Chapter 13: "Transferability and Holder in Due Course" Flashcards
One of the differences between transfer by negotiation and an assignment is that:
a) an assignment can only happen with the expressed written consent of the government.
b) a transfer by negotiation can give a holder more rights in the instrument than the prior possessor had.
c) an instrument must be indorsed, whereas a transfer by negotiation will not require an indorsement.
b) a transfer by negotiation can give a holder more rights in the instrument than the prior possessor had.
Under contract law principles, an assignment gives the assignee only those rights that the assignor possessed. Therefore any defenses that can be raised against an assignor can be raised against the assignee.
True
A holder of an instrument receives, at the very least, the rights of the previous possessor.
True
Order instruments are negotiated by ____
`
delivery with the necessary indorsement
An instrument that is payable to bearer is negotiated by ____
delivery
trust indorsements
Definition:
An indorsement for the benefit of the indorser or a third person; also known as an agency indorsement. The indorsement results in legal title vesting in the original indorsee.
holder in due course (HDC)
Definition:
A holder who acquires a negotiable instrument for value; in good faith; and without notice that the instrument is overdue, that it has been dishonored, that any person has a defense against it or a claim to it, or that the instrument contains unauthorized signatures, alterations, or is so irregular or incomplete as to call into question its authenticity.
restrictive indorsement
Definition:
Any indorsement on a negotiable instrument that requires the indorsee to comply with certain instructions regarding the funds involved. A restrictive indorsement does not prohibit the further negotiation of the instrument.
shelter principle
Definition:
The principle that the holder of a negotiable instrument who cannot qualify as a holder in due course (HDC), but who derives his or her title through an HDC, acquires the rights of an HDC.
conversion
Definition:
The wrongful taking, using, or retaining possession of personal property that belongs to another.
trust indorsement
Definition:
The wrongful taking, using, or retaining possession of personal property that belongs to another.
qualified indorsement
Definition:
An indorsement on a negotiable instrument in which the indorser disclaims any contract liability on the instrument; the notation “without recourse” is commonly used to create a qualified indorsement.
Even with a bearer instrument, indorsement is still necessary.
- hint
What is the difference between an order instrument and a bearer instrument?
a. True
b. False
b. False
An instrument that has no room for indorsements:
a. can have a separate piece of paper firmly attached to it with an indorsement. b. can be negotiated without an indorsement. c. is void.
a. can have a separate piece of paper firmly attached to it with an indorsement.
If an order instrument is indorsed in blank, is it still a “secure” instrument?
a. No, because it becomes a bearer instrument, which anybody can cash. b. Yes, because it is made out to a particular person or business. c. Yes, because the person who signed it has to authorize its delivery.
a. No, because it becomes a bearer instrument, which anybody can cash.
special indorsement
Definition:
An indorsement on an instrument that indicates the specific person to whom the indorser intends to make the instrument payable; that is, it names the indorsee.
Lloyd indorses a check “Pay to Erin, without recourse,” [signed] Lloyd. The legal effect this indorsement has on Lloyd is:
a. none at all. b. that Lloyd is relieved of all liability on the check. c. that Lloyd is now liable for Erin's debts.
b. that Lloyd is relieved of all liability on the check.
Which of the following is NOT an example of restrictive indorsements?
a. Pay to Sonja Caballero.
b. For collection only. c. Pay to Jaime Zapata as agent for Janice Stone. d. For deposit only. e. Pay to Ellen Everson in trust for Steve Ramirez.
a. Pay to Sonja Caballero.
Conditional language that appears on the back of an instrument has the same effect as conditional language that appears on the front of an instrument.
a. True
b. False
b. False
The effect of a conditional indorsement differs from the effect of conditional language that appears on the face of an instrument. As noted, conditional instruments do not prevent further negotiation. In contrast, an instrument with conditional language on the face is not negotiable because it does not meet the requirement that a negotiable instrument must contain an unconditional promise to pay.
Jill indorses a check “Payable to Tess, as agent for Jill.” Tess is Jill’s daughter. Jill has created _____
a trust indorsement.
Which of the following examples is NOT a trust indorsement?
a. Rao asks his accountant to pay some bills for him while he is out of the country, so he indorses his payroll check to the accountant
“
as agent for Rao.
”
b. Rao indorses his payroll check in blank. c. Rao has to leave town, but wants to purchase a used car from a friend. He has his lawyer do the transaction and indorses his payroll check to his lawyer "as agent for Rao."
b. Rao indorses his payroll check in blank.
Trust indorsements are also known as agency indorsements.
a. True
b. False
a. True
The result of the trust indorsement is that the legal rights in the instrument are transferred to the original _____
indorsee
If the original indorsee pays or applies the proceeds consistently with the indorsement, the indorsee is a(n)_____
holder
The method used for negotiation of an order instrument or bearer instrument depends on the character of the instrument at the time the negotiation takes place.
a. True
b. False
a. True
A check originally payable to cash, but subsequently indorsed with the words “pay to Li Ping,” must be negotiated as:
a. a conditional I.O.U.
b. an order instrument by indorsement and delivery. c. a bearer instrument by delivery only.
b. an order instrument by indorsement and delivery.
Misspelled Names
An indorsement should be identical to the name that appears on the instrument. A payee or indorsee whose name is misspelled can indorse with the misspelled name, the correct name, or both
Harold Burton writes a check “payable to Debra or Kelsey.” On this instrument, Debra and Kelsey are payees in the ____
alternative
When an instrument is made payable to two or more persons jointly (by use of the word “and”), all of the payees’ indorsements are necessary for negotiation.
T/F
True
Whenever an instrument payable to two or more persons does not clearly indicate whether it is payable in the alternative or payable jointly, then the instrument is payable jointly.
T/F
False
When a drawer gives one alternative or joint payee a check, the drawer’s obligation on the check to other payees is
continuing
preliminary
suspended
suspended
antecedent claim
A preexisting claim. In negotiable instruments law, taking an instrument in satisfaction of an antecedent claim is taking the instrument for value—that is, for valid consideration.
