CP: Due Negotiation Flashcards
What does due negotiation mean?
Proper transfer of a commercial paper.
In order to be a holder in due course, must the instrument be duly negotiated?
Yes.
If an instrument is not duly negotiated, can the holder be a holder in due course?
No.
How is an instrument duly negotiated when it says “payable to the order of” and names a specific payee?
It is negotiated by delivery of the instrument to that payee.
After an instrument that is “payable to the order or” a specific payee is delivered to that payee - what does further negotiation require?
That the payee indorse the instrument and deliver it to the transferee.
Can a third party indorse an instrument in place of the payee (if it says “payable to the order of payee”)?
No - this is not an authorized and valid indorsement. Anyone who gets paid with an unauthorized/invalid check can never be a holder in due course.
If the instrument is payable to bearer, how can it be duly negotiated?
By simply delivering it to the transferee. It does not have to be indorsed because it is the equivalent of cash.
What is a special indorsement?
One that names a particular person as indorsee - and that person only must sign in order for the instrument to be further negotiated.
What is a blank indorsement?
One that does not name a specific indorsee. It can be negotiated by delivery alone and doesn’t require indorsement.
What is a restrictive indorsement?
It contains a restriction that, if violated, means the person will not be a holder. The indorser can recover for conversion from a person who cashed the bad check.
