Book Opener

Example 1. Hanako Lin wrote a check to the order of Wireless,Inc. in payment of her cell phone bill. When Wireless indorsedthe check and deposited it in its bank, the check was negotiated.An indorsement is the act of placing one’s signature on an instrument,usually on the back, to transfer it to another. The person whowrites the indorsement is called the indorser, and the person to whomthe instrument is transferred is the indorsee. (As noted in Chapter 24,because we are discussing the law of negotiable instruments, we use theterm indorsement, rather than the term endorsement, which is commonlyused in other applications.)Negotiation of Bearer PaperIf an instrument is payable to bearer or cash, it is called bearerpaper and may be negotiated by delivery alone, without an indorsement.When order paper is indorsed with a blank indorsement, it isturned into bearer paper and may be further negotiated by delivery alone.Example 2. Henry Dubrosky bought two soccer game tickets fromMolly Prince. Henry handed Molly a check that he had gotten fromsomeone else, which said it was payable to the order of “cash.”This delivery constituted a proper negotiation of bearer paper to aholder. Molly would be wise to demand Henry’s indorsement as aprecaution, even though an indorsement is not required for negotiation.If the bank were to refuse to pay the check when presentedwith it, Molly would then expect Henry to pay it.Reviewing What You Learned1. What is an assignment? How is it differentfrom a negotiation?2. How is bearer paper negotiated?3. How is order paper negotiated?Critical Thinking ActivityIndorsement What problems might occurwhen you write a check payable to the order of“cash” instead of to a particular person orcompany?Legal Skills in ActionTransferring Instruments Your friend Joelagrees to buy your old car stereo for $50 andwants to give you a check that he received fromAnita, whom you do not know. He indorses thecheck to you. Your bank refuses to cash thecheck but takes it for collection. Later, thecheck is returned to you due to insufficientfunds. Write a letter to Anita explaining whathappened and asking her to send a new check,payable to you.544 Unit 5: Using Your Purchasing Power