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Chapter 25 Business Law Notes - Ch 25 Transferability...

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Ch 25: Transferability & Holder in Due Course Negotiation: is the transfer of an instrument in such form that the transferee (the person whom the instrument is transferred) becomes a holder. Holder: A holder receives, at the very least, the rights of the previous possessor. Negotiating Order Instruments: - An order instrument contains the name of a payee capable of indorsing, as in “Pay to the order of Elliot Goodseal.” - If an instrument is an order, it is negotiated by delivery with any necessary indoresemnts. - Negotiating order instruments requires both delivery and indorsement. Negotiating Bearer Instruments: - If an instrument is payable to a bearer, it is negotiated by delivery-, that is, by transfer into another person’s possession. - Indorsement is not necessary. - The use of bearer instruments thus involves a greater risk of loss or theft than the use of order instruments. Indoresements: - An indoresement is a signature with or without additional words or statements. - It is more often written on the back of the instrument itself. If there is no room for the instrument, the indoresement itself can be written on a separate piece of paper called an allonge , and affixed to the instrument. - A paper affixed to a negotiable instrument is part of the instrument. Indorser: A person who transfers a note or draft by signing (indorsing) it and delivering it to another person. Indorsee: The person to whom the check is indorsed and delivered. Blank Indorsements: - A blank indorsement specifies no particular indorsee and can consist of a mere signature. EX: “to the order of Mark Deitsch” can be indorsed in blank simply by writing Deitsch’s signature on the back of the check. - An instrument payable to order and indorsed in blank becomes a bearer instrument and can be negotiated by delivery alone - A blank indorsement converts an order instrument to a bearer instrument, which anybody can cash. Special Indorsements: - A special indorsement identifies the person to whom the indorser intends to make the instrument payable; that is, it names the indorsee. - To avoid the risk of loss from theft, a holder may convert a blank indorsement to a special indorsement. This changes the bearer instrument back to an order instrument. - A holder may “convert a blank indorsement that consists only of a signature of the indorser, words identifying the person to whom the instrument is made payable”.
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Qualified Indorsements: - Generally, an indorser, merely by indorsing, impliedly promises to pay the holder, or any subsequent indorser the amount of the instrument in the event that the drawer or maker defaults on the payment. - Then, indorsements are unqualified indorsements . In other words, the indorser is guaranteeing payment of the instrument in addition to transferring title to it.
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