Notes Chapter II

8/12/2019 Notes Chapter II

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CHAPTER II

TRANSFER

1. DELIVERY AND ISSUANCE

SEC 16 Delivery; When Effectual; When Presumed

Delivery of the instrument means transfer of possession, actual or

constructive, from one person to another without the initial delivery of the instrument from the maker to the

payee, there can be no liability on said instrument.

Delivery must be intended to give effect to the instrument

The first delivery of the instrument complete in form, to a person

who takes it as a holder, is called the ISSUE ! ISSU"#$E %T&E I#ST!U'E#T

CASE: IN RE MARTENS ESTATE

'abel 'artens (onk is the daughter of the deceased.

There was a note in her mother)s handwriting promising to pay her

*+,--, this was also signed by the mother hen her mother died, she delivered an envelope to the lawyer and

in the presence of the administrator,

'abel filed a claim based on the note against the administrator

T!I"/ $U!T0 denied the claim because the note was notdelivered during the lifetime of the deceased

Sec 1234 provides that every contract on a negotiable instrument is

incomplete and revocable until delivery of the instrument for thepurpose of giving effect thereto

S$0 The note here sued upon could not be made the basis ofvalid claim unless there was a legal delivery of the sameduring the lifetime of the deceased.The deceased put the deeds in her safety deposit bo5 andretained the key. These facts do not show a legal delivery of thedeed in 6uestion.TRIAL CT AFFIRMED IFO ESTATE

2. NEGOTIATION

SEC 30 What Constitutes Negotiation !"#NS$E"% &f

'aya(le to (earer) it is negotiated (y delivery % &f 'aya(le to

order) it is negotiated (y indorsement of the holder com'leted

(y delivery%

SEC 1*1% Definitions+

,earer the 'erson in 'ossession of a (ill or note -hich is

'aya(le to (earer

.older 'ayee or indorsee of a (ill or note -ho is in

'ossession of it) or the (earer thereof

" negotiation is the transfer of a negotiable instrument made in

such a manner that the transferee became a holder in due coursecapable of ac6uiring a better title to the instrument than that of histransferor.

If an instrument is transferred without negotiation, transfer is a

mere assignment.

3. METHODS OF NEGOTIATION

"n instrument payable to order re6uires for its negotiation, first, anindorsement by the payee or present holder, and second, itsdelivery to the transferee or indorsee, who now becomes theholder.

"n indorsement consists of the signature of the indorser usually at

the back of the instrument.

Significance of indorsement0 +. constitutes a transfer or sale of

instrument to the indorsee or transferee7. signifies agreement of the indorser to answer for theamount represented by the instrument in case of default

of the maker or the party primarily liable.

"n instrument payable to bearer can be negotiated by meredelivery. ne who negotiates by delivery, although he assumesliabilities of a seller or transferor of the note or bill, doesn)twarrant that he will pay in case the primary party fails to pay.

4. HOW INDORSEMENT MADE

a. By si!a"#$% &! i!s"$#'%!" &$ &! a((&!%

SEC 31% &ndorsement .o- /ade must (e -ritten on the

instrument itself% signature of the indorser is sufficient

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CHAPTER II

"llonge 8indorsement in a separate paper9 is used only when there

is no longer any room on the instrument for further indorsement."llonge should be attached to the instrument.

CASE: CLAR) V THOM*SON

The note in 6uestion is evidence of a mortgage by the husband

where the wife was surety for the debt. The wife filed a complaint for the cancellation of the mortgage on

her realty to secure their :t negotiable note.

The note was payable to Thomspon or order. !espondent bought

the note from Thompson.

!espondent is arguing that it ac6uired the note by indorsement and

he should be considered a holder in due course.

The law re6uires that the indorsement must be written on the

instrument itself or upon paper attached thereto

indorsement made upon an allonge 8upon a slip of paper tacked

and pasted on the instrument so as to become a part of it9 is

allowed only when the back of the instrument was so covered byprevious indorsements that added space was re6uired.

In this case, there was no evidence that the note was pinned to the

mortgage when they were transferred to respondent, but only whenthey were delivered to the payee a year ago. The S$ could notpresume that such artificial fastening for temporary conveniencestill e5isted at the date of transfer

SC: T+% "$a!s,%$ -as a '%$% assi!'%!". R%s&!/%!" is !&" +&(/%$ i!

/#% 0$s%

. I! 0as% &, &i!" ay%%s

here the instrument is payable or indorsed to ;" and (


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SE$ >7 Indorsement must be of entire instrument ? Theindorsemnt must be an indorsement of the entire instrument, "nindorsement which purports to transfer to the indorsee a part only ofthe amount payable, or which purports to transfer the instrument to 7or more indorsees severally, doesn)t operate as a negotiation of the

instrument. (ut where the instrument has been paid in part, it

may be indorsed as to the residue.

The purpose of the provision is to protect the obligors from more

than + action on the instrument.

If a bill for +-- is indorsed by the payee to " for - and ( for -,

there is no valid negotiation since it purports to transfer to 7persons severally. "t most, they are assignees and neither of themcan sue without bringing in the other party.

"n indorsement for - is also not valid encase it would only be a

partial transfer

here a note payable by instalments, where some instalments have

been paid, the instrument may still be negotiated for the remainingunpaid value.

The provision does not prohibit a transaction where the indorsee

pays the indorser less than the face amount of the instrument, thisis called DIS$U#T.

If indorsement doesn)t comply with Sec >7, the transfer is not

necessarily void. It remains valid not as a negotiation, but as mereassignment which sub=ects the holder to all defences on theinstrument.

CASE: BLA)E V WEIDEN

(lake as trustee in the bankruptcy of !. eiden sued %rank

eiden to recover an overdraft in %rank)s salary account %rank was a stockholder in the bankrupt company

%rank held counterclaims on negotiable note each for *,---

given by the company to !obert, %rank)s father

n !obert)s death but prior to the bankruptcy, $harles and

&ermann 8e5ecutors of estate of !obert9 put on the back of eachnotes a form of indorsement, signed by the estate in the ff words0Aay to order of $harles, &ermann and %rank, share alike, astenants in common.

$harles and &ermann filed proofs of claims on their purported

share as indorsees

%rank sets up his counterclaims as set off against the debt for

which the trustee is suing

T!I"/ $U!T0 .....ISSUE0 # %rank has any interest in the notes

The law provides that0 the indorsement must be an indorsement ofthe entire instrument. an indorsement which purports to transfer toindorsee a part only of the amount payable, or which purports totransfer the instrument to 7 or more indorsees severally, doesn)toperate as a negotiation of the instrument. (ut where theinstrument has been paid in part, it may be indorsed as to theresidue.

The !U/E is that when there has been a purported indorsement of

the whole instrument, in separate part to 7 or more transferees, thepurported indorsees take legal title to their several shares and maysue together, or any one or more may sue provided that all otherindorsees are brought in as parties.

In this case, %rank brought in the 7 other indorsees

$''# /"0 law conformed with the custom of merchants

which was that of a holder of a note could not apportion suchpersonal contract, for he cannot make a man liable to 7 actions,where by the contract he is only liable to one.

%rank as coBassignee of a nonBnegotiable chose in action had the

right to maintain his counterclaim so long as he bought his coBassignees into the action.

%rank had legal title to, and causes of action at law on his share of

the notes 8ergo, he can setBoff9

HELD: B(a5% a!/ F$a!5s 0(ai' a$% '#"#a( a!/ F$a!56s 0(ai' is$&7a(% i! a!5$#"0y

8. )INDS OF INDORSEMENTS

SEC 33% inds of &ndorsements S'ecial or in (lan)

restrictive or 2ualified or conditional

a. Basis &, 0(assi,i0a"i&!

here only the signature of the indorser appears, it is called

(/"#C I#D!SE'E#T

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The classification of all indorsements into special and blank has to

do with the future method of negotiation 8whether by indorsementand delivery or by delivery alone9

The classification of all indorsements into restrictive and non

restrictive, has to do with the kind of title transferred.

The difference between 6ualified and un6ualified indorsement lies

in the scope of liability assumed by the indorser. The classification of indorsements into conditional and

unconditional, has to do with the presence or absence of e5presslimitations put by the indorser upon the primary obligors privilegesof paying the holder.

. S%0ia( a!/ B(a!5 i!/&$s%'%!"s

SEC 34 S%0ia( a!/ B(a!5 i!/&$s%'%!"s 9

S'ecial s'ecifies the 'erson to -hom) or to -hose order) the

instrument is to (e 'aya(le; and the indorsement of such

indorsee is necessary to the further negotiation of the

instrument%

#n indorsement in (lan s'ecifies no indorsee) and an

instrument so indorsed is 'aya(le to (earer) and may (e

negotiated (y mere delivery%

SEC 0 &ndorsement of instrument 'aya(le to (earer

When 'aya(le to (earer) is indorsed s'ecially) it may

further negotiated (y delivery; (ut the 'erson indorsing

s'ecially is lia(le as indorser to only such holders as mae

title through his indorsement%

SEC 34 ,lan indorsement; ho- changed to s'ecial

indorsement (y -riting over the signature of the indorser in

(lan any contract consistent -ith the character of the

indorsement

7 forms of special indorsement0 +. A"@ T and 7. A"@ T

or !DE! followed b the signature of indorser

In special indorsement, the indorsement of the special indorsee is

necessary for the further negotiation of the instrument.

Instrument payable to bearer and specially indorsed0 A"@ T ,

8sgd9 @). )s signature is not necessary for further negotiation ofthe instrument 8Sec 2-, applies to bearer instrument9

Sec 2- illustration0

" makes an instrument payable to bearer and delivers it to (( negotiates and delivers it to $$ indorses it specially to DD indorses it specially to EE negotiates it to % by mere delivery

The rules0

" person who negotiates by mere delivery is liable onlyto his immediate transferee.

" special indorser is liable to subse6uent holders, ulessthe instrument is an originally bearer instrument, in whichcase he is liable only to those who take title through hisindorsement

"pplication of the rules0

( is only liable to $

$ 8F9 is liable to D and E because they take title throughhis indorsement

D is liable to E since the latter is the only one who takesthrough his indorsement

E is liable to %

"n indorsement in blank specifies no indorsee, it is payable to

bearer and may be negotiated by delivery. " thief can be holder indue course.

" blank indorsement may be converted into a special indorsement

by writing over the signature of indorser in blank any contractconsistent with the character of the indorsement. This will render

the instrument negotiable by indorsement and delivery, unless it isa bearer instrument.

"n instrument payable to order on its face may be converted into a

bearer instrument by means of a blank indorsement, and may laterbe reconverted into an order instrument by a subse6uent specialindorsement, the last indorsement always controlling the means offurther negotiation.

"n instrument payable to bearer on its face always remains a

bearer instrument 8 may be further negotiated by delivery alonewhether the last indorsement is a blank or special one

0. #a(i,i%/ i!/&$s%'%!"

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SEC 35 ualified indorsement constitutes the indorser a

mere assignor of the title to the instrument% &t may (e made (y

adding to the indorser7s signature the -ords -ithout recourse%

Such indorsement doesn7t im'air the negotia(le character of

the instrument

"n indorser by his indorsement impliedly enters into 7 contracts0+. contract of sales or assignment of the instrument and 7. acontract to pay the instrument if the maker is unable to pay onmaturity.

If an indorser wants to relieve himself of either contract, he must

e5pressly say so, by adding the words ;without recourse< abovehis signature 8this would rid him of the 7ndcontract9.

CASE: FAY V WHITE

" A# was e5ecuted0 &arry itte, Inc 8sgd by itte, Ares9

promises to pay to the order of &arry itte *7,-- on #ov +

(efore the maturity of the A#, &arry for a valuable consideration,

indorsed the note0 assigning all his rights to !ichard %ray

%ray brought the action vs itte for nonBpaymeny

$"0 itte, by assignment of the note, became indorser without recourse. hewasn)t liable as an un6ualified indorser.

Indorsement implies 7 things0 +. transfer of the note and 7. a

promise to pay if the maker fails to do so.

ISSUE0 # itte is a 6ualified indorser

S$0 #o.

The law provides that a person placing his signature upon aninstrument otherwise as a maker, drawer or acceptor is deemed tobe an indorser, unless he clearly indicates by appropriate words hisintention to be vound in some other capacity.

the words ;without recourse< must be used

there was no such words in this indorsement

It may be implied that with the use of the word ;assign< the payee

considered himself not liable, buut implication is not permitted bythe statute

ITTE IS "# U#GU"/I%IED I#D!SE! and as such he is

liable upon nonBpayment

HELD: CA R%7%$s%/

CO*ELAND V BUR)E

$opeland sued (urke and 'essengill upon the A# e5ecuted by

'essengill to (urke 8payee9 who transferred to $opeland by'emo upon the back of the note in these words0 I transfer my

right, title and interest in the same, JM Burke

DIST!I$T $U!T0 !U/ED I% (urke

ISSUE0 # the words constitute the (urke an indorser in due course andas such liable for the payment of the note# (urke is a mere assignor

S$0 Gualified indorsement constitutes the indorser a mere assignor of thetitle to the instrument. It may be made by addinf to the signature0 ;withoutrecourse< or nay words of similar import. Such indorsement does not impairthe negotiable character of the instrument.

" person placing his signature upon an instrument otherwise thanas a maker, drawer or acceptor is deemed to be an indorser, unlesshe clearly indicated by appropriate words his intention to be boundin some other capacity.

Special indorsement doesn)t destroy the negotiability of the note

If (urke didn)t intend to be bound by this indorsement, he should

have been e5plicit about it

HELD: BUR)E IN AS UNUALIFIED INDORSER THUS HE IS

LIABLE

HUTSON V RAN)IN

!ankin e5ecuted a A#0 n or before 'ar +, he promises to pay to

#orthwestern *+,+--.

There was a notation on the back of the note0 %or value received,

we hereby HU"!"#TEE payment within the note... 8sgd9#orthwestern, olkmeier

(efore the maturity of the note, &utson became the purchaser for

value

The amount of the note wasn)t paid so &utson filed a claim to

recover

/E! $U!T0

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ISSUE0 # the note is negotiable

S$0....

&E/D0 :UDH'E#T "%%I!'ED

D. C&!/i"i&!a( i!/&$s%'%!"

"n indorser is liable to pay the instrument in 7 condition0 +. that

due demand or presentment be made on the party primarily liableon the date of maturity and 7. that should the latter fail to pay suchpresentment, a notice of dishonour be sent to indorser.

" conditional indorsement is one where an additional condition is

anne5ed to the indorser)s liability. Such indorsement doesn)taffect the negotiability of the instrument bec the original promiseremains unconditional.

SEC3* Conditional &ndorsement a 'arty re2uired to 'ay the

instrument may disregard the condition) and mae 'ayment tothe indorsee or his transferee) -hether the condition has (een

fulfilled or not% ,ut any 'erson to -hom an instrument so

indorsed is negotiated) -ill hold the same) or the 'roceeds

thereof) su(8ect to the rights of the 'erson indorsing

conditionally.

If an instrument on its face is payable on Dec +, is indorsed by the

payee to " ;if he marries before he is 7


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S$0 The language of the indorsement is without ambiguity

The plain meaning is that the acceptor of the draft is to pay it to the

indorsee for the use of the indorser.

It doesn)t purport to transfer title of paper and ownership of money

when received

That by the terms of the endorsement, hite. became merely the

agent of the bank for the collection of the money.

&E/D0 IT IS " !EST!I$TIE I#ST!U'E#T!emanded for new trial

;. INDORSEMENT TO OR BY COLLECTING BAN)

" 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 anotherbank.

If the indorsement is ;for collection


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WHISTLER V FORSTER

This is

+-. $"#$E//"TI# % I#D!SE'E#TS

SEC 5 striing out indorsements !he holder may at any timestrie out any indorsement -hich is not necessary to his title%

&ndorser -hose indorsement is struc out and all indorsers

su(se2uent to him are there(y relieved from lia(ility on the

instrument%

" holder must be able to trance his title to the instrument back to

the original owner, the payee....

++. I#D!SE'E#T (@ "HE#T

+7 A!ESU'ATI# "S T I#D!SE'E#TS

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Notes Chapter II

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