NEGOTIATION OF NEGOTIABLE INSTRUMENTS

Sec. 18. Liability of person signing in trade or assumed name. - No person is liable on the
instrument whose signature does not appear thereon, except as herein otherwise expressly
provided. But one who signs in a trade or assumed name will be liable to the same extent as if
he had signed in his own name.

GENERAL RULE AS TO LIABILITY OF PERSON WHOSE SIGNATURE IS NOT ON INSTRUMENT

A person whose signature doesn’t appear on the instrument is not liable

EXCEPTIONS TO THE GENERAL RULE

1. Where a duly authorized agent signs for a person, the person is liable

2. Where a person sought to be charged forges the signature of another person, the forger is
liable even if his signature doesn’t appear thereon

3. Where a person sought to be charged signs on a paper separate from the instrument
itself, as in an allonge, although the allonge may be considered a part of the instrument, or
where an acceptance is written on a paper other than the bill itself

4. Where the person uses an assumed name or trade name—one may become a party
to a negotiable instrument by any designation he desires

Sec. 19. Signature by agent; authority; how shown. - The signature of any party may be made
by a duly authorized agent. No particular form of appointment is necessary for this purpose;
and the authority of the agent may be established as in other cases of agency.

SIGNATURE THROUGH AGENT, FORM

The party may sign personally or through an agent

Agency may be written or oral

No particular form required by the law and the agency may be proved through oral or
written evidence, unless specific provisions of the law, such as the Statute of Frauds, requires
otherwise

Sec. 20. Liability of person signing as agent, and so forth. - Where the instrument contains or
a person adds to his signature words indicating that he signs for or on behalf of a
principal or in a representative capacity, he is not liable on the instrument if he was duly
authorized; but the mere addition of words describing him as an agent, or as filling a
representative character, without disclosing his principal, does not exempt him from personal
liability.

REQUISITES FOR AGENT TO ESCAPE LIABILITY

1. Be duly authorized

2. Add words to his signature indicating that he signs as an agent, that is, for or on behalf of a
principal, or a representative capacity

3. Disclose his principal

Sec. 21. Signature by procuration; effect of. - A signature by "procuration" operates as

notice that the agent has but a limited authority to sign, and the principal is bound only in
case the agent in so signing acted within the actual limits of his authority.

HOW SIGNATURE PER PROCURATION IS MADE

“Luis Martin Tan, Per Procuration: Ryan Teehankee” on which Luis Tan is the principal
while Ryan Teehankee is the agent

EFFECT OF SIGNATURE PER PROCURATION

Constitutes a warning that an agent has a limited authority

A person who takes the instrument so signed is bound at his peril to inquire into the
extent and nature of the agent’s authority, and this applies to every person

INDORSEMENT OF MINOR OR CORPORATION

If a minor or corporation indorses an instrument, the indorsee acquires title to it and can
enforce it against the maker or acceptor or other parties prior to the minor

Such prior parties cannot escape liability by setting a defense the incapacity of the
indorser

Also applies to other incapacitated persons

Sec. 22. Effect of indorsement by infant or corporation. - The indorsement or

assignment of the instrument by a corporation or by an infant passes the property therein,
notwithstanding that from want of capacity, the corporation or infant may incur no
liability thereon.
Sec. 23. Forged signature; effect of. - When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof
against any party thereto, can be acquired through or under such signature, unless the
party against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority.

FORGERY, DEFINED AND EXPLAINED

Counterfeit making or fraudulent alteration of any writing, and may consist in the
signing of another’s name, or the alteration of an instrument, in the name, amount,
description of the person and the like, with the intent to defraud

Section 23 only applies to forged signatures or signatures made without the authority
of the person whose signature purports it to be

FRAUD AMOUNTING TO FORGERY

Fraud in factum or fraud in esse contractus

There is no intention to issue an instrument

FRAUDULENT IMPERSONATION

• Suppose X represents himself as Juan Cruz when he is not to Y. Due to such

misrepresentation, he obtained from Y a note payable to the order of Juan Cruz. If Y intends
that the proceeds of the note will go to the real Juan Cruz and not X, but to whom Y issued the
note on the belief that X was Juan Cruz, would be a forgery.

DOUBLE INTENT IN FRAUDULENT IMPERSONATION

1. He intends to make the instrument payable to the person before him or to the person
writing at the other end of the line, in case the negotiation is by correspondence

2. He intends to make the instrument payable to the person whom he believes the
stranger to be

GENERAL RULE IN FRAUDULENT IMPERSONATION

• The first one is the controlling intent except where the name of the payee was
already known to the maker or drawer or was particularly identified in some manner
REASON FOR RULE: THEORY OF ACTUAL INTENT

• Throws the loss on the drawer

• In the absence of anything to show that the drawer had any doubt as to the identity of
the person to whom he delivered the paper as payee—the drawee, in paying the paper,
or the holder, in taking it upon the indorsement of the impostor in the name of which the
payee was described, carries out the intention that the drawer entertained at the time of
delivery of the paper to the impostor, although that intention was conceived in
consequence of the fraud of the impostor as

to his identity and ownership of the property which represented the consideration

ANOTHER REASON FOR THE RULE: THEORY OF ESTOPPEL

• As between two innocent persons, the one whose act was the cause of the loss should
bear the consequences

• It was the drawer’s duty to use diligence to ascertain the identity of the party with
whom he has dealt. Failing to make this discovery, he became the victim of the fraud. The
impostor having succeeded in this first and essential step in the practice of the fraud, the
next was comparatively an easy one.

RULE IS QUALIFIED WHERE IMPOSTOR REPRESENTS HIMSELF AS AGENT OF PAYEE

• There is a distinction between cases where the paper is delivered to the impostor as
payee, in the belief that he is the person to whom the instrument it would be paid, and cases
where the paper is delivered to the impostor upon his representation, in the belief that he is
agent of the person named as payee

• The loss falls on the drawee or purchaser, as the case may be, rather than on the drawer
where the impostor upon whose indorsement the paper was purchased or paid, represented
himself to be the agent of

the payee and not the payee himself

ADMISSION OF GENUINENESS AND DUE EXECUTION

• When an action or defense is founded upon a written instrument such as a negotiable

instrument, copied in or attached to the corresponding pleading, the genuineness and due
execution of the instrument shall be deemed admitted unless specifically denied under
oath by the adverse party

• Consequently, the genuineness and due execution of the written instrument or

document copied in or attached to the opponent’s pleading as the basis of his claim or
defense, should be denied specifically under oath, otherwise they are deemed admitted.

MEANING OF ADMISSION OF GENUINENESS AND DUE EXECUTION

1. That he signed it or that it was signed by another for him and with his authority

2. That at the time it was signed, it was in words and figures exactly as set out in the pleading
of the party relying upon it,

3. That any formal requisites required by law, such as swearing and acknowledgment,
or revenue stamp which it requires, are waived by him

DEFENSES CUT OFF BY ADMISSION OF GENUINENESS, ETC.

1. The defense that the signature is a forgery

2. That it was unauthorized, as in the case of an agent signing for his principal, or one
signing on behalf of a partnership or corporation or that in case of the latter, that the
corporation was not authorized under its charter to sign the instrument

3. That the party charged signed the instrument in some other capacity than that alleged in
the pleading setting it out

FAILURE TO IDENTIFY PROMISSORY NOTE WILL NOT NECESSARILY DEFEAT CLAIM

EFFECT OF FORGERY IN GENERAL

1. That the signature forged or made without authority is wholly inoperative

2. That no right to retain the instrument, or to give discharge thereof, or to enforce payment
thereof against any party thereto, can be acquired through or under such a signature forged or
made without authority

3. That nevertheless, as against a party precluded from setting up the forgery or want
of authority, the signature forged or made without authority is operative, and rights to
retain the instrument, to give discharge therefore, or to enforce payment thereof, can be
acquired through or under the signature forged or made without authority
EXTENT OF THE EFFECT OF THE FORGERY

1. Only the signature forged or made without authority is stated by the law to be
inoperative but neither the instrument itself is, nor the genuine signatures are, rendered
inoperative

2. The instrument can be enforced by holders to whose title over the instrument the
forged signature is not necessary, such as, the indorsement of an instrument which on its
face is payable to bearer

3. The instrument can be enforced against those who are precluded from setting up the
defense of forgery, even against those whose signatures have been forged

PERSONS PRECLUDED FROM SETTING UP DEFENSE OF FORGERY

1. Those who warrant or admit to the genuineness of the signature in question—

indorsers, persons negotiating by delivery, and acceptors

2. Those who, by their acts, silence or negligence, are estopped from setting up the
defense of forgery

INDORSERS AS WARRANTORS

• Whether general or qualified

• Warrant that the instrument indorsed by them is genuine in all respects what it
purports it to be

PERSONS NEGOTIATING BY DELIVERY AS WARRANTORS

• Persons negotiating by mere delivery also warrant that the instrument negotiated by them
is genuine and in all respects what it purports to be

• They are consequently precluded from setting up the defense of forgery

ACCEPTORS AS WARRANTORS

• A drawee, by accepting the bill, admits the genuineness off the signature of the
drawer
PRECLUDED

• Includes those cases where they are estoppels against the party desiring to set up the
forgery

ESTOPPEL AS TO FORGERY OF INSTRUMENTS

• Whenever a party has, by his own declaration, act, or omission, intentionally and
deliberately led another to believe that his or another’s signature in an instrument is
genuine, and to act upon such

belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted
to set up the forgery of such signature/s

• Estoppel may arise from a declaration, act or omission/negligence

UNREASONABLE DELAY

• Unreasonable delay, after his discovery of the forgery, on the part of one having the
opportunity and duty to speak, in disclosing the forgery upon commercial paper to the one who
ought to be apprised thereof, estops the former from thereafter asserting the forgery as against
the latter where the latter is prejudiced by such delay or failure

• Requisites:

o That the delay be unreasonable

o That the one who ought to be apprised of the forgery has been prejudiced

REASONABLY PROMPT NOTICE

• Depends upon the circumstances of the case, and the situation of the parties with
reference to the remedies against any party is a proper element to enter into the estimate
of the reasonableness of the notice

WHEN PREJUDICED AND WHEN NOT PREJUDICED

• A bank is prejudiced—at the time one discovered that his attorney forged his
indorsement to a draft in his favor, it had assets of the attorney in its possession to
protect itself but at the time it was notified of the forgery, it has parted with such assets

• It is not prejudiced by the delay where at no time after the discovery of the forgery did
the cashier have any property with which to indemnify the bank
ESTOPPEL BY NEGLIGENCE IN DELIVERY

• A drawer may be precluded from defense of forgery of the payee’s indorsement if

delivery by him to the payee is negligent

CASES OF FORGERY IN GENERAL

1. Forgery of promissory notes which may be further subdivided into—forgery of

indorsement in the note; forgery of the maker’s signature

2. Forgery of bills of exchange which may be further classified into—forgery of an

indorsement on the bill; forgery of the drawer’s signature, either with acceptance by the
drawee, or without such acceptance but the bill is paid by the drawee

RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN NOT PAYABLE TO ORDER

Where the indorsement is forged and the note is payable to order, the party whose
indorsement is forged and parties prior to him including the maker cannot be held liable
by the holder, whether that holder is a holder in due course or not:

1. The reason is that, inasmuch as the indorsement is forged, it is inoperative. But

since the note is payable to order, it can be negotiated only by indorsement completed by
delivery, and therefore, the forged instrument is the only means one could acquire any rights to
it or its proceeds

2. The law further provides that no right to retain the note, give discharge thereof, or
enforce payment thereof, could be acquired through and under the forged signature.
Hence the holder didn’t acquire at least those rights as against the party whose
signature is forged and parties prior to him, including the maker

3. The forger usually obtains possession of the note by fraudulent or other unlawful
means and therefore, he has no right whatsoever in the note

RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN A NOTE PAYABLE TO BEARER

• May be held liable by a holder in due course but not by the one who is not a holder in due
course

• Provided that the note was mechanically complete before the forgery

• Forged instrument is not necessary to the title of a holder since instruments payable
by bearer can be negotiated by mere delivery
RIGHTS OF PARTIES IN FORGERY OF MAKER’S SIGNATURE

• Where the maker’s signature is forged, he cannot be held liable by any holder, whether the
holder is in due course or not

• Purported maker is not a party to the instrument as his forged signature is

inoperative and no right to retain, enforce, or discharge the note, may be acquired against
him

DRAWEE CANNOT CHARGE ACCOUNT OF DRAWER

• In an action by the drawee against the drawer for the amount charged by the drawee
against the account of the drawer where the drawee paid a check on a forged
indorsement, the drawee has no defense against the drawer and the drawer may recover
from the drawee for an instrument paid on a forged indorsement

• Depository owes to the depositor an absolute and contractual duty to pay the check only
to the person to whom it is made payable or upon his genuine indorsement

DRAWER CANNOT RECOVER FROM THE COLLECTING BANK

• Drawer has no right to recover the amount paid from the collecting bank as the duty
of the collecting to exercise care in collection is due only to the payee, and as the drawer
suffers no loss since it can recover the amount paid from the drawee bank which has no right
to charge the drawer’s account

DRAWEE CAN RECOVER FROM COLLECTING BANK

• The drawee may recover from the recipient of payment, such as the collecting bank,
under a forged indorsement

• Rule allowing the payee to recover from the recipient of the payment under a forged
indorsement

PAYEE CAN RECOVER FROM RECEIPT OF PAYMENT

• According to the general rule, a bank or other corporation or an individual, who

has obtained possession of a check, upon an unauthorized or forged indorsement of the
payee’s signature and who collects the amount of the check from the drawee, is liable for
the proceeds thereof to the payee or other owner, notwithstanding that they have been
paid to the person whom the check was obtained
• The possession of the check on the forged indorsement is wrongful and when the money
had been collected on the check, the bank or other person or corporation, can be held as far as
moneys had and received and the proceeds are held for the rightful owners of the payment and
may be recovered by them

COLLECTING BANK BOUND TO SCRUTINIZE CHECKS DEPOSITED WITH IT TO DETERMINE

GENUINENESS AND REGULARITY

CONVERSION

• An unauthorized assumption and exercise of the right of ownership over goods or

personal chattels belonging to another, to the alteration of their condition or exclusion of the
owner’s right

AS AFFECTED BY QUESTION OF DELIVERY TO PAYEE

• The checks didn’t reach the hands of the payee. The bearing of such absence of delivery
is considered in some cases and held not to be material

• Where there is no delivery to the payee and no title vests upon him, he ought not to be
allowed to recover on the ground that he lost nothing because he never became owner of
the check and still retained his claim against the drawer

PAYEE CANNOT RECOVER FROM THE DRAWEE

• An action cannot be maintained by a payee of a check against the bank on which it

is drawn unless the check has been certified or accepted by the bank on which it is
drawn, without acceptance or certification, as provided by the statute, there is no privity of
contract between the drawee bank and the payee, or holder of the check

RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN BILL PAYABLE TO BEARER

• Holder may recover if he is a holder in due course

RIGHTS OF PARTIES IN FORGERY OF DRAWER’S SIGNATURE WHERE DRAWEE HASN’T

ACCEPTED BILL BUT PAID IT

• In the case of the payment of a forged check even without former acceptance, the
drawee cannot recover from a holder in due course not chargeable with any act or
negligence or disregard of duty

• As between equally innocent parties, the drawee who pays money on a check the
signature to which is forged, cannot recover the money from the one who received it
BUT PAYMENT NOT EQUIVALENT TO ACCEPTANCE OR CERTIFICATION

• The payment of a forged check doesn’t include or imply its acceptance in the sense that
this word is used in Section 62 of NIL

• Basis of the general rule is not that the drawee is precluded from setting up forgery
because, by paying the check, it has accepted the check and therefore admitted the
genuineness of the drawer’s signature

• By paying the check the drawer is presumed negligent or deemed constructively

negligent

NEGLIGENCE IN FORGERY OF INDORSEMENTS IN BILL

• It presupposes that the drawer himself wasn’t negligent or guilty of such conduct as
would estop him from asserting the forged character of the indorsement as against the
depository and that if he was negligent or guilty of such conduct, the loss must fall on him

WHERE A DEPOSITOR IS USING ITS OWN PERSONALIZED CHECKS, ITS FAILURE TO

PROVIDE ADEQUATE SECURITY MEASURES TO PREVENT FORGERIES OF ITS CHECKS
CONSTITUTES GROSS NEGLIGENCE AND BARS IT FROM SETTING UP THE DEFENSE OF FORGERY

BUT FAILURE OF DEPOSITOR TO MAKE PROMPT RECONCILIATION OF THE MONTHLY BANK

STATEMENTS FURNISHED BY THE BANK CONSTITUTES NEGLIGENCE FOR WHICH THE BANK
CANNOT BE BLAMED IN CASE DEPOSITOR’S CASE ARE FORGED

BUT DRAWER NOT GENERALLY NEGLIGENT WHERE HIS CHECK IS STOLEN

PAYEE’S NEGLIGENCE IN FORGERY OF DRAWER’S SIGNATURE

• The payee in a check may be supposed to have knowledge of the circumstances

under which it is drawn and generally, of the person drawing it, and is in a better position
to judge the genuineness of the paper than are indorsees.

• And there is a tendency to place greater responsibility upon him and he is much more
likely to be required to return the proceeds of the paper than are the indorsees

INDORSER’S NEGLIGENCE

• After a draft or check has once been negotiated so that it is in circulation, there is
little opportunity for negligence on the part of those through whose hands it passes; but as
to them, in most cases, the rule will apply that, as between innocent parties, the loss must fall
on the drawee
DUTY OF PURCHASER OF CHECK OR BILL

• One who purchases a bill or check is bound to satisfy himself that the paper is genuine; and
that by indorsing or presenting it for payment or putting it in circulation before presentation,
he impliedly asserts that he has performed his duty and the drawee who has without
actual negligence on his part, paid the forged demand, may recover the money paid from
such negligent purchaser

PAPER FORWARDED FOR COLLECTION

• The fact that the paper wasn’t cashed and indorsed with unrestricted indorsement but
was taken for collection and forwarded for that purpose under an indrosement giving
notice of that fact, may place a greater burden upon the drawee than it would otherwise bear

FORGERY OF SIGNATURE IN INSTRUMENT IS FALSIFACTION OF PRIVATE DOCUMENT

FORGER NEED NOT IMITATE GENUINE SIGNATURE

• One who signs in the name of another without the latter’s authority, as drawer in a
check, and thereby makes it appear falsely that the alleged drawer of the check was a real
party thereto, when as a matter of fact he didn’t participate in the transaction, is guilty of
falsification

COMMERCIAL DOCUMENTS

• Documents or instruments which are used by businessmen or merchants to

promote or facilitate trade or credit transactions

CONSIDERATION

Sec. 24. Presumption of consideration. - Every negotiable instrument is deemed

prima facie to have been issued for a valuable consideration; and every person whose
signature appears thereon to have become a party thereto for value.

PRESUMPTION OF CONSIDERATION IS DISPUTABLE

• One of the disputable presumptions laid down by our Rules of Court is that a negotiable
instrument was given or indorsed for a sufficient consideration

CONSIDERATION NEED NOT ALLEGED OR PROVED

• In an action based on a negotiable instrument, it is unnecessary to aver or prove
consideration for it is imported and presumed from the fact that it is a negotiable instrument

MERE INTRODUCTION OF INSTRUMENT SUFFICIENT

• The mere introduction of the instrument sued on in evidence, prima facie entitles
the plaintiff of a recovery and unless such prima facie case is overcome by evidence
produced by the defendant the plaintiff is entitled to recover

EFFECT OF LACK OF CONSIDERATION

• The same is without legal effect and the payment for the note is not demandable

Sec. 25. Value, what constitutes. — Value is any consideration sufficient to support a
simple contract. An antecedent or pre-existing debt constitutes value; and is deemed
such whether the instrument is payable on demand or at a future time.

VALUABLE CONSIDERATION, IN GENERAL

• Consideration is the inducement—cause or impelling influence which induces a

contracting party to enter into the contract

• Valuable consideration may in general terms be said to consist either in some right,
interest, profit or benefit accruing to the party who makes the contract, or some
forbearance, detriment, loss or some

responsibility to act, or labor, or service given, suffered, or undertaken by the other side

Sec. 26. What constitutes holder for value. - Where value has at any time been given
for the instrument, the holder is deemed a holder for value in respect to all parties who
become such prior to that time.

MEANING OF A HOLDER FOR VALUE

• One who gives valuable consideration for an instrument issued or negotiated to him is a
holder for value

• Not limited to one who is known to have given valuable consideration for the
instrument he holds—it refers to any holder of an instrument for which value has been given at
any time
Sec. 27. When lien on instrument constitutes holder for value. — Where the holder has a
lien on the instrument arising either from contract or by implication of law, he is deemed a
holder for value to the extent of his lien.

APPLICATION OF SECTION 27

• Suppose that A makes a note in the sum of P1000 payable to the order of B. B owes C
P600. C is said to have a lien on the note to the extent of P600 only, and to that extent,
he is a holder for value.

• Can C as indorsee collect the whole amount of P1000 from A, or only P600? It depends. If
A maker, has defenses against B indorser, such as absence of consideration, C, even if a
holder in due course can collect only P600 from A, the extent of his lien.

• Reason for the rule: C is actually a holder in due course for P600 only. He is a holder in
due course for such as he is a holder for value for only P600. For the balance of P400 he
is not a holder for value, and since being a holder for value is one of the requisites of a holder in
due course, he cannot be a holder in due course as far as the P400 is concerned.

• If A has personal defenses, he cannot use such as far as the P600 is concerned.

• If A on the other hand has real defenses, C cannot collect anything.

• But if A maker doesn't have any defenses at all against B indorser, then C can collect
the whole amount of P1000 and hold the P400 for

the benefit of B.

Sec. 29. Liability of accomodation party. - An accomodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is liable on the instrument to a holder
for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an
accomodation party.

ACCOMODATION PARTY: REQUISITES

• One who has signed the instrument as maker, drawer, indorser, acceptor, without receiving
any value therefore and for the purpose of lending his name to some other person

• Requisites:

1. He must be a party to the instrument, signing as maker, acceptor, indorser, or drawer

2. He must not receive any value therefore

3. He must sign for the purpose of lending his name or credit

RIGHTS AND LEGAL POSITION OF AN ACCOMODATION PARTY

• The accomodation party is generally regarded as a surety for the party accomodated

• When the accomodation parties make payment to the holder of the notes, they have the right to
sue the accomodated party for reimbursement since the relation between them is in effect that
of a principal and sureties, the accomodation parties being the sureties

ACCOMMODATED PARTY CANNOT RECOVER FROM ACCOMMODATING PARTY

• Absence of consideration is a defense

• In fact as between them, the understanding is that the accomodated party either is to

1. To reimburse the amount which the accomodation party may be obliged to pay

2. To pay the instrument directly to the holder

LIABILITY OF THE ACCOMODATION PARTY

• The accomodation party is liable on the instrument to a holder in value, notwithstanding

such holder at any time of the taking of the instrument knew him to be only an accomodation party

• The accomodation party doesn't receive any valuable consideration for the instrument he signs
but he is liable to a holder for value as if the contract wasn't for accomodation

CORPORATIONS ARE NOT LIABLE AS ACCOMODATION PARTIES EVEN TO HOLDERS FOR VALUE

OFFICERS SIGNING FOR CORPORATION AS ACCOMODATION PARTY WITHOUT AUTHORITY TO

DO SO FOR THEIR INDIVIDUAL DEBTS OR TRANSACTIONS ARE PERSONALLY LIABLE THEREON

HOLDER MUST OTHERWISE BE A HOLDER IN DUE COURSE

ACCOMODATION PARTY MAY ACCOMODATE ONE WHO IS NOT A PARTY TO THE INSTRUMENT

ACCOMODATION PARTY CAN INTERPOSE DEFENSE OF WANT OF

CONSIDERATION AGAINST ONE NOT HOLDER IN DUE COURSE.

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 and completed by delivery.
METHOD OF TRANSFER

1. By assignment

2. By operation of law

3. By negotiation, which may be completed by indorsement completed by delivery or by mere delivery

ASSIGNMENT

• Method of transferring a non-negotiable instrument whereby the assignee is merely placed in

the position of the assignor and acquires the instrument subject to all defenses that might have
been setup against the original payee

MODE OF ASSIGNMENT

• Differs in no respect from that of any other contract

• Although some sort of written instrument is customarily employed, it may be written either on the
instrument itself or on a separate piece of paper

EFFECT OF ASSIGNMENT OF A NON-NEGOTIABLE INSTRUMENT

• The effect of the assignment is that the party holding the right drops out of the contract and
another takes his place

• The assignee is substituted in place of the assignor

• The assignee and every subsequent person to whom the instrument comes by assignment may
be considered as the person who made the instrument in the first instance and as having said and
done everything in making the instrument which the original assignor did or said.

• Each assignee takes his chance as to the exact position in which any party making an assignment of
it stands

• And as it is called in law, the assignee takes the contract subject to equities, that is, to
defenses to the contract which would avail in favor of the original party up to the time the notice
of the assignment is given to the person against whom the contract is sought to be enforced

ASSIGNMENT OF A NEGOTIABLE INSTRUMENT

• A person taking a negotiable instrument by assignment in a separate piece of paper takes it subject
to the rules applying to assignment

• And where the holder of a bill payable to order transfers it without indorsement, it operates
an equitable assignment
TRANSFER BY OPERATION OF LAW

1. By the death of his holder where the title vests in his personal representative, or

2. By the bankruptcy of the holder, where title vests in his assignee or trustee

3. Upon the death of a joint payee or indorsee in which case the general rule is that the title
vests at once in the surviving payee or trustee

NEGOTIATION

• Transfer of the instrument from one person to another in such a manner as to constitute the
transferee the holder thereof

• May either be by indorsement completed by delivery or by mere delivery

IS DELIVERY TO PAYEE A NEGOTIATION?

• First view: no because negotiation refers to an existing negotiable instrument and before
delivery to the payee, the instrument is incomplete.

• Second or better view: under this section and section 191, an instrument is negotiated when
it is delivered to the payee or to an indorsee