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Exam 28: Transfers of Negotiable Instruments and Warranties of Parties

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Question 1

True/False

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Order paper is converted into bearer paper by the holder's blank indorsement.

A) True
B) False

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verified

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Question 2

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If an instrument is payable to bearer, it can be negotiated by transfer of possession alone.

A) True
B) False

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Question 3

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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 special indorsement consists of the signature of the indorser and words identifying the indorsee.

A qualified indorsement qualifies the effect of a blank or special indorsement by disclaiming certain liabilities of the indorser to a maker or drawee.

The transfer and collection of negotiable instruments between banks requires specific indorsements.

A person who acquires the instrument on which the last indorsement is blank becomes a holder in due course.

The words "without recourse" on an indorsement means the indorser is:

If a negotiable order instrument is transferred to another party without an indorsement, the instrument has been:

An unqualified indorser who receives consideration for the indorsement impliedly warrants all of the following except:

If an instrument bears a restrictive indorsement, any further transfer or negotiation is effectively barred.

A holder is also known as an assignee of the paper

An indorsement "for deposit only" is:

When a negotiable instrument is transferred by negotiation, the transferee becomes a holder in due course.

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.

Indorsements may be classified in terms of whether the indorser has added any words to the indorsement and what those words are.

The order or bearer character of the paper determines how it may be:

The warranties made by an unqualified indorser guarantee that payment of the instrument will be made.

The transferee has only those rights that were possessed by the transferor of the note when a transfer of an instrument is made by:

If an instrument is drawn in favor of a named officer of a corporation, the instrument is payable only to that officer. .