Exam 29: Transfers of Negotiable Instruments and Warranties of Parties

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.

The situation in which an individual impersonates the holder of a savings account and,by presenting a forged withdrawal slip to the savings bank,receives from the bank a check payable to the bank's customer,is covered by the:

A blank indorsement indicates the person to whom the instrument is to be paid-that is,the transferee.

Bearer paper may only be negotiated by the actual transfer of possession of the instrument.

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.

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:

When a special indorsement is made,the instrument continues to be order paper and may be negotiated only by an indorsement and delivery.

A __________ indorsement consists of the signature of the indorser and words specifying the person to whom the indorser makes the instrument payable.

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

When a negotiable instrument is negotiated by delivery without indorsement,the warranty liability of the transferor runs:

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

A blank indorsement turns a(n)__________instrument into a(n)__________ instrument.

When parties intend to negotiate an order instrument but the holder fails to indorse it:

Negotiation of order paper requires:

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

An instrument that originally was bearer paper always remains bearer paper.

In the case of a check,when the impostor rule applies:

A transferor may be able to set aside a negotiation obtained by fraud or duress unless:

Order paper is negotiated by the indorsement of the holder and delivery.

A special indorsement consists of the signature of the indorser and the words identifying the person to whom the indorser makes the instrument payable.