Chapter 26 law HDC

Negotiation

Transfer of negotiable instrument

What are the two requirements for negotiating order paper?

The instrument must be in writing. 2. It must be signed by the maker or drawer.

What is the requirement for negotiating bearer paper?

There is only one requirement: the instrument must be delivered.

When does a Common Law assignment occur?

A Common Law assignment occurs when a non-negotiable instrument is transferred to a third party. OR a negotiable instrument is transferred improperly.

What is an indorser?

An indorser is a person who signs their name on the back of a negotiable instrument, transferring their rights to another party.

What is an indorsee?

The person to whom the instrument is indorsed.

Where is an indorsement usually located?

An indorsement is usually on the back of the instrument but can also be on a separate piece of paper called an allonge.

What are the types of indorsements?

Blank Indorsement 2. Special Indorsement 3. Qualified Indorsement 4. Restrictive Indorsement.

What is a Blank indorsement?

Payee’s name on the back, makes it a bearer paper

What is a Special indorsement?

“Pay to _” on the back they include an endorsees name

What is a Qualified indorsement?

Add “without recourse” which gets rid of liability

What is a restrictive indorsement?

Requires the indorsee to comply with certain restrictions. e.g. “For deposit only”

What is the definition of a holder in the context of negotiable instruments?

A holder is a person who possesses a negotiable instrument and has the rights of an assignee.

What rights does a holder have?

A holder has only those rights that the transferor had and is subject to the same defenses as the transferor.

What is a holder in due course (HDC)? And three things associated with becoming one?

An HDC is a holder who takes the instrument for value, in good faith, and without notice of a defect. They become free of most defenses and claims asserted by the party with the obligation to pay.

What are the prerequisites for HDC status?

Must first be a holder of a negotiable instrument. 2. Must take the instrument for value.

What does 'value' not equal in the context of HDC?

Value does not equal consideration.

What is an executory promise in relation to value?

An executory promise is value only to the extent that payment or performance has been made.

What is one example of taking for value?

By performing the promise for which the instrument was issued or transferred.

What does 'taking in good faith' apply to?

It applies only to the holder.

What are some defects that can affect HDC status?

Overdue Instruments
Dishonored Instruments
Unauthorized signature or altered instrument.
Another claim to the instrument or a defense against the instrument.
The instrument is so irregular or incomplete that its authenticity is susp