Negotiation in Negotiable Instruments

Category: Law on Negotiable Instruments

 
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