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MGMT 212
Transferability & Holder in Due Course (Ch. 25)
18
Management
Undergraduate 2
06/30/2009

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Term
Negotiation
Definition
The transfer of one negotiable interest from one person to another.
Term
Negotiating Order Paper (2 Requirements)
Definition
1.) Sign the instrument (indorse). 2.) Deliver to party.
Term
Negotiating Bearer Paper (1 Requirement)
Definition
1.) Delivery (transfer to another person's possession).
Term
Converting Order/Bearer Paper
Definition
Order: convert to Bearer by blank indorsement (signature on back). // Bearer: convert to Order by special indorsement.
Term
AN assignment occurs when:
Definition
1.) a non-negotiable instrument is transferred to a 3rd party or 2.) a negotiable instrument is transferred improperly.
Term
Indorsement
Definition
Signature placed on instrument to transfer it. Indorser makes indorsement, indorsee receives instrument. Usually put on back of instrument, but can be on a separate stapled piece of paper called an Allonge.
Term
4 Types of Indorsements
Definition
Blank, Special, Restrictive, Qualified
Term
Blank Indorsement
Definition
Simply a signature on the back of a check by the payee. This converts it from Order to Bearer.
Term
Special Indorsement
Definition
Identifies the person to whom the indorser intends to make the instrument payable. "Pay to William Hunter; signature"
Term
Restrictive Indorsement
Definition
"For deposit only; signature"
Term
Qualified Indorsement
Definition
"Pay to Allison Jong, without recourse; signature." Usually used by agents so they won't be held liable for the check.
Term
Miscellaneous Indorsement Problems
Definition
If name on instrument is misspelled or incorrect, the indorsement can be the incorrect name as in the instrument, or the correct name, or both.
Term
Alternate Payees
Definition
Payee A OR Payee B
Term
Joint Payees
Definition
Payee A OR Payee B
Term
Holder
Definition
In possession of negotiable instrument. A holder has the status of an assignee--he obtains only those rights that the transferor had and is subject to the same defenses as the transferor.
Term
Holder in Due Course (HDC)
Definition
A holder who also mets three additional requirements. An HDC takes the instrument free of most defenses and claims asserted by the party with the obligation to pay.
Term
Prerequisite and 3 Requirements of HDC
Definition
Must first be a holder. 1.) Must take the instrument FOR VALUE. 2.) Must take the instrument in GOOD FAITH. 3.) Must receive without notice of defect (reasonable person standard). Defects = overdue instrument, dishonored instrument, unauthorized signature, altered instrument, incomplete/irregular instrument.
Term
Shelter Principle (Holders through HDC)
Definition
A holder can get HDC privilege IF instrument is acquired from an HDC. Limitation: If a Holder disqualifies as an HDC and then reacquires the instrument after a HDC, still not HDC.
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