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5 Cards in this Set

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***Negotiation***

Maker/drawer/buyer -- issuance/negotiable?--> payee/seller ----transfer/negotiation? ---> holder/bank or finance company
Negotiation: transfer of negotiable instrument so transferee is a holder

Payee transfers the instrument to a third party rather than just getting the money (e.g., as payment for sale, to donee as gift, to bank to deposit in payee's account, etc.)
Holder Status Requirements:

1) Possession of negotiable instruments; and
2) Good Title
Method of obtaining good title depends on words of negotiability used:

a) bearer- possession alone gives you said title
b) order - possession plus necessity indorsements
Indorsements- Generally

Signature on a negotiable instrument by someone other than the maker, drawer, or acceptor normally on the bank of the instrument
Blank Indorsements

1) How done: Payee's signature only
Simplest type of indorsement consisting only of payee's signature (i.e., no particular person is named to whom instrument is now payable)

2) Effect: creates bearer paper. (Thus, further negotiations may be by transfer of possession alone; anyone in possession can cash it)
Special Indorsements

1) How done: payee's signature plus designation of new person to whom instrument payable
2) Effect: creates order paper [thus, further negotiations will require indorsement of person to whom it was made payable]
For Deposit or Collection

Restrictive indoresement limiting what may be done w/the instrument.
- if doesn't comply with indorsement, liable for conversion
Identification of Person to whom Instrument Payable (the Payee)

1) Issuer's Intent determines initial payee
2) Multiple Payees
- "and" separates names of payees [requires both (all) payees to indorse]
- "or" or "and/or" separates names of the payees [requires any one of the payees]
Other Indorsement Issues

1. Transferee's Right to Transferor's Indorsement
- if instrument is transferred for value, transferee has specifically enforceable right to transferor's indorsement
2) Depository Bank Becomes Holder Even w/o Transferee's Signature

- depositary bank becomes a holder even if payee deposits check in payee's account w/o indorsing it
3) Misspelled Payee's Name: Payee May Indorse w/Incorrect Name

4) Payee Lacking Capacity May Effectively Indorse
- negotiation is effective even if payee was a minor, incompetent, under undue influence or fraud