Under general contract principles, a negotiable instrument may be transferred to an assignee, which then holds the instrument with all the rights of the assignor.
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Negotiating
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Transfer of an instrument in such a form that the transferee becomes a holder, who has at least the same rights in the instrument as the transferor, and may have more rights than the transferor.
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Negotiating Order Instruments
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The payee may negotiate an order instrument to a third party by an indorsement by the payee in favor of the third party.
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Negotiating Bearer Instruments
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Unlike an order instrument, a bearer instrument need not be indorsed to transfer the payee's rights to the transferee. All that is required is delivery to the new bearer.
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Converting Instruments
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The proper method of negotiation depends on the nature of the instrument at the time of negotiation. Thus, an order instrument can be converted into a bearer instrument by indorsing the instrument in blank. Likewise, a bearer instrument can be converted into an order instrument by indorsing it in such a way as to identify a particular payee.
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Indorsement
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A signature, with or without additional words or statements made by the indorser in order to transfer her rights to the indorsee.
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Allonge
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A piece of paper firmly attached to an instrument on which transferees can make indorsements when there is no room on the instrument itself for their indorsement.
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Blank Indorsement
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An indorsement that specifies no particular indorsee and can consist of a mere signature.
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Special Indorsement
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An indorsement that indicates the specific indorsee to whom the indorser intends to make the instrument payable.
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Qualified Indorsement
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An indorsement which disclaims any contract liability on the instrument; often used by indorsers acting in a representative capacity, the effect of which is to relieve the indorser from personal liability on the indorsement.
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Restrictive Indorsement
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Any indorsement on a negotiable instrument that requires the indorsee to comply with certain instructions regarding the funds involved.
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Indorsement Prohibiting Further Indorsement
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An indorsement calling for payment only to a designee.
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Conditional Indorsement
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An indorsement that makes payment of the instrument dependent on the occurrence of some event specified in the indorsement.
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Indorsement for Deposit or Collection
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An indorsement that makes the indorsee a collecting agent of the indorser, prohibiting further negotiating except by a bank or financial institution engaged in collection activities.
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Trust Indorsement
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An indorsement to a person who is to hold or use the funds for the benefit of the indorser or a third party.
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(1) as it (incorrectly) appears, (2) as it should (correctly) appear, or (3) both.
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When the indorser's name is misspelled on the instrument, she may indorse it:
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Payable to a Legal Entity
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An instrument payable to an estate, partnership, or organization requires the indorsement of an authorized representative of the entity.
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Payable in the Alternative
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An instrument payable to two or more persons in the alternative requires the indorsement of only one of the payees.
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Jointly Payable
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On the other hand, an instrument payable to two or more persons jointly requires the indorsement of both of the payees.
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(1) acquires a negotiable instrument for value, (2) in good faith, and (3) without notice that the instrument is (a) overdue (b) has been dishonored (c) is subject to a valid claim or defense by any person (d) is part of a series of instruments, at least one of which is the subject of an uncured default (e) contains alterations or unauthorized signatures, or (f) is so irregular or incomplete as to call into question its authenticity.
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Holder in Due Course (HDC) is a holder who:
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(1) Performing the promise for which the instrument was issued or transferred, (2) acquiring a security interest or other lien in the instrument, excluding liens obtain by judicial process, (3) taking an instrument in payment of, or as security for, an antecedent debt, (4) giving a negotiable instrument as payment, or (5) giving an irrevocable commitment as payment.
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A holder can take an instrument for value by:
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(1) actual knowledge of the defect, (2) received notice of the defect (e.g. letter from the bank identifying serial number of stolen checks), or (3) reason to know that a defect exists, given all of the facts and circumstances known to her at the time.
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The holder has notice of a defect whenever she has:
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On the face of the instrument; had reason to know
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Knowledge of claims or defenses may be imputed to the holder if they are apparent _____________________________ or if the holder otherwise ______________________ them from the facts surrounding her purchase of it.
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Demand Instrument
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Is overdue if an unreasonable length of time has passed after its issue.
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Time Instrument
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Is overdue after the due date shown on its face.
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Series of Notes
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With successive maturity dates is overdue when any note in the series is overdue.
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Dishonor
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A holder who takes an instrument with actual or constructive notice that a party to whom the instrument was presented refused to pay it cannot claim HDC status.
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Incomplete(ness)
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A purchaser cannot become an HDC of an instrument so facially ___________ as to lack one or more elements required for negotiability.
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Irregularity
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Anything on the face of the instrument that calls into question its validity or ownership, or that creates ambiguity as to the party to pay, will bar HDC status.
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Shelter Principle
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A person who does not qualify as an HDC can, nonetheless, acquire the rights and privileges of an HDC if he derives his title to the instrument through an HDC.
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(1) was a party to fraud or illegal activity affecting the instrument, or (2) had notice of a claim or defense against the instrument.
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A person who previously held the instrument cannot improve his position by later reacquiring it from an HDC if the former holder:
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