This is “Summary and Exercises”, section 17.5 from the book The Legal Environment and Business Law: Master of Accountancy Edition (v. 1.0).
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Negotiation is the transfer of an instrument in such a form that the transferee becomes a holder. There are various methods for doing so; if the procedures are not properly adhered to, the transfer is only an assignment.
An instrument payable to the order of someone must be negotiated by indorsement and delivery to the transferee. The indorsement must convey the entire instrument. An instrument payable to bearer may be negotiated simply by delivery to the transferee.
Those who sign the instrument have made a contract and are liable for its breach. Makers and acceptors are primary parties and are liable to pay the instrument. Drawers and indorsers are secondary parties and are conditionally liable. Signatories are liable under a warranty theory.
Various forms of indorsement are possible: blank or special, restrictive or unrestrictive, qualified or unqualified.
Between drawer and drawee, liability for a forged instrument—one signed without authority—usually falls on the drawee who paid it. There are, however, several exceptions to this rule: where an imposter induces the maker or drawer to issue an instrument in the name of the payee, where the instrument is made to a fictitious payee (or to a real person who is intended to have no interest in it), and where the instrument is made by an employee authorized generally to deal in such paper
A person who signs a negotiable instrument with a blank endorsement has
“For deposit” is an example of
“Pay to the order of XYZ Company” is an example of
The indorser’s signature alone is
Generally, liability for a forged instrument falls on
State whether each of the following is (1) blank or special, (2) restrictive or nonrestrictive, or (3) qualified or unqualified: