Exam 28: Transfers of Negotiable Instruments and Warranties of Parties

A person who acquires the instrument on which the last indorsement is blank becomes a holder in due course.

If an instrument bears a restrictive indorsement, any further transfer or negotiation is effectively barred.

The words "without recourse" on an indorsement means the indorser is:​

When the negotiable instrument is negotiated by delivery without indorsement, the warranty liability of the transferor runs only to the immediate transferee.

The order or bearer character of the paper determines how it may be:

Al was a well-respected attorney in a small town.A couple retained Al to represent them on the purchase of a home.Before closing, Al informed the couple of payments that they were required to make by check at the closing.Among the required payments the attorney told the couple to make were a check for $1,500 to Bob Brown and a check for $610 to Susan Lee.The attorney explained that the check to Brown was for a survey of the property and the check to Lee was for termite control work that the couple had authorized.??The checks were issued and taken by Al who promised to deliver them.Al did not, however, deliver them.Instead, Al forged the indorsements of the respective payees and cashed the checks.When Al was later arrested on a similar matter, the couple learned what had happened.??The couple made a claim against its bank for reimbursement, claiming the bank was not authorized to pay these checks because they had not been effectively negotiated to the bank.When the facts came to light, no person named Bob Brown had done a survey on the property, but the termite work had been done by Lee.Decide both cases.​

Sue is an employee at an ABC store.One of Sue's duties is to prepare the bank deposit at the end of the business day.Sue had a very busy day and made a few mistakes.All of the checks, except two, were indorsed with the stamp "ABC, Inc." that ABC had provided.The bank received the deposit and noticed the lack of indorsement on the two checks.In addition, three of the checks that Sue was to include with the deposit were lost in the parking lot after closing.Phil found the checks and deposited them into his personal account.What is the effect of ABC's indorsement on the lost checks and the lack of indorsement on the two deposited checks?​

An ordinary holder of an instrument has immunity from certain defenses that might have been asserted against the transferor.

If a negotiable order instrument is transferred to another party without an indorsement, the instrument has been:

A qualified indorsement is given by using the phrase __________.​

When the indorser merely signs a negotiable instrument, the indorsement is called a __________ indorsement.​

An instrument may be transferred only by negotiation.

If an instrument is payable to bearer, it can be negotiated by transfer of possession alone.

When the name of the payee is spelled incorrectly, the payee:​

Clark is the senior payroll clerk for Gonzalez Corporation.When preparing the weekly payroll, Clark added the name of Simmons, a fictitious employee, to the payroll list.Lewis, the treasurer of the corporation, signed the payroll checks and delivered them to Clark.Clark distributed checks to the correct employees and kept the one made payable to the order of Simmons.Clark indorsed the name of Simmons to the check, cashed it at Diamond Check Cashing.In this situation:​

Negotiation of order paper requires:​

A special indorsement consists of the signature of the indorser and words identifying the indorsee.

The impostor rule is an exception to the rules on liability for forgery that covers certain situations, such as the embezzling payroll clerk.

Thomas, the holder of a check, presents it to the drawee bank for payment.If Thomas indorses the check, Thomas warrants that the account of the drawer in the drawee bank contains funds sufficient to cover the check.

The warranty liability of a qualified indorser is the same as that of an unqualified indorser.