Negotiable Instruments Law
Article 3 Commercial Paper(Continue)
2 Transfer and Negotiation
Right to Indorsement.
Transfer of an instrument vests in the transferee such right as
the transferor has therein except that a transferee who has himself been
a party to any fraud or illegality affecting the instrument or who as
a prior holder had notice of a defense or claim against it cannot improve
his position by taking from a later holder in due course.
A transfer of a security interest in an instrument vests the foregoing
rights in the transferee to the extent of the interest transferred.
Unless otherwise agreed, any transfer for value of an instrument
not then payable to bearer gives the transferee the specifically enforceable
right to have the unqualified indorsement of the transferor.
Negotiation takes effect only when the indorsement is made and
until that time there is no presumption that the transferee is the owner.
Negotiation is the transfer of an instrument in such form that
the transferee becomes a holder.
If the instrument is payable to order, it is negotiated by delivery
with any necessary indorsement; if payable to bearer, it is negotiated
An indorsement must be written by or on behalf of the holder and
on the instrument or on a paper so firmly affixed thereto as to become
a part thereof.
An indorsement is effective for negotiation only when it conveys
the entire instrument or any unpaid residue.
If a purports to be less, it operates only as a partial assignment.
Words of assignment, condition, waiver, guaranty, limitation or
disclaimer of liability and the like accompanying an indorsement do not
affect its character as an indorsement.
3-203. Wrong or Misspelled
an instrument is made payable to a person under a misspelled name or one
other than his own he may indorse in that name or his own or both; but
signature in both names may be required by a person paying or giving value
for the instrument.
3-204. Special Indorsement;
A special indorsement specifies the person to whom or to whose
order it makes the instrument payable.
Any instrument specially indorsed becomes payable to the order
of the special indorsee and may be further negotiated only by his indorsement.
An indorsement in blank specifies no particular indorsee and may
consist of a mere signature. An
instrument payable to order and indorsed in blank becomes payable to bearer
and may be negotiated by delivery alone until specially indorsed.
The holder may convert a blank indorsement into a special indorsement
by writing over the signature of the indorser in blank any counteract
consistent with the character of the indorsement.
3-205. Restrictive Indorsements.
indorsement is restrictive which either:
is conditional; or
purports to prohibit further transfer of the instrument;
includes the words "for collection," "for deposit," "pay
any bank," or like terms signifying a purpose of deposit or collection;
otherwise states that it is for the benefit or se of the
indorser of f another person.
3-206. Effect of Restrictive
No restrictive indorsement prevents further transfer or negotiation
of the instrument.
Any intermediary bank, or a payor bank which is not the depositary
bank, is neither given notice nor otherwise affected by a restrictive
indorsement of any person except the bank's immediate transferor or the
person presenting for payment.
Except for an intermediary bank, any transferee under an indorsement
which is conditional or includes the words "for collection," "for deposit,"
"pay any bank," or like terms (subparagraphs (a) and (c) of Section 3-205)
must pay or apply any value given by him for or on the security of the
instrument consistently with the indorsement, and to the extent that he
does so he becomes a holder for value.
In addition such transferee is a holder in due course if he otherwise
complies with the requirements of Section 3-203 on what constitutes a
holder in due course.
The first taker under indorsement for the benefit of the indorser
or another person (subparagraph (d) of Section 3-205) must pay or apply
any value given by him or or on the security of the instrument consistently
with the indorsement, and to the extent that he does so he becomes a holder
for value. In addition such
taker is a holder in due course, if he otherwise complies with the requirements
of Section 3-203 on what constitutes a holder in due course.
A later holder for value is neither given notice nor otherwise
affected by such restrictive indorsement unless he has knowledge that
a fiduciary or other person has negotiated the instrument in any transaction
for his own benefit or otherwise in breach of duty (subsection (2) of
3-207. Negotiation Effective
Although It May be Rescinded.
Negotiation is effective to transfer the instrument although the
made by an infant, a corporation exceeding its powers, or
any other person without capacity; or
obtained by fraud, duress or mistake of any kind; or
part of an illegal transaction; or
made in breach of duty.
Except as against a subsequent holder in due cours such negotiation
is in an appropriate case subject to recission, the declaration or a constructive
trust or any other remedy permitted by law.
an instrument is returned to or reacquired by a prior party he may cancel
any indorsement which is not necessary to his title and reissue or further
negotiate the instrument, but any intervening party is discharged as against
the reacquiring party and subsequent holders not in due course and if
his indorsement has been cancelled is discharged as against subsequent
holders in due course as well.
Continue to Part 3 Rights of a Holder