INDORSEMENT OF INSTRUMENTS
instrument is indorsed. The indorsee is also your payee.
General Rule: You only indorse instruments that are
payable to order. BUT there is nothing in the law that
prohibits a bearer instrument from being indorsed and
delivered.
NOTE: That whenever an instrument is payable to bearer,
it may be negotiated b
a. indorsement and delivery; or
b. by simple delivery
When an instrument is payable to order, it shall
be negotiated properly ONLY BY INDORSEMENT WITH
DELIVERY. An order instrument CANNOT be validly
negotiated by simple delivery (generally).
In indorsement of instruments, you write the
indorsement in a separate page in order to pay the
indorsee who who is going to be the payee.
This is how, generally, an indorsement looks like:
PAY TO CATHERINE ALVAREZ
Sgd. GERALDINE LOPEZ
Back
Familiar right? Kasi napag-aralan na natin yan.
Whoever the drawee is, there is now an order to
pay CATHERINE ALVAREZ. Now, taking a look at this
instrument, do we know who the drawer is? Just looking
at the dorsal part of the instrument, do we know who the
drawer is? NO. Do we know who the drawer is? NO. Do we
know who the payee is? YES. The payee is GERALDINE
LOPEZ.
Now, it could also be done by simply signing the
instrument. As in this case:
__________________________________
Sgd. GERALDINE LOPEZ
Ito yung sinasabi nating indorsement in blank. Bakit
blank? Kasi may blank xD. Yan yung sinabi sa libro.
SPECIAL INDORSEMENT
You also have a special indorsement which
specifies the indorsee (1st effect), states the transferee
(2nd effect), it secures the instrument into the hands of
the transferee (3rd effect). Lahat ng na-meet nating
indorsement noon, special indorsement yan.
Now first, SPECIFIES THE INDORSEE. Note that
the person to whom the instrument is negotiated to is
known as the PAYEE, also known as an INDORSEE. The
ORIGINAL PAYEE is known as the INDORSER.
The indorser is the person who makes the
indorsement.
The indorsee is the person to whom the
PAY TO CATHERINE ALVAREZ
Sgd. GERALDINE LOPEZ
Back
 So in this case who is the indorsee? CATHERINE
ALVAREZ.
 Who is the indorser? GERALDINE LOPEZ.
As far as the third effect is concerned, it secures
the instrument in the hands of the indorsee because NO
ONE ELSE (sya lang talaga <3) can deem payment dahil si
CATHRINE ALVAREZ lang nakapangalan jan.Pag napunta
sa ibang tao, there is already an automatic doubt as to
how this person got the instrument. Kapag nakuha mo
yung instrument, sino ka? Hindi naman ikaw si
CATHERINE ALVAREZ, kalalaki mong tao xD. HAHAHA.
So more often than not, this instrument will be
secured in the hands of CATHERINE ALVAREZ. Kung may
ibang makakuha nyan, they cannot claim payment. Why
not? They are not CATHERINE ALVAREZ. That is special
indorsement.
Remember that in special indorsement, the
payee MUST be specified.
BLANK INDORSEMENT
__________________________________
Sgd. GERALDINE LOPEZ
* You also have a blank indorsement, opposite ng special
indorsement because the payee is not specified. Just note
the (3) effects.
Most importantly, it converts an order
instrument into a bearer instrument. So, based on that
conversion, the payee is not specified, it could be anyone.
Of course with the requirement that the instrument must
have been NEGOTIATED because this is how you transfer
a NI, by negotiation.
Question: You have a bearer instrument, binukas mo
yung bintana mo, nilipad sa labas, napulot ng tambay xD.
Is that person (tambay) the holder within the
requirement of law? Can that person bring the instrument
to a bank or to the drawee and have the instrument
encashed? “Sabi payable to bearer, I am the bearer.” (Sabi
ni Sir, oh diba tambay tapos marunong sa Nego xD). Can
he claim payment? Is that person entitled to the
instrument? Was that instrument NEGOTIATED to him?
NO. Was it donated to him? Was is assigned to him? Sold
to him? NO.
So does that person has title over the instrument? The
answer is NONE.
Can that person claim payment? LEGALLY NO.
Let’s say na-encashed nya yung instrument, na-
claim niya yung pera ,what is now the right of the owner
of the instrument? To proceed against that person, to
recover the sum of money. WITHOUT NEGOTIATION,
YOU NEVER GET TITLE OVER THE INSTRUMENT.
RESTRICTIVE INDORSEMENT
PAY TO CATHERRINE ALVAREZ ONLY
Sgd. GERALDINE LOPEZ
A restrictive indorsement is also a special
indorsement because it specifies the payee. BUT NOTE
the characteristic of a restrictive indorsement, it limits or
restricts the person to whom you can negotiate the
nstrument. “PAY TO CATHERINE ALVAREZ ONLY”, in
interpreting that statement, can CATHERINE ALVAREZ
further negotiate the instrument? NO, she cannot.
Does the instrument remain valid? YES. The only
thing that the instrument loses is its character of
negotiability. Yun lang yun.
Now, it could also happen that the restrictive
indorsement constitutes the indorsee as an agent of the
indorser, as in these cases:
PAY TO CATHERRINE ALVAREZ in my behalf
Sgd. GERALDINE LOPEZ
*This is still a restrictive instrument, even though
here CATHERINE ALVAREZ is not really the payee. The
payee in this case is GERALDINE LOPEZ. Ginawa lang
nyang representative si Catherine Alvarez. (You’ll learn
that when you go to your contract of agency).
PAY TO CATHERINE ALVAREZ for my account
Sgd. GERALDINE LOPEZ
* A restrictive indorsement may even constitute the
indorsee as a trustee. As in thin case:
PAY TO CATHERRINE ALVAREZ for my account
Sgd. GERALDINE LOPEZ
For JOSEFINA REALEZA
Sgd. GERALDINE LOPEZ
Ano yung palatandaan dito, interpret the instrument,
does the indorsement allow you to negotiate the
instrument to someone else? If your answer is yes, then it
is NOT a restrictive indorsement. If your answer is no, it
is a restrictive indorsement.
QUALIFIED INDORSEMENT
Pay to CATHERINE ALVAREZ without recourse to me
Sgd. GERALDINE LOPEZ
NOTE that a qualified indorsement NEGATES the liability
of an indorser such that the indorser may NOT be
required to pay the instrument to the payee.]
It is as if you are saying that GERALDINE LOPEZ
orders the drawee to pay the instrument to CATHERINE
ALVAREZ pero walang balik sa kanya. Remember
secondary liability? In a BoE, who are secondarily liable?
The drawer and the indorsers. In a PN, genrally no one is
secondarily liable UNLESS the PN was indorsed. So what
happens in secondary liability? If a person primarily
liable does not pay, you can run to those secondarily
liable.
What if ganito:
Pay to CATHERINE ALVAREZ
Sgd. GERALDINE LOPEZ
Can you claim, if the instrument was dishonoured, that
GERALDINE LOPEZ be secondarily liable? YES, she will be
secondarily liable because she is an indorser.
BUT in a qualifies indorsement, it is af if you are negating
your own liability. “Sige bayaran mo sya pero hindi mo ko
pwedeng habulin ha (as if naman hahabulin kita! Sayang
ganda the! xD). Pag yan hindi nabayaran, hindi mo ko
pwedeng habulin.”
Kung ganito ang itsura, qualified indorsement din:
Pay to CATHERINE ALVAREZ without liability to pay.
Sgd. GERALDINE LOPEZ
*Hugas kamay kumbaga.
“I’m giving you this instrument, if you get paid, well and
good. If you don’t get paid, not my problem.”
A qualified indorsee may negotiate the
instrument to another person.
Balikan natin to:
Pay to CATHERINE ALVAREZ without recourse to me
Sgd. GERALDINE LOPEZ
*What happened here was not actual negotiation.
Because if you negotiate the instrument, you also
undertake liability and obligation to the person who
negotiates. BUT when you make a qualified indorsement,
you are negating your own liability. So in effect, you are
not negotiating, YOU ARE ASSIGNING.
Difference between negotiation and assignment:
NEGOTIATION ASSIGNMENT
Transfer of an instrument Transfer only of the rights
from one holder to the holder had on the
another with the instrument.
intention of making your
transferee the owner.