Chapter 23 - Transferability and holder in due course

Nonrestrictive indorsement

An indorsement that has no instructions or conditions attached to the payment of the funds. I.e. someone just signs their name or "pay to sam smith"

Negotiating order paper

An insrument that is payable to a specific payee or endorsed to a specific indorsee. Delivery and endorsement must occur

Converting order and bearer paper

An instrument can be converted from order paper to bearer paper and vice versa may times until the instrument is paid.

Transfer by assignment

Assignment is the transfer of rights under a contract. It transfers the rights of the transferor (assignor) to the transferee (assignee). The assignee acquires only the rights that the assignor possessed. Thus any defenses to the enforcement of the contract that could have been raised against the assignor be raised against the assignee.

Special indorsement

Contains the signature of the indoors and specifies the person to who the indorser intends the instrument to be payable. This creates ORDER PAPER. Words of negotiation (pay to the order of...) are not necessary

Qualified Indorsements

Inducement that includes the notation "without recourse" or similar language that disclaims liability of the indorser. Means that the indoorsee is not liable if check doesn't go through. qualified indorser is an indorser who signs a qualifies endorsement to an instrument

Blank indorsement

Does not specify a particular indorsee. it creates bearer paper order paper indorsed in blank becomes bearer paper

Requirements for HDC status

1. Taking for value 2. Taking in good faith 3. Taking without notice of defect 4. No evidence of forgery alteration or irregularity

Negotiating bearer paper

Negotiated by DELIVERY, indorsement is NOT NECESSARY

Transfer by negotiation

Negotiation is the transfer of a negotiable instrument by a person other than the issuer to a person who thereby becomes the holder The holder receives at LEAST the rights of the transferor and nay acquire even greater rights than the transferor if he or she qualifies for holder in due course.

Payee as an HDC?

Payees generally do not meet the requirements for being HDCs because they know about any claims or defenses against the document. In some cases, where they don't know of these claims, they can qualify

Taking without notice of defect

Person cannot qualify for HDC if they have notice that the instrument in overdue, has ben dishonored, contains an unauthorized signature or has been altered, claim to it by another person or a defense against it.

Restrictive indorsement indorsement for deposit or collection indorsement in trust

Restricts the indorsee's rights in some manner. an endorsement that purports to prohibit further negotiation of an instrument does not destroy th negotiability of the instrument indorsement for deposit or collection - indorser can indorse an instrumentso as to make the indorsee his collecting agent (i.e. for deposit only). Indorsement in trust an endorsement can state that it is for the benefit or use of the indoors or another person i.e. check to an attorney for a person.

Red light doctrine

a doctrine that says a holder cannot qualify as an hdd if he or she has notice of an unauthorized signature or an alteration of the instrument or any adverse claim against or defense to its payment

Holder

a person in possession of an instrument that is payable to bearer or an identified person who is in possession of an instrument payable to that person. The holder of a negotiable instrument has the same rights as an sign of an ordinary nonnegotiable contract. i.e. holder is subject to all claims and defenses that can be asserted against the tranferor

Qualified indoresment

an endorsement that includes the language "without recourse" or similar language that disclaims liability of the indorser. disclaims liability if the drawer, maker, etc defaults.

How to transfer a negotiable instrument

by negotiation where there is an indorsement placed on the negotiable instrument

Unqualified Indorser

endorsement where the indoors promises to pay the holder or any subsequent indorse the amount of the instrument if the maker, drawer or acceptor defaults An indorser who signs an unqualified endorsement to an instrument. i.e. john is written a check he endorses to someone else, but then the check has insufficient funds, John is liable on the check, but can later recover funds from the original writer.

No evidence of forgery, alteration, irregularity

holder does not qualify for HDC if it has been forged, altered, or is irregular or incomplete

Indorsement Multiple payees

if instrument has multiple payees, i.e. X and Y, both x and y have to indorse the instrument with a signature. If payable in the alternative, i.e. X or Y, either endorsement is sufficient if a beguile slash mark X/Y, either x or y can sign it

!!HOLDER IN DUE COURSE!!

is a holder who takes an instrument for value, in good faith and without notice that it is defective or is overdue. HDC takes a negotiable instrument free of all claims and most defenses that can be asserted against the transferor of the instrument. Only real defenses - not personal defenses - may be asserted against an HDC. Thus an HDC can acquire greater rights than the transferor.

Indorsement

is the signature of the signer other than as a maker, drawer, or an acceptor that is placed on an instrument to negotiate it to another person the signature may 1. appear alone, 2. name an individual to whom the instrument is to be paid, or 3. be accompanies by other words.

Misspelled or wrong name

person can indorse a check to their correct name if it is misspelled

Taking for value

taking for value requirement - the holder must have given value for the negotiable instrument in order to qualify as an HDC. i.e. cannot be gifted to someone and have them become HDC because they didn't give value. value given if: 1. performs upon the agreed upon price 2. acquires a security interest of lien on the instrument 3. takes the instrument in payment of or security for an antecendent claim 4. gives a negotiable instrument as payment 5. gives an irrevovable obligation as payment

Taking in good faith

taking in good faith requirement a holder must take an instrument in good faith, meaning honesty, in fact in the conduct or transaction concerned.