co. in payment of cement. Omega Hardware
indorses the check to Tan Supply Co. in payment of deliveries. Tan Supply, although previously told by Santos
Sr. that the check had been lost, needs funds very badly and therefore accepts the check. In the hands of Tan
Supply, the check is dishonoured by non-payment by the drawee-bank, acting on the drawer’s stop payment
order supported by Santos Sr’s affidavit of loss earlier received by the drawee-bank. Against whom may Tan
Supply enforce its rights on the instrument, assuming due compliance with all proceedings of dishonour?
Why? (10 pts)

B. Case Analysis: National Bank Vs. National City Bank of New York, 63 Phil 711. (10 Pts)

VI. Assignments

A. Problem:

Lorenzo Tuazon makes a note for P10,000 payable to Rey Cruz or bearer. The following indorsements appear at
the back of the note. “Pay to Ric Prado. Signed Rey Cruz”. “Pay to Marlon Cruz. Signed Ric Prado”. Pay to Robert
Castro. Signed Marlon Cruz.” “Pay to Dante Filamor. Signed Robert Castro.” If the indorsement of Ric Prado to
Marlon Cruz is struck out by Dante Filamor, what happens? Explain. (10 pts)

B. Case Analysis: Philippine National Bank v. Court of Appeals, L-26001, Oct. 29, 1968, 25 SCRA 693. (10 pts)

VII. Assessments / Evaluations

The above activities clearly identifies the source of the grades of the students. Long quiz will follow after
submission of these activities.

VIII. Related Readings

A. Anti-Bouncing Check Law. Batas Pambansa Blg. 22.

B. Case: Samson vs. Court of Appeals, L-10364, March 13, 1958.