TRANSFER AND ENFORCEMENT
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Transferring a Negotiable Instrument.
1. Transfer of a negotiable requires only that the instrument be delivered to the
transferee and that the instrument include the signature of the transferor.
2. Such transfer requirements allow easy verification of transferor’s authority to
transfer the instrument.
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Negotiation and Status as a Holder
1. The status of a holder is crucial to transfer of negotiable instruments.
2. Under 3-301, a person is entitled to enforce an instrument if
a. The person is a holder;
b. The person is a person who is a nonholder, is in possession and has the
rights of a holder; or
c. A person not in possession that is entitled to enforce the instrument under
3-309 or 3-418
What is a holder?
1. Under 1-201(21)(A), it’s a person in possession of a negotiable instrument that
is payable either to bearer, or
2. Is payable to an identified person that is in possession of the instrument.
3. Possession is crucial. May a thief be a holder of a negotiable instrument?
4. Who may become the holder of order paper?
5. Problems may arise in identifying who is the identified person of order paper.
a. If an instrument is payable account #112453? Is it payable to an
identified person?
b. What issues must you be concerned with when the instrument is payable
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to more than one person?
c. See 3-110
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TRANSFER AND ENFORCEMENT
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Special & Blank Indorsement
1. Transfer of order paper without more will not create a holder in the transferee.
2. What is an endorsement?
a. Under 3-204(a) a signature other than that of drawer or maker or
acceptor.
3. How would the payee create the holder status in a specific person?
a. Special endorsement 3-205(a)
b. How would you make an unidentified person a holder?
c. Blank endorsement, 3-205(b)
d. May a bank become a holder without the endorsement of its customer?
e. 4-205(1)?
f.
Must the depositary bank specially indorse the instrument in order that an
intermediary become a holder?
g. 4-206.
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Why would a party restrictively indorse an instrument?
1. What is a restrictive endorsement?
2. See 3-206.
Enforcement and Collection of Instruments
1. Who is entitled to enforce the instrument?
2. 3-301.
3. May a person be entitled to enforce an instrument even if that person is not a
holder?
4. 3-203(b).
5. What is an Anomalous endorsement?
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6. Under 3-205(d), endorsement by person who is not holder.
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TRANSFER AND ENFORCEMENT
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Presentment & Dishonor
1. What is presentment of an instrument?
2. 3-501(a) defines presentment.
3. Can the party to whom presentment is made make any demands on the person
presenting the instrument for payment?
4. 3-501(b)(2).
5. What constitutes dishonor of an instrument?
6. 3-502
Defense to Enforcement
1. As long as the person seeking to enforce an instrument is not a holder in due
course, any defense may be raise to its enforcement.
2. 3-305(a)(1) list the defenses that may be interpose against a holder.
3. Turman v. Ward’s Home Improvement, Inc.
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TRANSFER AND ENFORCEMENT
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Liability on an Instrument
1. First and foremost about negotiable instruments is that a person will not be
liable on the instrument unless they sign the instrument. 3-401(a).
2. The concept of signing is very broad. See 3-401(b) and 1-201(37).
3. Under what circumstance may an agent be held liable on an instrument.
a. Under 3-402(b)(1), an agent may be liable if he/she does not sign in a
representative capacity.
4. To determine a person’s liability on the instrument, you must determine in what
capacity they signed the instrument.
a. Drawee of a draft: 3-408, not liable until acceptance.
1. Acceptance by Drawee, under 3-409(a), means signed agreement to
pay draft as presented.
2. When drawee accepts by signature, it become liable under 3-413
b. Drawer has conditional liability on an instrument. 3-413(b).
c. What happens to the liability of the drawer if a bank accepts a draft?
d. 3-414(c), the drawer is discharged.
e. What is the condition to the endorser’s obligation to pay an instrument?
f.
3-415(a), if dishonored endorser will pay.
g. What happens to the liability of an endorser when a bank accepts the
draft?
h. 3-415(d), endorser is discharged.
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TRANSFER AND ENFORCEMENT
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The Effect of the Instrument on the Underlying Obligation
1. If a check is accepted in payment of a debt, may the payee sue on the contract
representing the underlying debt obligation
2. Under 3-310(b), the underlying obligation is suspended until dishonor.
3. What if the check taken in payment of an underlying obligation is a certified
check, what happened?
4. Under 3-310(a), the underlying obligation is discharged
a. McMahon Food Corp. v. Burger
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