Chapter 26-transfer of negotiable instruments

Question 1

Requirements for an order instrument to be negotiated

Answer 1

1) an indorsement
2) delivery

Question 2

Requirement for negotiation of bearer instrument

Answer 2

Delivery only

Question 3

Assignment occurs when

Answer 3

1) a non-negotiable instrument is transferred to a third party or;
2) a negotiable instrument is transferred improperly to a third party

Question 4

indorsement

Answer 4

a signature with or without additional words or comments

Question 5

Allonge

Answer 5

an indorsement on a separate piece of paper

Question 6

Four types of indorsements

Answer 6

1) blank
2) special
3) qualified
4) restrictive

Question 7

Blank indorsement

Answer 7

does not specify an indorsee, makes it a bearer instrument

Question 8

Special indorsement

Answer 8

identifies who the indorsee is, makes it an order instrument

Question 9

Qualified indorsement

Answer 9

Indorser writes “without recourse” on the back, eliminating themselves from liability if the drawer defaults. Can be accompanied by a special or blank indorsement.

Question 10

Restrictive indorsement

Answer 10

requires the indorsee to comply with certain instructions regarding the funds.
An indorsement to only pay a named person can still be negotiated, if the holder gives value for it, this indorsement is the same as a special indorsement.

Question 11

Conditional indorsement

Answer 11

(type of restrictive indorsement) payment depends on the occurrence of some event specified in the indorsement.
Conditional language on the back of the instrument keeps the instrument negotiable, as opposed to the face.
A person taking the instrument for value can disregard the condition.

Question 12

Indorsement for deposit or collection

Answer 12

Type of restrictive indorsement, makes the indorsee (bank) a collecting agent of indorser

Question 13

Trust agency indorsements

Answer 13

(type of restrictive indorsement) indorsements to persons who are to hold or use funds for the benefit of the indorser.

Question 14

Miscellaneous indorsement problems

Answer 14

1) Misspelled name
2) Instruments payable to legal entities
3) Alternative or joint payees
4) Suspension of drawer’s obligation

Question 15

alternative or joint payee

Answer 15

Alternative: any payee may indorse
Joint: all payees must indorse

Question 16

Stacked payees

Answer 16

when an instrument is ambiguous whether its joint or alternative

Question 17

Misspelled name indorsement problem

Answer 17

A payee or indorsee can indorse with the misspelled or correct name

Question 18

instruments payable to legal entities

Answer 18

Negotiable by authorized representatives

Question 19

suspension of drawer’s obligation

Answer 19

Drawer delivers check to one alternative payee, he has no further obligation. No obligation to make sure funds are distributed to joint payees.

Question 20

Holder in due course

Answer 20

a holder who meets certain acquisition requirements and therefore, receives a higher level of protection from defenses of other parties

Question 21

HDC requirements

Answer 21

1) taken the negotiable instrument for value (not consideration)
2) In good faith
3) without notice that it is defective

Question 22

A holder takes an instrument for value if the holder has done any of the following

Answer 22

1) performed the promise for which the instrument was issued or transferred
2) taken the instrument in payment of or as security for an existing obligation (an antecedent claim)
3) given a negotiable instrument as payment

Question 23

In good faith HDC requirement

Answer 23

only applies to the holder

Question 24

An instrument is defective if it’s

Answer 24

1) overdue
2) been dishonored
3) contains unauthorized signature or has been altered
4) there is a defense against the instrument or a claim to the instrument
5) instrument is so incomplete or irregular you question authenticity

Question 25

A person is considered to have notice if

Answer 25

1) the person has actual knowledge of defect
2) the person has received notice about defect
3) Person has reason to know that a defect exists

Question 26

Shelter principle

Answer 26

A person who doesn’t qualify on their own as an HDC, but received an instrument from an HDC acquires HDC status

Question 27

Limitation to shelter principle

Answer 27

Can’t repurchase an instrument from an HDC to reacquire HDC status if your original HDC status was fraudulent.