Exam 25: Transfer and Holder in Due Course

A negotiation is void if the transaction in which it occurs is void.

Defenses that may not be asserted against a holder in due course are referred to as personal (or contractual) defenses.

An indorsement "Pay Alice Adams" is an assignment rather than a negotiation since it lacks words of negotiability.

Indorsements with ineffective restrictions include which of the following?

Landscaping company Phyllrox Co. purchased a forklift from Brown's Equipment Co. Phyllrox made a down payment in cash and signed a promissory note for $7,500. For $7,200 Brown's sold the note to Corporate Bank, who took it in good faith without notice of any problems with it. After Phyllrox used the forklift for two weeks, it broke down and could not be repaired. Phyllrox refuses to make any more payments to Corporate Bank. In this case:

Lily drew a check on First Bank payable to Shelley. Lily signed the check in the normal place at the bottom, right side of the check. Glenn signed the check at the bottom left of the front of the check. In what capacity will the Code interpret Glenn to have signed? Will Glenn be able to introduce parol evidence to establish his intent?

Sadie is the bookkeeper for the Binkly Construction Company. She makes out the payroll; prepares all of the payroll checks and reconciles the bank statements for the firm. She decides to increase her income by padding the payroll; accordingly, she makes out a check in the name of someone who does not exist. She then indorses the check with the payee's name and her name and cashes the check herself at First Bank where the company has its account. Under the fictitious payee rule, Binkly and not the bank will be liable for this check.

In a nonconsumer transaction, a holder in due course takes the instrument free from:

The transfer of a negotiable instrument in such a manner that the transferee becomes a holder is known as:

Vicki, a bookkeeper for Emilio Enterprises, steals some of the checks she is supposed to post to her employer's account. She forges her employer's indorsement. The indorsement is:

What is negotiation? How does one become a "holder" of an instrument?

A forged or otherwise unauthorized signature necessary to negotiation breaks the chain of title to the instrument.

Carmen needs quick cash, so she thinks of a scheme. She tells Frank she is collecting for Laotian refugees. Frank writes a check for $100 payable to the order of Carmen. Carmen indorses the check and delivers it to Pete, who doesn't know of Carmen's scam, for $90 cash. Pete gives the check to Emily as a present. Frank discovers Carmen's deception and refuses to pay Emily. Will he win?

Arnie deposits a check from his sister in First City Bank, but forgot to indorse it. First City cannot become a holder until Arnie completes the indorsement.

An indorsement may be simple or complex.

An indorsement must be written on the instrument itself.

Tina forges Vivian's indorsement on a promissory note and negotiates it to Ned. If Vivian subsequently ratifies Tina's act, both Tina and Vivian are liable to Ned on the note and Vivian's ratification relieves Tina from civil liability to Vivian.

An indorsement "Pay to Jones Construction Company upon completion of the job at No. 10 Park Place" is ineffective under Revised Article 3; the indorsee can enforce the instrument.

Mamie induces Reagan, by fraud in the inducement, to make an instrument payable to the order of Mamie . She subsequently negotiates the instrument to Jeff, a holder in due course. If Mamie later reacquires the instrument from Jeff , Mamie will succeed to Jeff 's rights as a holder in due course under the shelter rule.

An anomalous indorsement is: