Kinds of Indorsement

Dianne R. Padolina
BSA5

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.

Indorsement is the writing of the name of the

indorser on the instrument itself or upon a paper
attached thereto of his transfer of the title to it, or
his assuring its payment, or both. The signature
of the indorser without additional words, is a
sufficient indorsement.

The Indorsement may be written

a. On the instrument itself;
b. Upon a paper attached thereto.
c. Allonge: paper attached to the instrument

Allonge is a slip paper

where the instrument is
made, it may be indorsed
as to the unpaid balance.

Requirements of a valid indorsement

They are:
1. The indorsement must be written on the instrument itself or upon a paper
attached thereto.
2. It must be an indorsement of the entire instrument and
3. It must be completed by delivery

Example:
1. A note for P1,000 indorsed as follows:
a.Pay to A P400,leaving the balance without indorsement, is nonnegotiable. For being only a part indorsee, A is considered merely as an
assignee.
b.Pay to A P400 and to B P600 is also non negotiable.
2. If indorsed as follows
Pay to A and B P1,000,the indoresent operates as a negotiation.

Sec. 32. Indorsement must be of entire instrument. - The

indorsement must be an indorsement of the entire instrument. An
indorsement which purports to transfer to the indorsee a part only of the
amount 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
indorsed as to the residue.

INDORSEMENT MUST BE OF THE WHOLE INSTRUMENT

The general rule is that the instrument must be of the entire

instrument

Accordingly, an indorsement of a part of the instrument doesn't

operate as a negotiation thereof
Example:
I promise to pay P or order P10,000.
(Sgd.)M
Since the instrument is payable on demand, P presented the note to M, and
the latter paid P6,000. The balance P4,000 is the lien of P on the
instrument. P thereafter indoresed it to A,Pay to A P4,000,is signed by P.

2. Transfer to two or more indorsees severally

An indorsement which purports to transfer the instrument to two or more indorsees
severally, does not operate as negotiable of the instrument
Examples:
1. The note is for P10,000. It is indorsed as follows:
Pay to P1 P16,000 and to P2 P4,000.
(Sgd.)M
2. The note is for P10,000. It is indorsed as follows:
Pay to P1 and P2 P10,000.
(Sgd.)M

Sec. 33. Kinds of indorsement. - An indorsement may be either

special or in blank; and it may also be either restrictive or qualified or
conditional.
KINDS OF INDORSEMENT
a.Special
b.Blank
c.Restrictive
d.Qualified
e.Conditional
Other Kinds:
f.Absolute
g.Joint
h.Successive
i.Iregular
j.Facultative

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
indorsed is payable to bearer, and may be negotiated by delivery.

Special indorsement is the indorsers signature plus

words indicating to whom, or to whose order, the
instrument is payable.

HOW FURTHER NEGOTIATED

1. Where the instrument is originally payable to order and it is negotiated
by the payee by special indorsement, it can be further negotiated by the
indorsee of the instrument completed by delivery
2. Where the instrument is originally payable to order and it is negotiated
by the payee in 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
3. Where the instrument is originally payable to bearer, it can be further
negotiated by mere delivery, even if the original bearer negotiated it by
special indorsement

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.
Suppose that A makes a note with B as payee. It is
indorsed as follows:

(Sgd.) B.

Delivery was then made to C. C may place above the signature

of B, Pay to C. so as to make the indorsement

Pay to C.

(Sgd.) B.

LIMITATION UPON CONVERSION OF BLANK INDORSEMENT

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
Examples:
a. The addition of the word without recourse "over a blank indorsement
b. Protest waived because this is material alteration. If made without the
consent of the indorser, it will avoid the indorsement

Sec. 36. When indorsement restrictive. - An

indorsement is restrictive which either:
(a) Prohibits the further negotiation of the instrument; or
(b) Constitutes the indorsee the agent of the indorser; or
(c) Vests the title in the indorsee in trust for or to the use
of some other persons.

(a) Prohibits the further negotiation of the instrument

Example:
Pay to A only
(b) Constitutes the indorsee the agent of the indorser
Example:
Pay to A for collection
c) Vests the title in the indorsee in trust for or to the use of some other
persons
Example:
Pay to A in trust for B.

Effects of the omission of the words negotiability

The absence of the word implying power to negotiate does not make an
indorsement restrictive
Example:
Pay to A, is the same as Pay to A or order.
While the omission of words in the indorsement doesn't affect
negotiability of the instrument, such omission in the body thereof will render
the instrument non-negotiable
Example: No order, no bearer, non-negotiable

I promise to pay P P10,000.

(Sgd.)M

Sec. 37. Effect of restrictive indorsement; rights of indorsee. -

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.

RESTRICTIVE INDORSEE MAY RECEIVE PAYMENT

A restrictive indorsement confers upon the indorsee the right to

receive payment of the instrument
RESTRICTIVE INDORSEE MAY BRING AN ACTION

A restrictive indorsement confers upon the indorsee the right to bring

any action thereon that the indorser could bring

In a restrictive indorsement for deposit, can the indorsee such as B

in the illustration, bring an action against the indorser, such as A?
RESTRICTIVE INDORSEE MAY TRANSFER HIS RIGHTS
A restrictive indorsement confers upon the indorsee the right to transfer
his rights as such indorser, where the form of inforsemnt authirizes him to
do so. Under Sec. 47 an instrument when strictly indorsed ceases to be
negotiable only to the extent of the restriction prohibits the further
negotiation.
Example: Pay to A only

Sec. 38. Qualified indorsement. - A qualified indorsement

constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser's signature
the words "without recourse" or any words of similar import. Such
an indorsement does not impair the negotiable character of
the instrument.

HOW QUALIFIED INDORSEMENT IS MADE

By adding to the indorsers signature the words without recourse,

Sans recourse, or at the indorsees own risk .
Example:

Indorsement:
Pay to A, without recourse.
(Sgd.)P

EFFECT OF QUALIFIED INDORSEMENT

A qualified indorsement does not destroy the negotiability of the
instrument.
Illustrative case:
M executes a promissory note payable to P or bearer. P indorsed
it to A, A to B, B to C. The indorsement of A to B is qualified. If M
is insolvent, what is the right of C.
C
Q

A
P
Maker

A qualified indorser does not

warrant the financial
responsibility of the maker.
He warrants other facts
which will render the
instrument value-less but
not solvency of the maker

Sec. 39. Conditional indorsement. - Where an indorsement is

conditional, the party required to pay the instrument may
disregardthe condition and make payment to the indorsee or his
transferee whether the condition has been fulfilled or not. But any
person to whom an instrument so indorsed is negotiated will hold
the same, or the proceeds thereof, subject to the rights of
the person indorsing conditionally.

ABSOLUTE INDORSEMENT

One by which the indorser binds himself to pay upon no other

condition than the failure of prior parties to do so and upon due notice to
him of such failure
CONDITIONAL INDORSEMENT

An indorsement subject to a contingent event, that is, an event

that may or may not happen, or a past event unknown to the parties

Suppose a note for P1000 with A maker, and B payee. It is

then indorsed as follows:
Pay to Y if he passes the bar examinations.
(Sgd.) B

Facultative, irregular indorsement

a. Facultative indorsement
The endorser enlarges his liability by waiving usual demand
and notice of dishonor.
Example:

Indorsement:
Pay to A or order,notice of dishonor waived.
(Sgd.) P

b. Irregular
When a person places his signature in blank before
delivery.

Type of
Indorsement

Description

Blank

Does not specify a particular indorsee.

This indorsement creates bearer paper.

Special

Specifies the person to whom the indorser intends

the instrument to be payable.
This indorsement creates order paper.

Unqualified

Does not disclaim or limit liability.

The indorsee is liable on the instrument if it is not
paid by the maker, acceptor, or drawer.

Type of
Indorsement

Description

Qualified

Disclaims or limits the liability of the

indorsee. There are two types:
1. Special qualified indorsement
2. Blank qualified indorsement

Nonrestrictive

No instructions or conditions attached to

the payment of funds

Restrictive

Conditions or instructions restrict the

indorsees rights. There are four types:
1. Conditional indorsement
2. Indorsement prohibiting further
indorsement
3. Indorsement for deposit or collection
4. Indorsement in trust