Commercial Paper - Negotiation, Transfer and Indorsement Flashcards
What is a negotiation under UCC Article 3?
Voluntary or involuntary transfer of a check, promissory note, or other negotiable instrument by a person who was not the issuer to another party FOR VALUE. That party then becomes the HOLDER.
What is needed to constitute a negotiation if the negotiable instrument is an ORDER?
If it was payable to an identified person, the transfer of possession of that instrument requires an INDORSEMENT by the holder.
What if the instrument being transferred is payable to bearer?
It can be negotiated by transfer alone - no indorsement needed
What is an Article 3 transfer of a negotiable instrument?
An instrument is transferred when it’s delivered by a person, other than the issuer, for the purpose of giving to the person receiving the delivery THE RIGHT TO ENFORCE THE INSTRUMENT.
- there is intent
- if transferring less than the entire instrument – there is no negotiation. Instead, the person becomes a partial assignee
- if the transfer is payable to bearer, this is enough for negotation, but indorsement still needed for payable to order to be negotiation
What warranties does a transfer include?
The indorsement warrants:
1) the warrantor is a person entitled to ENFORCE the instrument
2) all signatures are AUTHENTIC AND AUTHORIZED
3) the instrument has not been ALTERED
4) the instrument is not subject to a defense to a claim in recoupment of any party that can be asserted against the warrantor
What is indorsement?
It is the signature, other than that of the maker, drawer or acceptor - with or without additional words - whose effect is to transfer the instrument and create a new and substantive K, by which the indorser becomes a party and will be liable on some conditions for payment
What is the significance of the indorsement?
The transferor’s indorsement controls the method by which the transferee can futher negotiate the instrument.
What is a blank indorsement and what does it mean?
A blank indorsement is where the transferor signs only his name on the back of the instrument and not payable to anyone specific. The instrument becomes payable to bearer bearer paper the transferee can further negotiate by delivery alone.
What is a special indorsement?
It names the transferee and directs payment to him. If the indorsement is special, the instrument becomes order paper and the transferee’s indorsement is necessary for further negotiation.
How do you convert a blank indorsement to a special indorsement?
write, above the signature line of the indorser, words identifying the person to whom the instrument is payable
What is presentment?
ito obtain payment of a negotiable instrument, it is presented/demand is made upon the person expected to pay (maker or drawee)
- the party paying the instrument upon presentment does not take by negotiation and can’t be a HDC
