PRESUMPTION OF CONSIDERATION AND HOW REBUTTED
Sec. 25. Value, what constitutes. - Value is any consideration sufficient to
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.
Agbayani: The presumption is disputable in the sense that the
said presumption is satisfactory if not contradicted. Thus, in
an action based upon an instrument, it is unnecessary to aver
or prove consideration, for consideration is imported and
presumed from the fact that it is a negotiable instrument.
Mere introduction of the instrument sued on in evidence
prima facie entitles the plaintiff of a recovery and unless it is
overcome by evidence produced by the defendant the plaintiff
is entitled to recover. This means that the person claiming the
that a payee or an indorsee did not give valuable consideration
for an instrument must prove that there really was no valuable
consideration given.
Sebastian: The existence of consideration is only a prima
facie presumption. The burden of proof is on the challenger
that there was no valuable consideration. This is usually the
person who is being held liable under the instrument.
Persons whose signature is on the instrument are the (1)
maker/drawer, who is presumed to have received value, (2)
drawee, who accepted the instrument because maker/drawer
received value, and (3) indorser, who also accepted the
instrument for the same reason as the drawee.
The issuance, negotiation and acceptance of a negotiable
instrument is not an exception to the law that there must be
consideration. In writing and issuing a negotiable instrument,
consideration is presumed.
WHAT CONSTITUTES “VALUE”
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.
In onerous contracts the cause is understood to be, for each contracting
party, the prestation or promise of a thing or service by the other; in
remuneratory ones, the service or benefit which is remunerated; and in
contracts of pure beneficence, the mere liberality of the benefactor. (Art.
1350, Civil Code)
Agabayani: Consideration means inducement to a contract
that is, the cause, motive, price or impelling influence which
induces a contracting party to enter into a contract. Valuable
consideration means an obligation to give, to do or not to do,
in favor of the party who makes the contract, such as the
maker or indorser.
Sebastian: In Negotiable Instruments Law, consideration is
defined in Section.
25. Consideration should be sufficient to support the contract.
It should be valuable and has monetary equivalent. One can
deny liability under a check if it was issued without valuable
consideration.
Liberality as a general rule cannot support a civil contract
because consideration is measurable in money.
Those that are purely emotional cannot support a simple
contract. If the instrument was given as a gift, the instrument
was not validly issued because there was no consideration.
But if the gift check was issued by a bank, it is considered as a
manager’s check. If the gift check is not a personal check but
one issued by the bank, it is unlikely to be dishonored because
the check was drawn by the bank against itself. This gift check,
when delivered, while there may not be any value that you
 paid for them, the party who is obligated under the gift
check is the issuing bank itself. Therefore, can the issuing
bank cannot raise the defense of want of consideration
when it is encahsed becaudr it received full value for the
amount of the check when it was issued.
Consideration for an instrument can be insufficient because
Inadequacy does not create a defect of the contract. Lesion
is not a ground to set it aside except in Article 1361 of the
Civil Code. Other than that, inadequacy of consideration
does not create a defect in the contract.
HOLDER FOR VALUE
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.
Agbayani: One who gives valuable consideration for an
instrument issued or negotiated to him is a holder for value. But
the term is not limited to the one who is known to have given
valuable consideration for the instrument he holds. It refers also
to any holder of an instrument for which value has been given at
any time.
Sebastian: When a holder deposits and indorses a check, the
bank did not become holder for value because when it received
the check, it did not have to pay for the check. However, in the
Philippines, this is wrong. Because of Article 1980 of the Civil
Code, when a depositor deposit money in the bank, he is
lending the bank. The bank is the borrower and the depositor
is the lender. This is why all deposits are mutuum. If the bank
and depositer is related within the context of borrower and
lender, the bank who receives deposit becomes owner of the
money. In exchange, the bank promises that upon demand, it
will pay the amount of your deposit. Thus, there is consideration
when you deposit the check (i.e. the promise of the bank to pay
you back). While checks are negotiable instrument, the
relationship between depositor and bank, it is governed by
Article 1980 of Civil Code.
When instrument is received and value was given for it, the
holder is holder for value. Once a holder pay for consideration
for an instrument, he is a for value for all parties.
Lien Holder
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.
Agbayani: The reason for this seems to be that the holder who
has a lien on the instrument is a holder in due course only up to
the extent of his lien. Thus, a holder who has a lien on the
instrument can only up to the extent of his lien if there are
personal defenses (i.e. lack of consideration) against him but he
cannot collect at all if there are real defenses available against
him. However, he can still collect the whole amount of the
instrument if there are no defenses at all.
Sebastian: Person who has a lien is considered to be a holder for
value to the extent of his lien over the instrument. This is
important because the consideration for the negotiation of the
note does not have to be paid simultaneously with the delivery
of the note. The person who has a lien is only a holder for value
up to the extent of his lien because he was never meant to be the
owner of the instrument.
 Failure of consideration means that something was agreed
WANT OF CONSIDERATION VS FAILURE OF CONSIDERATION
upon as consideration for a contract but for some reason the
Sec. 28. Effect of want of consideration. - Absence or failure of consideration did not materialize. For example, A enters into
consideration is a matter of defense as against any person not a a contract to sell certain merchandise to B. In consideration of
holder in due course; and partial failure of consideration this merchandise, B makes a promissory note payable to A as
is a defense pro tanto, whether the failure is an advance payment thereof. A fails to deliver the merchandise.
ascertained and liquidated amount or otherwise.
There is a failure of consideration, so that A cannot recover
Agbayani: from B. If B negotiates the note to C, who knew that A failed
to deliver, neither can C recover from A. If C were ignorant of
Lack of Consideration Failure of Consideration such defense and is a holder in due course, C can recover from
total lack of any valid consideration neglect or failure of one of the parties
to give, to do or to perform the
A.
consideration agreed upon
embraces transactions where no implies that the giving of valuable Partial failure of consideration means simply that part of the
consideration was intended to pass consideration was contemplated but consideration did not materialize. In the example above, if A
that it failed to pass
delivered part of the merchandise and failed to deliver the
remedy is to annul the instrument Remedies are (1) rescission of the
instrument as to value that was failed rest, there is a partial failure of consideration which may be
to receive or (2) specific performance set up as a defense pro tanto by B against A or a holder not in
due course (i.e. B is not liable to the extent of the price of the
Campos: This provision reiterates the rule laid down by undelivered portion).
Section 24 that every instrument is deemed prima facie to
have been issued for a valuable consideration. It is also
consistent with the provision that the validity and Sebastian: In lack of consideration, there is no considration at
negotiable character of an instrument is not affected by the all. While in failure of consideration, there was meant to be a
fact that it does not specify that any value has been given consideration but it was never fulfilled. In the latter, there was
therefor. Under these rules, the defendant has the burden intent to consummate a contract and there was an instrument
of proving that there was no consideration for the issued for the fulfillment of the contract.
instrument.
Absence of consideration means total lack of consideration.
For example, A makes a promissory note payable to B as a
gift; there is absence of consideration. As between A and B,
there can be no recovery on the note. But if B negotiates it
to C, a holder in due course, C can recover against A,
because A’s defense of absence of consideration is personal.
Osorio v Montenegro vda. de Papa –
Agbayani: When it is shown that a promissory note is
executed without just, real or legal consideration, and “that it
was executed so that the supposed creditor may help the
supposed debtor protect the latter’s properties in the event of
an expected litigation to be commenced by a third person
against said debtor, the same is without any effect and the
payment of said note is not demandable.”
Sebastian: In this case, it was proven that there was no
valuable consideration other than to protect the person from
the claims of other persons. Thus, the instrument was void for
lack of vlauable consideration.
Elgin National Bank v Goecke – Plaintiffs in error, as
accommodation parties and indorsers of the notes in
question, indorsed the same for purpose of lending their
names and credit to the brewing company. They are therefore
liable to the defendant in error on the notes, although the
defendant in error at the time of taking the instrument knew
plaintiffs in error to be accommodation parties, if the
defendant in error is a holder for value, as the notes were
indorsed to it before maturity and without notice of their
restricted use and purpose.
An indorsee of a negotiable note who has taken it, before its
maturity, as collateral security for a pre-existing debt and
without any express agreement, is deemed a holder for a
valuable consideration, and that he holds it free from latent
defenses on the part of the maker.
Dougherty v Salt – The note was the voluntary and
unenforceable promise of an executory gift.
Sebastian: There was no consideration in this case because the
check was meant to be a gift. Even if the note said that it was
issued for valuable consideration, this was merely a disputable
presumption. This case is a clear case of want of consideration.
William Barco & Sons v Forbes – One who gives a note in
renewal of another note, with knowledge at the time of partial
failure of the consideration for the original note, or of false
representations by the payee, waives such defense and cannot set
it up to defeat or to reduce the discovery on the renewal note.
Sebastian: In this case, the note was issued for the purchase of
fertilizers. Also, there was no actual finding of failure of
consideration and this was only assumed.
However, failure of consideration was not necessary to prove
since the holder cannot renegotiate the note.
There was only failure of consideration in this case.
NATURE OF DEFENSE
Agbayani: Whether total or partial, can be interposed as a
defense only against persons not holders in due course but not
against holders in due course. Therefore, Want or failure of
consideration are only personal defenses.
Campos: Section 28 goes farther for it in effect provides that
absence or failure of consideration is a personal defense
available only against holders not in due course. In the hands
of a holder in due course therefore, the presumption of
consideration is conclusive. The acceptability of negotiable
instrument would be greatly restricted if prospective
purchasers were burdened with the need of determining
whether such instruments are supported by consideration.
LIABILITY OF AN ACCOMMODATION PARTY
Sec. 29. Liability of accommodation party. - An accommodation
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
accommodation party.
Agbayani: The following are the requisites for an
accommodation party: (1) he must be a party to the
instrument; (2) he must not receive value therefor; and (3)
he must sign for the purpose of lending his name or credit.
It should be noted that the phrase ‘without value thereof’
means without receiving value by virtue of the instrument
and not without receiving payment for lending his name.
An accommodation note showing on the face in express
terms that it has been issued for no consideration would be
of little or not use to the payee, and for that reason,
practically all accommodation notes are so drawn as to
either express or imply a valuable consideration prima
facie.
Sebastian: An accommodation party does not lend his
name but lends his credit because he exposes himself to
liability so the accommodated party can get credit.
Maulini v Serrano – An accommodation party is one who
has signed an instrument as maker, drawer, acceptor or
indorser without receiving value therefor and for the
purpose of lending his name to some other person. The
accommodation to which reference is made in [Section 29] is
not one to the person who takes the note but one to the maker
or indorser of the note. In cases of accommodation
indorsement, the indorser makes the indorsement for the
accommodation of the maker. Such an indorsement is generally
for the purpose of better securing the payment of the note – that
is, he lends his name to the maker, not to the holder. An
accommodation note is one to which the accommodation party
has put his name, without consideration, for the purpose of
accommodating some other party who is to use it and is expected
to pay it. The credit given to the accommodation party is
sufficient consideration to bind the accommodation maker.
Where, however, an indorsement is made as a favor to the
indorsee, who requests it, not the better to secure payment, but
to relieve himself from a distasteful situation, and where the only
consideration for such indorsement passes from the indorser to
the indorsee, the situation does not present one creating an
accommodation indorsement, nor one where there is a
consideration sufficient to sustain an action on the indorsement.
Sebastian: The broker was not an accommodating party because
he never lent his credit line to the borrower so that the latter can
borrow money from the lender.
Ang Tiong v Ting – An accommodation party liable to a holder
for value as if the contract was not for accomodation. It is not a
valid defense that the accommodation party did not receive any
valuable consideration when he executed the instrument. Nor is
it is not correct to say that the holder for value is not a holder in
due course merely because at the time he acquired the
instrument, he knew that the indorser was only an
accommodation party.

Sebastian: An accommodation party is not liable as a surety.
He may look like one but he cannot invoke the protection of
the surety under the Civil Code.
RIGHTS OF ACCOMMODATION PARTIES AMONGST THEMSELVES
Agbayani: (1) The accommodation party is generally
regarded as a surety for the party accommodated.
(2) When “the accommodation parties make payment to the
holder of the notes, they have the right to sue the
accommodated party fore reimbursement since the relation
between them is in effect that of principal and sureties, the
accommodation parties being the sureties.
The accommodated party cannot recover from the
accommodation party. As between them, the understanding is
that he accommodation party either is (1) to reimburse the
amount which the accommodation party may be obliged to
pay, or
(2) to pay the instrument directly to the holder. The real
debtor is the accommodated party. As between the
accommodated party and accommodation party, the latter is
secondary liable.
Sebastian: For accommodation makers, each of them is the
maker and each of them made a warranty. Each
accommodation maker is individually liable for the
instrument. The accommodation party who paid for the
whole instrument cannot seek reimbursement from the
other accommodation parties.
Reimbursement rights of accommodating parties are not
governed by the Negotiable Instruments Law because the
instrument has already been discharged and, therefore, Article
2073 of the Civil Code comes in.
When there are two or more guarantors of the same debtor and for the same debt,
the one among them who has paid may demand of each of the others the share which
is proportionally owing from him.
If any of the guarantors should be insolvent, his share shall be borne by the others,
including the payer, in the same proportion.
The provisions of this article shall not be applicable, unless the payment has been
made by virtue of a judicial demand or unless the principal debtor is insolvent. (Art.
2073, Civil Code)
In case an accommodating party cannot recover
reimbursement from his co- accomodating parties, he can still
recover from the accommodated party because he is the
principal debtor.
Sadaya v Sevilla – (1) A joint and several accommodation
maker of a negotiable promissory note may demand from the
principal debtor reimbursement for the amount that he paid
to the payee; and (2) a joint and several accommodation
maker who pays on the said promissory note may directly
demand reimbursement from his co-accomodation maker
without first directing his action against the principal debtor
provides that (a) he made the payment by virtue of a judicial
demand, or (b) a principal debtor is insolvent.
APPLICATION OF “HOLDER FOR VALUE”
Agbayani: In instruments which are not accommodation
papers, the effect of this notice of want of consideration is to
render the holder for value not a holder in due course because
he has notice of a defense of prior parties, namely, want of
consideration, which is a defense under Section 28. However,
because of the provisions of Section 29, an accommodation
party cannot interpose the defense of want of consideration
between him and the accommodated party against a holder
for value even if the holder for value has notice of the fact
that he is an accommodation party and therefore, has
notice that he did not receive any consideration for the
instrument which he signed.
NEGOTIATION WHAT CONSTITUTES NEGOTIATION
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.
Agbayani: There are three methods of transfer,
namely: (1) by assignment, (2) by operation of law,
(3) by negotiation, which may either be by
indorsement completed by delivery or by mere
delivery.
Campos: A negotiation is the transfer of a
negotiable instrument made in such manner that
the transferee becomes a holder and thus possibly
a holder in due course capable of acquiring a
better title to the instrument than that of his
transferor.
Transfer is a broader term than negotiation. If an
instrument is transferred without negotiation, the
transfer is a mere assignment which constitutes
the transferee as a mere assignee, not a holder,
subject to all defenses existing among prior parties.
Transfer thus includes both an ordinary assignment
and a negotiation.
A negotiation may be for value as in a sale, or by way
of a gift. In either case, there will be a valid transfer.
However, the rights acquired by the transferee in
each case may be different.
Sebastian: A transfer equivalent to negotiation is
when it makes a transferee a holder of the
instrument. A holder is a payee or indorsee of a bill
or not who is in possession of it, or the bearer
thereof. The initial issuance of the instrument
constitutes negotiation pursuant to Sections 30 and
191.
Under the Negotiable Instruments Law, the mode of
transfer is by negotiation which has two forms: (1) if
it is a bearer instrument, by mere delivery; and (2) if
it is an order instrument, its is by indorsement then
delivery.
DIFFERENCE FROM ASSIGNMENT
Agbayani: Assignment is the 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 set up against the original payee.
The effect of assignment is that the party holding the
right drops out of the contract and another takes his
place. The assignee and every subsequent person to
whom the instrument comes by assignment is
substituted in the place of the assignor. Hence, if the
original assignor said or did something which under
the ordinary law of such contract would prevent him
from enforcing the contract or asserting his right
against the other party to the original contract, the
assignee, although he knows nothing of the original
transaction, may be deemed to have said and done
the same things. And further, if any subsequent
assignee from whom, as an assignor, the holder in
turn derives the contract, has done anything to
prevent its enforcement against the original party,
the said holder cannot enforce it against the original
party.
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 as an equitable
assignment.
TRANSFERS BY OPERATION OF LAW
Agbayani: The fill title to an instrument may pass
without either assignment, indorsement, or delivery,
that is, by operation of law, (1) by death of the holder,
where the title vests in his personal representative,
or (2) by bankruptcy of the holder, where title vests
in his assignee or trustee, or (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 indorsee.
INITIAL DELIVERY OF INSTRUMENT
Agbayani: Under Section 3o and 191, an instrument is
negotiated when it is delivered to the payee or to an
indorsee. Negotiation is not confined to transfer after
delivery to the payee. A holder is a payee or an indorsee
who is in possession of an instrument payable to order.
Consequently, when an instrument payable to order is
delivered to the payee thereof, the payee becomes a
holder or he becomes thereby a payee in possession of
the instrument. In short, the delivery to him of the
instrument constitutes him the holder thereof. And
since negotiation is defined being such transfer of an
instrument as to constitute the transferee the holder
thereof, such a delivery to the payee is negotiation.
INDORSEMENT
Agbayani: An indorsement is not only a mode of
transfer. It is also a contract. Every indorser is a new
drawer and the terms are found on the face of the
instrument. There is an added obligation upon the
instrument aside from what appears upon the face of
the instrument. The indorsement of an instrument
implies an undertaking from the indorser to the person
in whose favor it is made
and to every other person to whom the instrument
may afterwards be transferred, exactly similar to
that which is implied by drawing a bill except that,
in the case of drawing a bill, the stipulations with
respect to the drawer’s responsibility and
undertaking do not apply. Thus, the general
indorser, in effect, states to every person who
follows him: “This instrument will be paid by the
maker, if a note, or accepted by the drawee or paid
by the acceptor, if a bill. If it is dishonored by non-
payment or non-acceptance and you give me notice
thereof, I will pay it.” This, in effect, is the contract
of the general indorser.
Campos: When the payee of an instrument
transfers it to another by signing at the back
thereof he is said to have negotiated or indorsed
the same and thereby becomes an indorser. The
person to whom he negotiates it is the indorsee,
who, by such negotiation becomes the holder of the
instrument.
As to the nature of their liability, the parties to a
negotiable instrument are either primarily or
secondarily liable. The primary party is the one
who is absolutely and unconditionally required to
pay the instrument when it falls due. The maker is
the person primarily liable on a promissory note.
In a bill of exchange, there is no person primarily
liable to pay until and unless the drawee accepts
the order of the drawer to pay. Before he accepts
such drawee is not liable on the instrument and he
cannot be compelled by the holder to accept or pay
it. But if and when the drawee accepts, he becomes
an acceptor who is absolutely bound to pay on the
date specified on the bill.
The drawer of a bill of exchange and the indorsers of
either a bill or note are the parties secondarily liable
thereon, and they can be held responsible should the
primary parties fail to pay. Their liability is
conditioned on 2 factors: (1) that a demand or
presentment be duly made on the primary party and
(2) should the said party dishonor such instrument,
that a notice of such dishonor be given to the
secondary party sought to be charged.
An indorser by indorsing the bill or note impliedly
enters into 2 contracts: (1) he is selling or
transferring the instrument to his indorsee, thus
assuming liabilities similar to that of a seller or
transferor of personal property; and (2) he warrants
that he will pay the instrument when the two
conditions for his liability mentioned above have
been fulfilled. The holder can therefore hold any
indorser liable should the maker or acceptor fail to
pay, provided these two conditions are complied.
An instrument payable to order requires for its
negotiation, first, an indorsement by the payee or
present holder, and second, its delivery to the
transferee or indorsee, who now becomes the holder.
An indorsement consists of the signature of the
indorser usually on the back of the instrument. An
indorsement has double significance:
1) It constitutes a transfer or sale of the instrument to the indorsee or
transferee
2) It signifies the agreement of the indorser to answer for the amount
represented by the instrument in case of default of the maker or the party
primarily liable.
An instrument payable to bearer can be negotiated by
mere delivery. It is a common practice, however, to
indorse a bearer instrument whenever it is
transferred. It does not impair the negotiation but
serves as an additional security to the transferee,
since he can hold the indorser liable as such. One
who negotiates by mere delivery, although he
assumes the liabilities of a seller or transferor of the
note or bill, does not warrant that he will pay in case
the primary party fails to pay.
A transfer of a negotiable instrument is effected
otherwise than by negotiation when an order
instrument is delivered by the payee or special
indorsee without his indorsement or where the
indorsement is not made properly as required by law.
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.
cannot be considered an allonge.
Campos: If an instrument is payable to the order of A
and B, either as payees or indorsees, both must indorse
in order for the transaction to operate as a negotiation.
A and B will then be jointly and severally liable and an
action will lie against any of them individually. If one of
them should pay, the other is prima facie liable to
contribute his share to the paying indorser. If only one
indorses, his indorsee can have no right of action on the
instrument because this would be violating the rule
against splitting of actions.
If one of several joint payees or joint indorsees indorses
his own name and without authority from his co-
obligee, indorses the latter’s name and delivers the
instrument to a purchaser, such transaction does not
constitute a negotiation of the instrument. But it has
been held that one of two joint payees, by indorsement
and delivery of the instrument to his co-payee, may
transfer full title to the latter.

Agbayani: If written on the indorsement itself, the

indorsement is usually written on the back of back
thereof. But the indorsement may be written on the
face of the instrument. Where the inorsement is
written on a paper attached to the instrument, such
paper is called an “allonge.” But the allonge must be
tacked or pasted on the instrument so as to become a
part of it, and where the separate paper is only
temporarily attached, as when clipped or pinned, it
Sebastian: Negotiation at the back of the
instrument is only true in the case of a check. In
promissory notes, indorsement does not
necessarily have to be at the back for they can be
made below the note.
Generally, an indorsement is a signature. The first
indorsement of an instrument is by the payee.
When you put something else in addition to the
signature, it can qualify the nature of the
indorsement.
ALLONGE
Agbayani: The use of an allonge is allowable only
when there is a physical impossibility of writing
the indorsement on the instrument itself, and an
indorsement on a separate piece of paper where
there is sufficient space on the instrument for
indorsements will be considered as mere
assignment, not a negotiation.
Campos: An allonge can be validly used only when
there is no longer any room on the instrument for
further indorsements, otherwise the transfer will
not be sufficient to constitute the transferee a
holder. He will thus be subject to defenses such as
failure of consideration. A contrary rule would
open the door to fraud.
Sebastian: If the instrument no longer has space
for indorsements, signatures may be placed on an
allonge. An allonge is a paper attached to a
document for receiving indorsements too
numerous to be written on the bill itself. It only
relates to an instrument payable to order because
indorsements are not needed in bearer instruments.
Its purpose is to provide more space for
indorsements. Thus, it must be attached permanently
to the instrument. It is important to attach the
allonge to the instrument in order to determine the
order of in which the instrument was indorsed. This
helps determine the order of liability of the
indorsers. It is important to know the order from
who the instrument came from because each
indorsement made by a general indorser carries the
warranty of solvency of all prior parties.
If there was supposed to be an allonge and the
instrument was presented by the holder without it,
the maker has the right to dishonor payment because
there was lack of proof of the holder that he was the
lawful holder of the instrument.
An allonge is permanently attached to the instrument
when, once there is detachment, it would be evident.
Clark v Thompson – A written transfer of a note,
made on a separate paper to which it was pinned,
there being room on the back of the note itself of the
transfer, was an assignment merely, not a
commercial indorsement. Whether the note was
pinned not, we are constrained to treat its transfer as
a common-law assignment merely, and to hold that
respondent was not a holder in due course.
Sebastian: Subrogation happens when a creditor is face amount of the instrument, title transferring to the
substituted through novation. indorsee. This is what is called a “discount” of the
instrument. The discount is given in consideration of
INDORSEMENT FOR THE FULL INSTRUMENT the period during which the purchaser has to wait
before he can cash the instrument with the maker or
Sec. 32. Indorsement must be of entire instrument. - The indorsement
must be an indorsement of the entire instrument. An indorsement acceptor, which can be done only at the maturity of the
which purports to transfer to the indorsee a part only of the amount instrument.
payable, or which purports to transfer the instrument to two or more
indorsees severally, does not operate as a negotiation of the
instrument. But where the instrument has been paid in part, it may be When an indorsement does not comply with Sec. 32, the
indorsed as to the residue. transfer is not necessarily void. It remains valid, not as
a negotiation, but as a mere assignment which subjects
Agbayani: An indorsement of a part of the the holder to all defenses on the instrument.
instrument does not operate as negotiation. But it
may constitute a valid assignment binding between Sebastian: An instrument must be indorsed in full in
the parties. The person to whom the instrument is order to determine the holder of the instrument.
indorsed would not be considered an indorsee but
merely an assignee and would therefore take the Blake v Weiden – When there has been a purported
instrument subject to the defenses available between indorsement of the whole instrument, in separate parts
the original parties. to two or more trasferees, the purported indorsees take
legal title to their several shares and may sue together,
Campos: The purpose of this provision is to protect or any one or more may sue provided all the other
the obligors from more than one action on the indorsees are brought in as parties.
instrument. The maker and all the prior parties, in
assuming liability, took the risk of only one cause of
action against them.
The provision does not cover a situation where part
of the amount of the instrument has been paid, in
which case, it may be negotiated for the balance.
Thus, in a note payable by installments, where some
installments have been paid, the instrument may still
be negotiated for the remaining unpaid installments.

Neither does the provision prohibit a transaction

where the indorsee pays the indorser less than the

Sebastian: The indorsement of must be an
indorsement of the entire instrument. An
indorsement which purports to transfer to the
instrument to two or more indorsees severally
does not operate as a negotiation of the
instruments. The law states that the indorsement
does not operate as a negotiation and suggests that
it is entirely inoperative.
Off-setting cannot take place under the Negotiable
Instruments Law but and could only be done
outside of it.
indorsed is payable to bearer, and may be negotiated by delivery.
Agbayani: Where the instrument is originally
payable to order and it is negotiated by the special
indorsement, it can be further negotiated by the
indorsee by indorsement completed by delivery.
Where the instrument is originally payable to order
and it is negotiated by the payee by blank
indorsement, it can be further negotiated by the
holder by mere delivery. The reason is that the effect
of a blank indorsement is to make the instrument
payable to bearer.

KINDS OF INDORSEMENT Where the instrument is originally payable to bearer

it can be further negotiated by mere delivery, even if
Sec. 33. Kinds of indorsement. - An indorsement may be either the original bearer negotiated it by special
special or in blank; and it may also be either restrictive or qualified
or conditional. indorsement.

Campos: Indorsements containing such additional

words are classified into special, restrictive,
qualified, and conditional. Where only the
signature of the indorser appears, it is called a
blank indorsement.
The basis of classification of indorsements are:
1) Special and blank – future method of negotiation, whether by
indorsement and delivery or by delivery alone
2) Restrictive and non-restrictive – the kind of title transferred
3) Qualified and unqualified – the scope of the liability assumed by the indorser
4) Conditional and unconditional – presence or absence of express
limitations put by the indorser upon the primary obligor’s privileges of
paying the holder

Sec. 34. Special indorsement; indorsement in blank. - A special

indorsement specifies the person to whom, or to whose order, the
instrument is to be payable, and the indorsement of such indorsee
is necessary to the further negotiation of the instrument. An
indorsement in blank specifies no indorsee, and an instrument so

Campos: There are two forms of special
indorsement: “Pay X” or “Pay X or order” followed
by the signature of the indorser. An indorsement
need not contain the words of negotiability as long as
these appear on the face of the instrument. In either
case of special indorsement, the indorsement of the
special indorsee is necessary for the further
negotiation of the instrument.
A person who negotiates by mere delivery is liable
only to his immediate transferee. A special indorser
however is liable to subsequent holders, unless the
instrument is an originally bearer instrument, in
which case he is liable only to those who take title
through his indorsement.
An indorsement in blank specifies no indorsee, and
an instrument so indorsed is payable to bearer, and
may be negotiated by delivery.
Sebastian: An indorsement is special when the
name of the indorsee is written in the indorsement.
3) “I guaranty payment.” This will make the indroser a garantor and deprive him
thereby of his right to demand notice.
Campos: A blank indorsement may be converted into a
special indorsement by writing over the signature of the
indorser in blank any contract consistent with the
character of the indorsement.
An instrument payable to order on its face may be
converted into a bearer instrument by means of a blank
indorsement, and may later be reconverted into an
order instrument by a subsequent special indorsement,
the last indorsement always controlling the means of
further negotiation. On the other hand, an instrument
payable to bearer on its face always remains a bearer
instrument. An indorsement of a bearer instrument
does not convert it to an instrument payable to order.

Sec. 35. Blank indorsement; how changed to special indorsement. -

The holder may convert a blank indorsement into a special
indorsement by writing over the signature of the indorser in blank any
contract consistent with the character of the indorsement.

Agbayani: The holder must not write any contract

not consistent with the indorsement, that is, the
contract so written must not change the contract of
the blank indorser. The following have been held to
be contracts inconsistent with the character of the
indorsement:
1) “Pay to X and Y.”
2) “Demand and notice waived.”
Sebastian: When there is a blank indorsement, the Sebastian: An indorser would want to kill
instrument becomes a bearer instrument. The negotiability so (1) that he would not be liable to a
holder may then treat the instrument as a bearer holder in due course later on and (2) that he may
instrument. have a personal defense.
RESTRICTIVE INDORSEMENT Indorsement “as agent for”
Sec. 36. When indorsement restrictive. - An indorsement is
restrictive which either: Agbayani: Under this restrictive indorsement, the
(a) Prohibits the further negotiation of the instrument; or indorsee does not acquire title over the instrument as
(b) Constitutes the indorsee the agent of the indorser; or against the indorser. He merely becomes the agent of
(c) Vests the title in the indorsee in trust for or to the use of
some other persons. the indorser. Hence, any action the indorsee may file
is subject to defenses available against the indorser,
But the mere absence of words implying power to negotiate does not such as lack of consideration.
make an indorsement restrictive.
An indorsement for deposit constitutes the indorsee the
Agbayani: While the omission of words of agent of the indorser.
negotiability in the indorsement does not affect
the negotiability of the instrument, such omission Sebastian: An indorsee makes a restrictive
in the body will render the instrument non- indorsement to an agent or a trustee because he is
negotiable. dealing with an agent or trustee and not the principal
or
Campos: A restrictive indorsement either restricts
the right of the indorsee to further negotiate the
instrument or reserves beneficial interest therein
in the indorser or in a third person. In the latter
case, although the instrument may be further
negotiated, all subsequent indorsees take subject
to the rights of the restrictive indorser or the third
person, as the case may be.

Sebastian: A restrictive indorsement limits the

title of the indorsee. It implies that there is a
limitation on what the indorsee can do.
Indorsement that Kill Negotiability
beneficiary. This protects himself because the Agbayani: The indorsee of a check indorsed in trust for
restrictive indorsement acts as a constructive notice a third person who is a holder in due course could
to subsequent indorsees that his immediate indorsee recover from the drawer who had a defense of failure of
is acting as a mere agent or trustee. consideration for while the restrictive indorsement
creating a trust gives notice of this trust to subsequent
While the indorsee is entitled to enforce the purchasers, it did not give notice of defenses obtaining
instrument, the person is not the beneficial owner of between prior parties.
the proceeds. Indorsee will be paid the amount but,
White v National Bank –
upon receipt of payment, it is for the account of
someone else. The person for whom the collection or Leonardi v Chase National Bank –
enforcement being made is the one protected in this
nature of the instrument since each indorsee will be EFFECTS OF RESTRICTIVE INDORSEMENT
charged with the fidelity of an agent or trustee.
Sec. 37. Effect of restrictive indorsement; rights of indorsee. - A restrictive
Granado v Riverdale – indorsement confers upon the indorsee the right:
(a) to receive payment of the instrument;
(b) to bring any action thereon that the indorser could bring;
Agbayani: The notation “for deposit” is a restrictive
indrosement and indicates that the indorsee bank is
an agent for collection and not the payee.
Indorsement for a check by the payee “for deposit”
does not thereby render it negotiable but prohibits
further negotiation for any purpose except for
collection for deposit in the payee’s account in the
bank selected by the payee. By adding the notation,
title to the check remained in the name of the firm.
Indorsement “in trust for”

Sulbrason-Dickenson Co. v Hopkins –

Agbayani: An indorsement to A for the benefit of B

was held restrictive making the indorsee or his
successors subject to good defenses against the
restrictive indorser.
Atlantic v Comm. Lumber Co. –
 (c) to transfer his rights as such indorsee, where the form of the an indorsement does not impair the negotiable character of the
indorsement authorizes him to do so. instrument.

But all subsequent indorsees acquire only the title of the first
indorsee under the restrictive indorsement.
Agbayani: The indorsement passes the legal title
over the note to the indorsee so as to enable him to
demand and receive payment of the value of the
instrument. This is true under any of the forms of
restrictive indorsement.
In a restrictive indorsement “for deposit,” the
indorsee can bring an action against the indorser
if the indorser received value for said indorsement.
The words ‘until it has been restrictively indorsed’
in Section 47 do not contemplate every restrictive
indorsement but a restrictive indorsement that
prohibits the further negotiation of the instrument
under Section 36(a).
Effects of Qualified Indorsement
Agbayani: A qualified indorsement constitutes the
indorser as a mere assignor of the title to the
instrument. ‘Without recourse’ means without resort
to a person who is secondarily liable after the default
of the person who is primarily liable. In effect, any
one who indorses without recourse states that “all
parties to the paper are genuine; I am the lawful
holder of that paper, and I have title to it and know of
no reason why you could not recover on it as a valid
instrument; but I do not guarantee the financial
responsibility of the parties on that paper but I do say
that I hold title to it just the same as any other
personal property.”
Liability of Qualified Indorser

Where the indorsement is “Pay to C only,” the

instrument becomes non- negotiable. But an
indorsement for collection does not destroy
transferability and it can be reindorsed so that the
indorsee can sue in his own name. Neither does an
indorsement “for deposit only” destroy the
transferability of the instrument, but the
restrictive indorsee cannot transfer the
instrument for his own debt or for his own benefit.
QUALIFIED INDORSEMENT

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
Agbayani: The qualified indorser is not entirely free maker/drawer. An indorser indorses qualifiedly if he is
from secondary liability. He is secondarily liable on not sure if he can guarantee the payment of the liability
his warranties as an indorser under Section 65. He is or the solvency of the maker/drawer. The value of
liable if the instrument is dishonored by non- indorsements is merely supportive of the liability of the
acceptance or non-payment due to person primarily liable. If the person primary liable has
(1) forgery, (2) lack of good title on the part of the the ability to pay, then the responsibility of the
indorser, (3) lack of capacity to indorse on the part of indorsers are not as significant as they should be.
the prior parties, or (4) the fact, at the time of the
By making a qualified indorsement, one makes an off
indorsement, that the instrument was valueless or
balance sheet transaction.
not valid and knew of that fact.
Fay v Witte –
Campos: An indorser by his indorsement impliedly
enters into two contracts: Copeland v Burke –
(1) a contract of sale or assignment of the instrument and (2) a contract to pay the
instrument if the maker is unable to pay on maturity. By adding the words “without Hutson v Rankin –
recourse” above his signature, he expressly rids himself of the second contract.
CONDITIONAL INDORSEMENT
A qualified indorser therefore merely assumes the
first contract and agrees merely to transfer legal title Sec. 39. Conditional indorsement. - Where an indorsement is conditional,
the party required to pay the instrument may disregard the condition and
to the instrument. This is what the law means when make payment to the indorsee or his transferee whether the condition has
it says that he is a “mere assignor of the title of the been fulfilled or not. But any person to
instrument.” The transfer would still be negotiation
and the transferee would still be a holder capable of
acquiring a title free from defenses of prior parties.
The only effect of the qualified indorsement is to
relieve the qualified indorser of his liability to pay the
instrument should the maker be unable to pay at
maturity.

In the absence of clear and unmistakable language

qualifying liability, an indorser will be liable on both
his contracts. His liability cannot be limited by
implication.

Sebastian: Unlike a general indorser, the qualified

indorser does not warrant the solvency of the
whom an instrument so indorsed is negotiated will hold the same,
or the proceeds thereof, subject to the rights of the person indorsing
conditionally.
Agbayani: A conditional indorsement is an
indorsement subject to the happening of a
contingent event, that is, an event that may or may
not happen, or a past event unknown to the
parties.
A conditional indorsement does not render an
instrument non-negotiable. But if the condition is
on the face of the instrument, the condition
renders it non- nengotiable as the promise or
order therein would not be unconditional.
Campos: An indorser is liable to pay the
instrument in two conditions: (1) that due demand
or presentment be made on the party primarily
liable on the date of imaturity, and (2) that should
the latter fail to pay on such presentment, a notice
of dishonor be promptly sent to the indorser. An
indorsement without any other condition upon
which liability is based is referred to as an
unconditional or absolute indorsement. A
conditional indorsement is one where an
additional condition is annexed to the indorser’s
liability. An indorsement does not affect the
negotiability of the instrument because the
original promise or order remains unconditional.
But all holders subsequent to the conditional
indorsement take subject to the condition.
Sebastian: A conditional indorsement implies that
there is a condition where, if not fulfilled, the
indorsement would not be complete. In other
words, the indorsement becomes condition if the
transfer is subject to the fulfillment of a condition.
If the indorsement is conditional, the person obliged
may ignore the condition and pay it; or dishonor the
instrument and wait until the condition is fulfilled.
The option of paying or not paying pertains to the
maker/drawee. There is nothing stopping the holder
from presenting the instrument to the maker/
drawee.
Refusal to pay of the maker/ drawer will not
constitute dishonor if the condition has not yet been
fulfilled. But as far as the maker is concerned he can
choose to ignore the conditions because he is not a
party to the conditions. The law gives the maker the
choice to pay the instrument regardless if the
condition was not fulfilled.
The other option is to look at the indorsement and
hold the payment of the instrument until the
fulfilment of the condition. Holder may not be
entitled because the indorsment is conditional. But
once the condition is fufilled, the maker/drawee
should pay.

If the condition is resolutory, the maker/drawee has
no choice but to pay the instrument on due date.
But if after due date, the resolutory condition was
breached, can we say that the person who was paid
was merely holding the proceeds of the note in trust
for the previous indorser who indorsed with
condition? This is questionable. When the maker
pays, the instrument is discharged and it ceases to
exist. Once it ceased to exist, the effect is that
Negotiable Instruments Law no longer applies. Then
we enter to the agreement between indorser indorsee
which is attached to the agreement which no longer
exists as a negotiable instrument. The instrument
now becomes a simple contract. At the time of
maturity, resolutory condition was not breached. As
far as maker, he has to pay. The only time he can
refuse is if there was breach at the time of
presentment.
We already know that if breach happened after the
payment of the instrument, it is no longer a
negotiable instrument. But the fact remains that
there was an agreement between the indorser and
indorsee where the payment was based on a
resolutory condition. In their case, there was breach
of contract and the remedy is specific performance or
rescission.
Agbayani is wrong because there can be no trust since
there was no trustor and trustee, and no beneficiary.
He failed to show the fluidity of transition from
Negotiable Instrumetns Law to contract laws.
INDORSEMENT OF BEARER INSTRUMENT
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.
Agbayani: Section 40 applies only to instruments
which are originally payable to bearer. It does not apply
to instruments originally payable to order, even when
they become payable to bearer because the only or last
indorsement is in blank.
An instrument which is originally payable to bear is
always payable to bearer. Hence, even when specially
indorsed, it can be negotiated by mere delivery.
A special indorser of an originally payable to bearer
instrument is not liable to a holder who became a
holder through delivery because delivery was sufficient
to transfer title. However, a special indorser is liable to
special indorsee/s because they acquire their title over
the instrument through the special indorsement as they
can trace their title through a series of unbroken
indorsements.
Sebastian: Special indorsements do not convert the
original bearer instrument to an order instrument. The
holder in due course can cancel the special
indorsement prior to him but the special constitute a valid negotiation so as to free the
indorsments made will still have warranties under instrument from defenses, unless the one indorsing
Section 66. is authorized by the other.

Assuming that the instrument was originally an INDORSEMENT TO A CORPORATE OFFICIAL

order instrument which had a blank indorsement, Sec. 42. Effect of instrument drawn or indorsed to a person as cashier.
the holder may still cancel the prior special - Where an instrument is drawn or indorsed to a person as "cashier"
indorsements because the blank indorsement 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
already made it a bearer instrument. may be negotiated by either the indorsement of the bank or
corporation or the indorsement of the officer.
INDORSEMENT TO TWO OR MORE PERSONS
Sebastian: By indicating the limited capacity of the
Sec. 41. Indorsement where payable to two or more persons. -
Where an instrument is payable to the order of two or more payees indorser, he does not become a general indorser that
or indorsees who are not partners, all must indorse unless the one warrants under Section 66.
indorsing has authority to indorse for the others.
Johnson v Buffalo Bank –
Agbayani: Section 41 applies only to instruments
payable to two or more payees jointly. It does not
apply to instruments to two or more payees
severally because these fall under Section 8(c) and
such instrument so payable may be negotiated by
the indorsement of one payee.

If only one payee indorses, he passes only his part

of the instrument. Such an indorsement would not
operate as such because it would not be an
indorsement of the entire instrument. But the
following are exceptions to the rule requiring joint
indorsement:
1) where the payee or indorsee indorsing has authority to indorse for the
others, and
2) where the payees or indorsees are partners.

Campos: Where the instrument is payable or

indorsed to A and B, they are joint payees and an
indorsement by either A or B only will not
Agbayani: Where S was the cashier of the C bank, a
certificate of deposit issued by the C bank to the order
of “S, Cashier” was indorsed “S, Cashier,” and came
to the plaintiff, a holder in due course, it was held
that the indorsement was that of the bank, and that it
was competent for the bank to show that S acted in
his own interest and in violation of his duty to the
bank.
Campos: An instrument may be indorsed either
personally or through an agent. And the authority of the
agent need not be in writing. In so signing, an agent
should make it plain that he is merely signing in behalf
of the principal, otherwise he may be held personally
liable. The most common form of indorsement by an
agent is “Pedro Reyes by Jose Santos, agent.”
INDORSEMENT TO OR BY COLLECTING BANK

MISSPELLED NAME OF INDORSEE

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.
Campos: The indorsement should be made by the
holder in the manner he was designated, otherwise
the signature will prima facie not be a valid
indorsement of the instrument.
INDORSEMENT BY A REPRESENTATIVE
Campos: A 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 another bank. Should he cash it
directly with the drawee bank, then payment to him by
the latter would discharge the instrument and
terminate all rights and liabilities of the parties thereto.
Should he deposit it in the drawee bank without
immediately cashing it, such bank will credit the
amount of the check to his account and the effect would

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.

Agbayani: A representative must indorse in the same

manner as an agent of the maker, drawer or acceptor
should in order to escape personal liability under
Section 20. In short, (1) he must add words
describing himself as an agent; and
(2) at the same time disclose his principal. Of course, (3) he must be duly
authorized.

It has been held that an agent may indorse by merely

signing the name of the principal.
be just like payment. Where the holder deposits
the check with a bank other than the drawee, he
would in effect be negotiating the check to such
bank, since he would have to indorse the check
before the bank will accept it for deposit.
Whatever kind of indorsement is made by the
holder, the bank in fact is only a collecting agent.
As a rule, the indorsement made by the depositor
of a check would be in blank, just his signature
without any other words. The instrument will
therefore not show any restriction to the collecting
bank’s title and – to all appearances, title has
transferred to it.
TIME AND PLACE OF INDORSEMENT
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.
The fact that an indorsement appears to be in fresher
ink than the face of a demand note is not sufficient to
overcome the presumption that it was indorsed
before it was overdue.
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.
Sebastian: This provision has no sense in the
Philippines because there is only one Negotiable
Instruments Law here.
CONTINUATION OF NEGOTIABILITY
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.
Agbayani: The mercantile character (1) of the
instrument as a negotiable paper

Agbayani: If the indorsement bears a date, the

presumption in this section would not arise. The
presumption would be that stated in Section 11,
namely, that the date written is the true date.
This provision becomes important in connection
with Section 52(b). In order that one may be 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
negotiated before maturity, and one who denies
that the holder of such instrument is a holder in
due course has the burden of proof.
and (2) of the contracts of several parties to it,
continues after its maturity and until it is paid except
(3) that an indorsee or a tranferee after maturity
takes the instrument subject to the defenses between
original parties, because after maturity such
subsequent parties take the instrument after it
becomes overdue, and therefore, they are not holders
in due course. In short, 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 Negotiable
Instruments Law. However, the instrument ceases to
be negotiable in the sense that a transferee after
maturity is not a holder in due course, and,
therefore, is not free from defenses obtaining
between prior parties. Transfer to such transferees
would be equivalent to a mere assignment and subject
to defenses.
The position of a holder who takes a bill when over
due is that he is a holder with notice. He may or may
not be a holder for value and his rights will be
regulated accordingly. He is a holder with notice
because he takes a bill which, on the face of it, ought
to have been paid. He is therefore bound to make two
inquiries:
1) Has the bill been discharged? If not, why not?
2) Was the title of the person who held it at maturity defective?
If the title to the instrument was complete, it is
immaterial that for some collateral reason he could
not have enforced the bill against some or one more
of the parties liable thereon.
It does not follow that simply because one is not a
holder in due course he cannot recover on the checks
in his possession. The Negotiable Instruments Law
does not provide that the holder who is not a holder in
due course, may not, in any case, recover on the
instrument. The only disadvantage is that the
instrument is subject to defenses as if it were non-
negotiable.
Campos: A negotiable instrument, although overdue,
retains its negotiability unless it has been paid or
restrictively indorsed so as to prohibit further
negotiation. Other forms of restrictive indorsements do
not destroy negotiability, for Section 37 recognizes the
right of the restrictive indorsee to further negotiate the
instrument.
The fact that the instrument is overdue does not affect
the right of the holder to further negotiate it if he wishes
to, but merely prejudices the status of subsequent
holders as they cannot be considered holders in due
course.
Although indorsements after maturity are good to
transfer title, they prevent a holder from becoming a
holder in due course, thus subjecting him to defenses,
if any. The presumption that every negotiation was
effected before the instrument was overdue is therefore
significant, since indorsements are usually not dated.
The law of the place of dating will govern any
controversy should there be conflict of laws.
STRIKING OUT OF INDORSEMENT
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.
Agbayani: Where an instrument is transferred by
a 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; 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.
mere delivery would have been sufficient to transfer
title from one holder to another. The holder, thus
have a right to cancel any or all indorsements.
Where the instrument is payable to order on its face,
the situation is different. If all the indorsements
appearing on the back of the instrument are special,
then all of them would be necessary to the holder’s
title.
TRANSFERS WITHOUT INDORSEMENT
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.

An indorsement is not necessary when mere

delivery is sufficient to vest ownership in the
indorsee.

The following are effects of striking out:

1) indorser whose indorsement is struck out is relieved from liability on the
instrument; and
2) all subsequent indorsers are also relieved from their liability on the
instrument.

Campos: If the instrument is payable to bearer on

its face, then whether or not there are
indorsements on the back of the instrument would
be immaterial to the title of the bearer, who is
presumptively the owner and holder by his mere
possession of such instrument. None of the
indorsements would be necessary to his title since
Agbayani: Section 49 applies only to instruments
payable to order. This contemplates a case where
there is delivery and payment of value but no
indorsement. There is, therefore, one element lacking
for the negotiation of the instrument, namely,
indorsement by the payee or indorsee. This operates
as an equitable assignment.
The following are the rights of the transferee 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 transferee.
2) The transferee has also the right to require the transferor to indorse the
instrument.
The time for determining whether the transferee is a
holder in due course is as of the time of actual
indorsement, not at the time of the delivery. The
reason is that negotiation is completed at the time of
indorsement, not at the time of delivery.
agreement to the contrary, he has a right to an
unqualified and not merely a qualified indorsement.
There can be no apparent reason therefore why an
unindorsed instrument should not also be the subject of
gift, passing title to the donee. However, such a donee,
although he has a right to sue on an instrument as a
legal owner thereof, does not have the right to compel
the indorsement of his donor. This is the only difference
in the effect which Section 49 should have on a
gratuitous transfer as contrasted with the transfer “for
value.”
NEGOTIATED BACK TO PRIOR PARTY
Sec. 50. When prior party may negotiate instrument. - Where an
instrument is negotiated back to a prior party, such party may, subject
to the provisions of this Act, reissue and further negotiable the same.
But he is not entitled to enforce payment thereof against any
intervening party to whom he was personally liable.

Campos: If his predecessor had legal title, the

transferee of an unindorsed instrument acquires
such, subject however to hte defenses and equities
available among prior parties.
It is the exception rather than the rule for a payee of
an order instrument or a special indorsee to transfer
the instrument without indorsement, and therefore
since the situation is abnormal, it is only fair to the
maker and to prior holders to require the possessor to
prove without the aid of an initial presumption in his
favor, that he came into possession by virtue of a
legitimate transaction with the last holder.
But the transferee of an unindorsed instrument may
become a holder by obtaining the indorsement of his
transferor. It is only at this time that the instrument
can be considered as having been negotiated. As to
what kind of indorsement such transferee is entitled
to, the majority view is that, unless there is proof of an
Sebastian: Holder for value must be a holder in due course
other than for the fact that he knew the accommodation party
signed the instrument without receiving value therefor. But
other than that, a holder for value must meet the elements
under Section 52.

Acuña v Veloso and Javier – Where one of the signers of a joint

and several promissory note affixes his signature thereto for
the accommodation of a co- maker and a third person advances
the face value of the note to the accommodated party at the
time of the creation of the note, the consideration for the note,
as regards both makers, is the money so advanced to the
accommodated party; and it cannot be said that the note is
lacking consideration as to the accommodating party because
he himself received none of the money It is enough that value
was given for the note at the time of its creation.