Commercial Paper: Transfers & Holders in Due Course

Question 1

Negotiable Instruments:

Types of Endorsements

Answer 1

Blank
Special
Qualified
Restrictive

Question 2

Negotiable Instruments:

Blank Endorsement

Answer 2

Blank Endorsement:

• do not specify new holder
• requires only delivery
• converts order to bearer
• transfer warranties extended to subsequent holders
• blank endorser has secondary liability to pay

Question 3

Negotiable Instruments:

Special Endorsement

Answer 3

Special Endorsements:

• specify the new holder
• endorsement of first holder + new holder + delivery
• converts bearer to order
• transfer warranties extended to subsequent holders
• special endorser has secondary liability to pay

Question 4

Negotiable Instruments:

Qualified Endorsement

Answer 4

Qualified Endorsement:

• includes terms “without recourse”
• disclaims contract signature (secondary party) liability
• transfer warranties extended to subsequent holders

Question 5

Negotiable Instruments:

Restrictive Endorsement

Answer 5

Restrictive Endorsement:
Conditional: payment upon happening of an event
Prohibitive: prohibits further transfer of instrument (doesn’t actually work)
For Deposit or Collection: makes endorsee (bank) a collection agent of the endorser
- does not prohibit further negotiation (except conditional restrictive endorsement)
- endorser has secondary liability to pay

Question 6

Negotiable Instruments:

Holder in Due Course

Answer 6

Requirements:

1. Holder
2. Take for Value (actually paid/performed)
3. In Good Faith
4. Without Notice
   - Overdue: time instrument past due date, demand instrument past reasonable time, check past 90 days
   - Previously dishonored: must have actual knowledge
   - Or any claim or defense: must have actual knowledge
   - Irregularity
   - Prior Notice: obligation is voidable or all discharged
   - Close connection doctrine: history of problems

Question 7

Negotiable Instruments:
Holder in Due Course
Shelter Rule

Answer 7

Shelter Rule:

• holder who cannot qualify as a HDC but took the instrument through a HDC has the same rights. i.e. gift
• cannot negotiate to HDC and then reclaim with new rights.