Sec. 38. Qualified indorsement. - A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Such an indorsement does not impair the negotiable character of the instrument.
HOW QUALIFIED INDORSEMENT IS MADE
• By adding to the indorser’s signature the words “without recourse”,
“Sans recours”, “indorser not holden”, or “with intent to transfer title only and not to incur liability as indorser”, “at indorsee’s own risk”
EFFECT OF QUALIFIED INDORSEMENT
• Constitutes the indorser a mere assignor of the title to the instrument
• One who indorses without recourse states that all parties to the paper are genuine; I am the lawful owner of the paper and I have title to it and know of no reason why you could not recover on it as a valid instrument, but on thing I don't guarantee; I don't guarantee the financial responsibility on that paper but I do say that I hold the title the same as any other personal property
QUALIFIED INDORSER HAS LIMITED SECONDARY LIABILITY
• He is secondarily liable on his warranties as an indorser under Section 65, that is, the qualified indorser is liable if the instrument is dishonored by non-acceptance or non-payment due to:
1. Forgery
2. Lack of good title on the part of the indorser
3. Lack of capacity to indorse on the part of the prior parties
4. The fact that, at the time of the indorsement, the instrument was valueless or not valid and he knew of that fact
A QUALIFIED INDORSEMENT DOESN'T IMPAIR THE NEGOTIABLE CHARACTER OF THE INSTRUMENT
CASE DIGESTS: SECTION 38
92 METROPOL V. SAMBOK MOTORS CO.
120 SCRA 864
Sec. 39. Conditional indorsement. - Where an indorsement is conditional, the party required to pay the instrument may disregard the condition and make payment to the indorsee or his transferee whether 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.
ABSOLUTE INDORSEMENT
• One by which the indorser binds himself to pay upon no other condition than the failure of prior parties to do so and upon due notice to him of such failure
CONDITIONAL INDORSEMENT
• An indorsement subject to a contingent event, that is, an event that may or may not happen, or a past event unknown to the parties
• Suppose a note for P1000 with A maker, and B payee. It is then indorsed as follows “Pay to Y if he passes the bar examinations. (Sgd.) B”—this is a conditional indorsement as Y may or may not pass the bar examination.
OBLIGATION OF CONDITIONAL INDORSEE
• Y indorsee holds the note or the proceeds thereof, if he is paid by A, subject to the rights of B
• If A disregards the condition and pays Y without waiting for the condition to be fulfilled, Y doesn't immediately acquire ownership of the sum
• Y must hold in trust while the condition is not fulfilled
• It is upon the fulfillment of the condition that such ownership over the proceeds of the note is absolutely acquired by the conditional indorsee Y
A CONDITIONAL INDORSEMENT DOESN'T RENDER AN INSTRUMENT NON-NEGOTIABLE
Sec. 40. Indorsement of instrument payable to bearer. - Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person
indorsing specially is liable as indorser to only such holders as make title through his indorsement.
APPLICATION OF SECTION 40
• Section applies only to instruments which are originally payable to bearer
• Cannot apply where the paper is originally made payable to order and indorsed in blank; for by Section 9, a note or bill which is payable to order becomes payable only when the last indorsement is in blank;
and hence, when a blank indorsement is followed by a special indorsement, the instrument is not within the terms of Section 9.
NEGOTIATION OF INSTRUMENT PAYABLE TO BEARER BUT SPECIALLY INDORSED
• Where an instrument payable to bearer is indorsed, it may nevertheless be further negotiated by delivery
• An instrument which is originally payable to bearer is always payable to bearer
• Hence, even when it has been specially indorsed, it is still payable to bearer
EFFECT ON LIABILITY OF SPECIAL INDORSER Pay P1000 to bearer
(Sgd.) A
*C is bearer and he delivered to D
*D specially indorsed it to E
*E specially indorsed it to F
*F delivered to G, bearer.
• Is D liable to G being the first who specially indorsed the instrument?
No, because G didn't take title through D’s indorsement but through delivery of D
• To whom D is liable? To E and F, because they acquired the title to the instrument through the special indorsement of D. Had F merely indorsed the instrument to G, D would be liable also to G for the same reason.
Sec. 41. Indorsement where payable to two or more persons. - Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others.
APPLICATION OF SECTION 41
• Applies only to instruments payable to two or more payees jointly
HOW INDORSEMENT OF JOINT PAYEES MADE
• Where the instrument is payable to two or more payees, all payees must each indorse in order to negotiate the instrument
• If only one indorses, he passes only his part of the instrument—such an indorsement wouldn't operate as such because it would not be an indorsement of the whole instrument
• Exceptions to the rule:
1. Where the payee or person indorsing has authority to indorse for the others
2. Where the payee or indorsees are partners
Sec. 42. Effect of instrument drawn or indorsed to a person as cashier. - Where an instrument is drawn or indorsed to a person as
"cashier" or other fiscal officer of a bank or corporation, it is deemed prima facie to be payable to the bank or corporation of which he is such officer, and may be negotiated by either the indorsement of the bank or corporation or the indorsement of the officer.
APPLICATION OF SECTION 42
Pay P1000 to the order of cashier, Lyceum of the Philippines.
(Sgd.) A
• Presumption is that the note is payable to Lyceum, not to the cashier personally
• And the note may be indorsed by any duly authorized officer of Lyceum other than the cashier
DISPUTABLE PRESUMPTION
Sec. 43. Indorsement where name is misspelled, and so forth. - Where the name of a payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as therein described adding, if he thinks fit, his proper signature.
APPLICATION OF SECTION 43
• An instrument drawn or indorsed to “Juan Dytuco” whose real name is
“Juan Dyjuco” may be indorsed as follows:
o Pay to Y (Sgd.) Juan Dytuco Juan Dyjuco o Or (Sgd.) Juan Dyjuco
Sec. 44. Indorsement in representative capacity. - Where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability.
HOW AGENT MUST INDORSE?
1. He must add words describing himself as agent 2. At the same time, disclose his principal 3. He must be duly authorized
Sec. 45. Time of indorsement; presumption. - Except where an indorsement bears date after the maturity of the instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue.
DISPUTABLE PRESUMPTION IMPORTANCE OF THIS PROVISION
• This provision becomes importance when considered in connection with Section 52 (b)
• Under the provision, in order that one may become a holder in due course, the instrument must be negotiated to him before it becomes overdue
• The indorsement without date establishes a prima facie presumption that the instrument was indorsed before maturity and one who denies that the holder of such instrument is a holder in due course has the burden of proof
Sec. 46. Place of indorsement; presumption. - Except where the contrary appears, every indorsement is presumed prima facie to have been made at the place where the instrument is dated.
IMPORTANCE OF PLACE OF INDORSEMENT
• The place of indorsement is sometimes material because an indorsement is governed by the laws of the state where it is indorsed, although the instrument is drawn or made in a different state
Sec. 47. Continuation of negotiable character. - An instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise.
WHEN NEGOTIABLE INSTRUMENT RENDERED NON-NEGOTIABLE
1. Restrictive indorsement which further prohibits the further negotiation of an instrument
2. By a discharge thereof by payment or otherwise
NEGOTIABILITY AFTER DATE OF MATURITY
• FIRST VIEW: negotiability ceases in the full commercial sense after maturity and negotiability ceases by default of the maker in his payment
• SECOND VIEW: negotiability continues even after maturity
• RECONCILIATION OF THE TWO: the mercantile character of the instrument as a negotiable paper and of the contracts of the several parties to it, continues after maturity and until it is paid except: that an indorsee or a transferee after maturity takes the instrument subject to defenses between original parties, because after maturity such subsequent parties take the instrument after it becomes overdue and therefore, under paragraph b of Section 52, they are not holders in due course
• After maturity, an instrument originally negotiable continues to be negotiable in the sense that the contracts of the parties to it continue and are governed by the NIL
• After maturity the instrument ceases to be negotiable in the sense that a transferee after maturity is not a holder in due course and therefore not free from defenses obtaining between prior parties
LEGAL POSITION OF HOLDER TAKING OVERDUE INSTRUMENT
• He is a holder with notice. He may or may not be a holder for value and his rights will be regulated accordingly. He takes a bill which on the face of it, ought to have been paid.
• He is bound to make two inquiries—has what ought to have been done really have been done? And if not, why not?
RIGHT OF HOLDER NOT IN DUE COURSE
• He can recover checks in his possession but the only disadvantage is that the negotiable instrument is subject to the defenses as if it were non-negotiable
Sec. 48. Striking out indorsement. - The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument.
WHEN HOLDER MAY OR MAY NOT STRIKE OUT INDORSEMENT
• But where the instrument is transferred by special indorsement, the holder has no right to strike out the name of the person mentioned in such indorsement and insert his own name in place thereof; nor can
he strike out such name and convert such special indorsement into a blank indorsement
• The holder who acquires title subsequent to the succeeding special indorsement must trace his title not only through the blank indorsement but through the special indorsement as well
EFFECT OF STRIKING OUT
1. The indorser whose indorsement is struck out is relieved from his liability on the instrument
2. All subsequent indorsers are also relieved from their liability on the instrument
Sec. 49. Transfer without indorsement; effect of. - Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made.
APPLICATION OF SECTION 49
• Applies only to instruments payable to order
• Contemplates a case wherein delivery and payment of value but there was no indorsement
• One element lacking for the negotiation of the instrument RIGHTS OF TRANSFEREES FOR VALUE
1. The transferee acquires only the rights of the transferor. This means that if a defense is available against the transferor, that defense is also available against the transferees
2. The transferee has also the right to require the transferor to indorse the instrument
CASE DIGESTS: SECTION 49