Negotiation--Becoming a Holder Flashcards
What is a holder?
A person in possession of an instrument with the right to enforce it (i.e., good title)
* If there is bearer language on the instrument, you only need possession
What is an indorsement and why is it important?
It is a signature and for order instruments, you need an indorsement to give you good title
What is a blank indorsement?
A signature that isn’t accompanied by the naming of a specific indorsee
* Indorser merely signs his own name
* Creates bearer paper, which means further negotiations may be by delivery alone
What is a special indorsement?
Accomplished by payee’s signature plus a designation of a new person to whom the instrument is payable
* Example–“Pay John Smith [signed] Peter Payee
* Creates order paper–further negotiation needs signature of party now payable
What is a “restrictive indorsement?”
Any other language added to an endorsement (e.g., “pay Pete only”)
* If depository bank doesn’t comport with restrictive indorsement, there is an action in conversion
* These are ineffective to limit transfer or negotiation or to condition payment
What determines who the initial payee is?
The intent of the issuer
What if there are mutliple payees?
Where jointly, all must indorse, but where severally, any one may indorse
What happens if the instrument is transferred for value?
The transferee has a specifically enforceable right to the transferor’s instrument
If a payee deposits a check in his account without endorsing it what happens?
Depository bank still becomes holder
What happens if the payee’s name is misspelled?
Payee may indorse with either the incorrectly spelled name or their real name
What happens if the payee lacks capacity and indorses an instrument?
It remains effective
