Negotiation and Indorsement: Complete Notes (Part E)

Part E explains how negotiable instruments change hands: the meaning and methods of negotiation, the kinds and effect of indorsement, and who may negotiate and until when. This consolidated note covers Topics 22 to 24.

22. Negotiation

An instrument is negotiated when it is transferred so as to make the transferee its holder (Section 14). Making, acceptance and indorsement are completed by delivery, actual or constructive, made by the party or his authorised agent; between immediate parties and against holders who are not holders in due course, conditional or special purpose delivery may be proved (Section 46). Bearer instruments are negotiated by delivery alone, except that one delivered on a condition is not negotiable until the event happens, save in the hands of a holder for value without notice (Section 47). Order instruments are negotiated by the holder's indorsement and delivery (Section 48). Both rules are subject to Section 58. A person who negotiates by delivery alone is not liable on the instrument.

23. Indorsement

• Meaning (Section 15): the signature of the maker or holder, otherwise than as maker, for the purpose of negotiation, on the back, face or an allonge.
• Blank and full (Sections 16, 49, 54 and 55): a blank indorsement makes the instrument payable to bearer; the holder may convert it into a full indorsement without becoming liable; after a full indorsement, only that indorsee or those claiming through him can claim from the indorser in full.
• Restrictive (Section 50): express words such as "Pay C only" or "Pay C for my use" restrict further negotiation; "Pay C" does not.
• Sans recours and conditional (Section 52): the indorser may exclude his liability or make it conditional; an indorser "without recourse" who later becomes holder may sue intermediate indorsers.
• Partial (Section 56): an indorsement of part of the amount is invalid, but the balance may be negotiated after part payment is noted.

24. Who May Negotiate, and Until When

• Section 51: a sole maker, drawer, payee or indorsee, or all joint parties, may negotiate an unrestricted instrument if in lawful possession or the holder.
• Section 57: a legal representative cannot negotiate by delivery alone an order instrument the deceased indorsed but did not deliver.
• Section 58: no title through a finder, or through one who obtained the instrument by offence, fraud or unlawful consideration, unless a holder in due course intervenes.
• Section 59: a holder after maturity, or after dishonour with notice, has only his transferor's rights, except a good faith holder of an accommodation instrument.
• Sections 60 and 90: negotiable until paid by the maker, drawee or acceptor at or after maturity; rights are extinguished when the acceptor holds the bill in his own right at or after maturity.

25. The Topics of This Part

Topic 22: negotiation (Sections 14 and 46 to 48); Topic 23: indorsement (Sections 15, 16, 49, 50, 52 and 54 to 56); Topic 24: who may negotiate, and until when (Sections 51 and 57 to 60).