T or F: An instrument may be transferred by negotiation or by assignment.
Typically, negotiable instruments are transferred by negotiation. When a negotiable instrument is assigned, the transferee has the rights of the transferor.
T or F: When a negotiable instrument is transferred by negotiation, the transferee is recognized as the holder of the paper.
As the above explanation shows, When a negotiable instrument is assigned, the transferee has the rights of the transferor
T or F: A holder of the paper has immunity from certain defenses that might have been asserted against the transferor.
The status of holder in due course gives immunity from certain defenses that might have been asserted against the transferor. Reference:
Business Law: Principles for Today’s Commercial Environment
By David P. Twomey, Marianne M. Jennings Page 569
T or F: An instrument that originally was bearer paper always remains bearer paper.
T or F: The order or bearer character of a paper is determined as of the time when the negotiation is about to take place.
T or F: If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.
T or F: If a lost negotiable instrument is in bearer form at the time of the loss, the finder is entitled to enforce payment.
T or F: The warranties made by an unqualified indorser guarantee that payment of the instrument will be made.
T or F: 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.
T or F: To enforce an implied warranty of an indorser, the party claiming under the warranty must give the indorser notice of the breach within fourteen (14) days after the claimant learns or has reason to know of the breach and the identity of the indorser.
T or F: The warranty liability of a qualified indorser is the same as that of an unqualified indorser.
The transferee has only those rights that were possessed by the transferor of the note when a transfer of an instrument is made by:
a. an assignment.
The transferring of an instrument in such a way as to make the transferee the holder of the paper is termed:
d. a negotiation.
The order or bearer character of the paper determines how it may be:
Negotiation of bearer paper requires:
a. delivery only.
Negotiation of order paper requires:
c. both indorsement and delivery.
A blank indorsement turns a(n) ____instrument into a(n) ____ instrument.
d. order; bearer
When the indorser merely signs a negotiable instrument, the indorsement is called a __ indorsement.
A __ indorsement consists of the signature of the indorser and words specifying the person to whom the indorser makes the instrument payable.
A qualified indorsement is given by using the phrase __.
An indorsement “for deposit only” is:
When the name of the payee is spelled incorrectly, the payee:
c. may indorse the instrument with either the correct or incorrect spelling of the payee’s name.
When parties intend to negotiate an order instrument but the holder fails to indorse it:
c. the transferee has the right to require the transferor’s indorsement if consideration was given.
A forged or unauthorized indorsement is by definition:
b. no indorsement of the person by whom it appears to have been made.
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. impostor rule.
In the case of a check, when the impostor rule applies:
b. the forged indorsement is effective to negotiate the instrument.
A transferor may be able to set aside a negotiation obtained by fraud or duress unless:
d. the instrument has been acquired in the meantime by a holder in due course who did not know of the misconduct.
If a lost instrument is order paper, the finder __.
d. does not become the holder of the instrument.
An unqualified indorser who receives consideration for the indorsement impliedly warrants that:
d. all of the above.
The implied warranties of an unqualified indorser do not include a guarantee that:
c. both a. and b.
If a negotiable order instrument is transferred to another party without an indorsement, the instrument has been:
When a negotiable instrument is negotiated by delivery without indorsement, the warranty liability of the transferor runs:
a. only to the immediate transferee.
Coppersmith executed and delivered negotiable notes to the payee, Charlene. The payee indorsed the notes to Whitehurst but did not deliver them. Instead, she kept the notes in her possession because she wanted to collect the interest during her life and wanted the indorsee to have the notes on her death. After Charlene’s death, her executor, Cartwright, found the notes. Both Cartwright and Whitehurst sought to enforce the notes against Coppersmith. Who was entitled to do so?
Cartwright. The indorsement to Whitehurst was not effective to negotiate the instruments because negotiation required both indorsement and delivery by the person to whom they were then payable, and there had been no delivery.
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?
“A bank may provide an indorsement for its customer absent any specific prohibition on the instrument. The checks that Sue failed to stamp will be processed without any difficulty. The stamp that Sue used, with a blank indorsement, created a bearer instrument. The stamp should be changed to create a restrictive indorsement to afford greater protection”.
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 couple will not recover on the check to Brown because the impostor rule applies when the drawer is fraudulently fooled by an employee into issuing a check to a dummy payee. However, the couple may recover on the check to Lee because this was a valid check to an actual creditor. Accordingly, the forged indorsement is not treated as effective to negotiate the Lee check. The couple had not been fooled by its employee into issuing the Lee check”.