BUSLAW3 – Lesson 5
- Indorser binds himself to pay, upon no other
KINDS OF INDORSEMENTS
As to method of negotiation:
 Special Indorsement – specifies the person tow hom or to
whose order the instrument is payable
 Blank Indorsement – specifies no particular indorsee
As to kinds of title transferred:
 Restrictive Indorsement
a. Prohibits the further negotiation of the instrument
b. Constitutes the indorsee the agent of the indorser
c. Vests the title in the indorsee in trust for or to the use of
some other persons
But the mere absence of words implying power to negotiate
does not make an indorsement restrictive.
 Non-restrictive
EFFECT OF RESTRICTIVE INDORSEMENT
A restrictive 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
c. To transfer his rights as such indorsee, where the form of the
indorsement authorizes him to do so.
But all subsequent indorsees acquire only the title of the first
indorsee under the restrictive indorsement.
KINDS OF INDORSEMENT
As to Scope of Liability of Indorser:
 Qualified Indorsement
Constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser’s
signature the words “without recourse” or any words of
similar import. Such an indorsement does not impair the
negotiable character of the instrument
 Unqualified/General Indorsement
As to Limitation:
 Conditional Indorsement
- Indorser imposes some other condition to his liability, or
on the indorsee’s right to collect the proceeds of the
instrument
- The party required to pay the instrument may disregard
the condition and make payment to the indorsee or his
transferee whether the condition has been fulfilled or not
- But any person to whom an instrument so indorsed is
negotiated will hold the same, or the proceeds thereof,
subject to the rights of the person indorsing conditionally.
 Unconditional Indorsement
condition than the failure of prior parties to do
so, and of due notice to him of such failure.
EFFECT OF QUALIFIED INDORSEMENT
 Indorser is a mere assignor
 Indorser has limited liability
 Negotiability of the instrument is not affected
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.
OTHER KINDS OF INDORSEMENT
 Joint
 Successive
 Irregular or Anomalous
 Facultative
INDORSEMENT WHERE PAYABLE TO 2 OR MORE PERSONS
Where an instrument is payable to the order of two or more payees
or indorsees who are not partners, all must indorse unless the one
indorsing has authority to indorse for the others.
EFFECT OF INSTRUMENT DRAWN OR INDORSED TO A PERSON AS
CASHIER
Where an instrument is drawn or indorsed to a person as “cashier”
or other fiscal officer of a bank or corporation, it is deemed prima
facie to be payable to the bank or corporation of which he is such
officer, and may be negotiated by either the indorsement of the
bank or corporation or the indorsement of the officer.
INDORSEMENT WHERE NAME IS MISPELLED, ETC.
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.
INDORSEMENT IN REPRESENTATIVE CAPACITY
1. He must add words describing himself as agent
2. At the same time, disclose his principal
3. He must be duly authorized
TIME OF INDORSEMENT
Every negotiation is deemed prima facie to have been effected
before the instrument was overdue.
Exceptions: where an indorsement bears date after the maturity of
the instrument.
PLACE OF INDORSEMENT

Every indorsement is presumed prima facie to have been made at

the place where the instrument is dated.

Exceptions: where the contrary appears otherwise.

CONTINUATION OF NEGOTIABLE CHARACTER

General Rule:

An instrument negotiable in its origin continues to be negotiable

Exceptions:

1. When it has been restrictively indorsed

2. When discharged by payment or otherwise

STRIKING OUT INDORSEMENT

Effects of striking out

1. The indorser whose indorsement is struck out is relieved from

his liability on the instrument
2. All subsequent indorsers are also relieved from their liability on
the instrument

Rule in Striking out Indorsement:

1. Order instrument
- If there are blank as well as special indorsements, the
holder may strike out any indorsement immediately
following a blank indorsement.
- If there are only special indorsements, the holder may not
strike out any indorsement since he must trace his title
through all the indorsements.
2. Bearer instrument
The holder may strike out any indorsement whether the same
is blank or special indorsement

TRANSFER WITHOUT INDORSEMENT

1. The transaction operates as soon as an equitable assignment

2. The transferee acquires the instrument subject to defenses
available among prior parties
3. Transferee cannot negotiate the instrument
4. The transferee acquires the right to have the indorsement of
the transferor

WHEN PRIOR PARTY MAY NEGOTIATE INSTRUMENT

1. Such prior party may re-issue or re-negotiate the same before

maturity of the instrument
2. He cannot enforce payment against intervening party
3. He may strike out his indorsement and those of the intervening
parties
4. Intervening parties enjoy a temporary defense while prior party
is the holder. If prior party re-negotiates the instrument to a
HDC, the latter can go after the intervening parties.