Quiz 25: Transferability and Holder in Due Course

Business

Indorsements: In the case of Hammett v. Deutsche Bank National Co., ___ F.Supp.2d ___ (2010), the U.S. District Court issued a judgment in favor of Deutsche and dismissed Hammet's claims and motions. A blank qualified indorsement is one that does not specify a particular indorsee. This type of instrument is one that converts from an order instrument to a bearer instrument that any one may case. A special qualified indorsement contains the signature of the indorser and identifies the person to whom the indorser intends to make the instrument payable as state in UCC 3-205. The indorsement changes the bearer instrument back to an order instrument. The qualified indorsement is one that an indorser uses to disclaim liability under UCC 3-415(b). Hence a special qualified indorsement is one that converts a bearer instrument into an order instrument with the caveat of limited liability for the maker.

a). Indorsements: Cullen: is the maker of the check. Jordan: is the original payee on the check and a holder of the check. Jordan became the blank indorser of Cullen's order to Jordan's landlord. The order was special as "for rent". Landlord and Deborah: the landlord is the first indorsee and subsequent holder of the check. The check could be qualified as a bearer instrument since no party was indicated other than "for rent", which may prove an intent to deliver to the landlord in payment of rent. The landlord passes the check to Deborah without indorsement. Because he delivers the instrument to Deborah, she becomes the indorsee and a holder of the bearer note so long as the note is still considered a bearer note. Here it gets tricky because neither the landlord nor Deborah were listed as payees on the check and neither can prove that although in possession of the check, they have ownership of the value of the note if it is an order and not a bearer note. The landlord may be able to prove ownership by the "for rent" special indorsement. If he has ownership, he must indorse the note. If he does not have ownership, then it is a bearer note and possession is enough to qualify as a holder. Better-Garden Nursery: may be in trouble. Since the chain of holders was initially broken between the landlord and Deborah, the bank may not be able to receive the funds if Cullen challenges the attempted draw made by the bank. The matter is resolved if the note was considered a bearer note at the time of delivery to the landlord. Deborah is relieved of liability as a result of her special qualified indorsement. The bearer instrument became an order instrument at the time of indorsement to Better-Garden. At the time of the deposit by Better Garden, the check was an order instrument. b). Indorsement, Assignment or Negotiation: The transfer of the note from the landlord to Deborah was a negotiation. The negotiation of a bearer instrument is transferrable into another person's possession. Indorsement is not necessary UCC 3-201(b).

Indorsements: In the case of Hammett v. Deutsche Bank National Co., ___ F.Supp.2d ___ (2010), the U.S. District Court issued a judgment in favor of Deutsche and dismissed Hammet's claims and motions. An allonge is a piece of paper firmly attached to a negotiable instrument, upon which indorsements may be made if there is no room on the instrument. The allonge in this case specifically referenced the Deed of Trust as collateral for the Note. If the allonge did not specifically reference the Deed of Trust and was not attached to the document, then it would not have qualified as an enforceable allonge. An allonge is rendered invalid for violation of the rule of affixation to the note and authentication pursuant to F.S. § 673.2041(1). The Bank would still be entitled to enforce the note as a holder in due course. According to the Court, the holder in due course is entitled to enforce a Note. If the Note had been an instrument payable to an identifiable person, negotiation would require transfer of possession of the instrument and its endorsement by the holder.

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