Quiz 25 :
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).
Negotiation of Instruments. An instrument, such as a check, is delivered with necessary indorsements when it is properly issued payable to the order of the payee and is then indorsed over to the bank for payment.
a). Holder in Due Course - Bank: The bank is a holder in due course under UCC 3-302 for the amount of $5,000 because they took the check in good faith with no notice that a defense existed against it and before the expiration date of the check. b). Holder in Due Course - Stranger: The transfer of the note to a stranger in a bar calls into question good faith because of the circumstances under which the note was transferred UCC 1-201(19). The face value of the check is $5,000 and a stranger giving 10 percent of its value could represent a lack of good faith because of the disparity of value. Hence, the stranger would not be considered a holder in due course.