NEGOTIATION
1. Modes of transfer
133. What property right is the promissory note evidenced?
Right to collect the amount specified. It is a personal right
134. How does the NI be transferred?
By negotiation of the instrument and by assignment
Negotiation. It ordinarily involves indorsement (in regard to
other than bearer paper) so that "negotiation" and "indorsement"
are often used interchangeably. Negotiation makes it possible
for the transferee to acquire a better right to a negotiable
instrument that the transferor had. Whether the holder is a
holder in due course depends upon factors other than the fact
of negotiation
Assignment. It is the less usual method/ which may or may
not involve an indorsement in the sense of a writing on the back
of the instrument. A bill or note, whether negotiable or non-
negotiable, may be transferred by assignment. By its nature,
there can be no "negotiation" of a non-negotiable instrument.
Although it may be transferred by indorsement and delivery, the
assignee acquired the instrument subject to the rules applicable
to non-negotiable paper
135. How does the N-NI be transferred?
By assignment only
136. Why cant the N-NI be negotiated?
Because the law prohibits expressly not to transfer
137. What are the advantages of the 3rd party if NI has been
transferred through negotiation?
He may be a holder in due course and free from all defenses
from personal defenses
138. What is the disadvantage of the 3 rd party if the NI is
transferred by assignment?
He is free from personal defenses
2. Concept of negotiation
139. What is the concept of negotiation?
Section 30 of the NIL provides that
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
completed by delivery.
CASES: Sesbreno v. CA; consolidated v. IFC
FACTS: Raul Sesbreno made a money market placement in the
amount of P300,000 with PhilFinance, with a term of 32 days.
PhilFinance issued to Sesbreno the Certificate of Confirmation
of Sale of a Delta Motor Corporation Promissory Note (DMC PN
No. 2731), the Certificate of Securities Delivery Receipt
indicating the sale of the Note with notation that said security
was in the custody of Pilipinas Bank, and postdated checks
drawn against the Insular Bank of Asia and America for
P304,533.33 payable on 13 March 1981. The checks were
dishonored for having been drawn against insufficient funds.
Philfinance delivered to petitioner Denominated Custodian
Receipt (DCR).
Petitioner approached Ms. Elizabeth de Villa of private
respondent Pilipinas, and handed her a demand letter informing
the bank that his placement with Philfinance in the amount
reflected in the DCR had remained unpaid and outstanding, and
that he in effect was asking for the physical delivery of the
underlying promissory note. Petitioner then examined the
original of the DMC PN No. 2731 and found: that the security
had been issued on 10 April 1980; that it would mature on 6 April
1981; that it had a face value of P2,300,833.33, with the
Philfinance as payee and private respondent Delta Motors
Corporation (Delta) as maker; and that on face of the
promissory note was stamped NON NEGOTIABLE. Pilipinas
did not deliver the Note, nor any certificate of participation in
respect thereof, to petitioner.
Petitioner later made similar demand letters again asking private
respondent Pilipinas for physical delivery of the original of DMC
PN No. 2731.
Petitioner also made a written demand upon private respondent
Delta for the partial satisfaction of DMC PN No. 2731, explaining
that Philfinance, as payee thereof, had assigned to him said
Note to the extent of P307,933.33. Delta, however, denied any
liability to petitioner on the promissory note.
As petitioner had failed to collect his investment and interest
thereon, he filed an action for damages against private
respondents Delta and Pilipinas.
ISSUE: WON DMC PN No. 2731 marked as non-negotiable may
be assigned?
HELD: YES. Only an instrument qualifying as a 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 instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal
consequences of negotiation as distinguished 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 an 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
assignment; the assignee taking subject to the equities between
the original parties. 12 (Emphasis added)
DMC PN No. 2731, while marked non-negotiable, was not at
the same time stamped non-transferable or non-assignable.
It contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.
3. Ways of negotiation
140. What are the physical acts to qualify negotiation?
If payable to bearer, it is negotiated by delivery; if payable to
order, it is negotiated by the indorsement of the holder
completed by delivery.
141. How will you indorse?
By signing
142. How will you deliver?
Hand in or transfer the instrument physically
4. Concept of delivery
143. Is there a need of deed of assignment or other similar
papers for the transfer of the instrument?
No
144. Is there a need of deed of a separate paper such deed of
assignment to effect transfer?
No, it is sufficient if there was indorsement and delivery
145. Why does an order instrument needs an indorsement?
because he must have to order the maker to pay other person
146. What do signature of indorsers of an order instrument
represent?
It represents the order of the indorser to the person primarily
liable/maker to pay other person to whom he negotiate the
instrument
147. If the instrument is payable to order, is it absolute that they
be negotiated special indorsement?
No, because they may be indorsed in blank
CASE: Dela Victoria vs. Burgos
FACTS: Raul Sebreo filed a complaint for damages against
Fiscal Bienvenido Mabanto Jr. of Cebu City. Sebreo won and
he was awarded the payment of damages. Judge Burgos
ordered De La Victoria, custodian of the paychecks of Mabanto,
to hold the checks and convey them to Sebreo instead. De La
Victoria assailed the order as he said that the paychecks and
the amount thereon are not yet the property of Mabanto because
they are not yet delivered to him; that since there is no delivery
of the checks to Mabanto, the checks are still part of the public
funds; and the checks due to the foregoing cannot be the proper
subject of garnishment.
ISSUES:
(a) Whether or not a check in the hands of the drawer is already
owned by the payee.
(b) Whether or not an undelivered salary check may already
transfer title to the payee.
HELD:
(a) NO. Section 16 of the Negotiable Instruments Law is clear
that where the instrument is no longer in the possession of a
party whose signature appears thereon, a valid and intentional
delivery by him is presumed until the contrary is proved. Proof
to the contrary is its own finding that the checks were in the
custody of petitioner. In this case, as said checks had not yet
been delivered to Mabanto, Jr., they did not belong to him and
still had the character of public funds.
(b) NO. Under Section 16 of the Negotiable Instruments Law,
every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving effect thereto. As ordinarily understood, delivery means
the transfer of the possession of the instrument by the maker or
drawer with intent to transfer title to the payee and recognize
him as the holder thereof. Here, there is no delivery to speak of
as the salary check is not yet in the hands of Mabanto Jr. as the
holder.
CASE: Development vs. Simai
FACTS: Respondent Sima Wei drew crossed checks for the
petitioner, but were not delivered accordingly. It came in the
possession of Lee Kian Huat without petitioner-payees
indorsement.
ISSUE: Whether or not there is a cause of action against
respondent Sima Wei in as far as the crossed checks are
concerned.
HELD: NO. The payee of a negotiable instrument acquires no
interest with respect thereto until its delivery to him. Without the
initial delivery of the instrument from the drawer to the payee,
there can be no liability on the instrument. Moreover, such
delivery must be intended to give effect to the instrument. Here,
non-delivery of said checks to petitioner-payee, the former did
not acquire any right or interest therein and cannot therefore
assert any cause of action, founded on said checks, whether
against the drawer Sima Wei or against any of the other
respondents.
5. Indorsement
a. Concept
Indorsement is the writing of the name of the payee on the
instrument with the intent either to transfer the title to the same,
or to strengthen the security of the holder by assuming a
contingent liability for its future payment, or both
The payee by signing (indorsing) the instrument and delivering
it to another person (in payment of debt payee owes him or for
any other reason) becomes an indorser. The person who
receives the indorsed instrument is the indorsee. He can indorse
the Instrument to some else and thus become an indorser as
well.
Indorsement alone without delivery conveys no title and creates
no holder. Indorsement in accordance with Section 191,
paragraph 8 means an indorsement completed by delivery. It
applies to both bills and notes.
(2) An indorsement is not only a mode of transfer. It involves
also a new contract and an obligation on the part of the indorser
an implied guaranty that the instrument will be duly paid
according to the terms thereof. By his indorsement, the indorser
becomes a party to the instrument, and may be held liable for its
payment even without receiving any consideration therefor, (see
Sec. 29.) Each indorsement generates an additional contract
between the indorser and aU subsequent Holders.
b. How made
Sec. 31. Indorsement; 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
c. Kinds
i. special and blank
ii. conditional
iii. qualified
iv. restrictive
148. What are the different kinds of indorsement?
1. Special vs. Blank
2. Restrictive vs. Unrestrictive
3. Conditional vs. Unconditional
4. Qualified vs. Unqualified
149. What are the implication of the different kinds of
indorsement aside from special and blank
In R vs. U = right on indorsee is affected; C vs. U = effect to
indorsement; Q vs. U = effect to liability of indorser
150. When do you find a special indorsement important?
It is important as to how further negotiation be made
151. What is being hindered by condition?