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CHAPTERASSESSMENTSection 25.1 Transferring Instruments● An assignment is the transfer of your rightsunder a contract to someone else; the transfereehas only the rights of an assignee, subject to alldefenses existing against you. In contrast, whenyou negotiate an instrument, you transfer it insuch a way that the transferee becomes a holderby way of your indorsement. An indorsementoccurs when you write your name on theinstrument indicating your intent to transferownership to someone else.● Negotiation of bearer paper occurs upon deliveryof the bearer paper.● Negotiation of order paper occurs when it isindorsed by the payee and delivered to the partyto whom it is transferred.Section 25.2 Indorsements● A blank indorsement is the simple act of signingan order instrument on the back. By signing aninstrument in this way you say, in effect, “Thisinstrument may be paid to anyone.” An instrumentendorsed in blank becomes bearer paperand may be transferred by delivery alone. If theinstrument is lost or stolen and gets into thehands of someone else, that person can cash itby presenting the check for payment. For thisreason, a blank indorsement should be used onlyin limited situations, such as at a bank teller’swindow. A special indorsement is the act ofwriting an order to pay a specified party. Tocreate a special indorsement, you simply writethe words pay to the order of or pay to followedby the name of the person to whom the instrumentis to be transferred (the indorsee) and thesignature of the indorser. When signed in thisway, the instrument remains an order instrumentand must be indorsed by the indorsee before itcan be further negotiated. A restrictive indorsementis one in which words have been addedlimiting the use of the instrument. A restrictive●●●●indorsement does not prevent further transfer ornegotiation of the instrument. However, prior tofurther transfer, it must be used for the purposestated in the indorsement. Retail stores oftenstamp checks “for deposit only” when they arereceived. This provides protection in the eventthe checks are stolen. A qualified indorsement isone in which words have been added limiting theliability of the indorser. The words indicate thatthe indorser does not guarantee payment of theinstruments. A qualified indorsement transferstitle to the instrument. This form of indorsementis frequently used when the instrument is backedby security such as a mortgage or collateral. Incase of default by the maker, the indorsee mustlook to the security for payment of the instrumentrather than to the indorser.If an instrument is payable to two payees, bothpayees must indorse the check for propernegotiation.A forged indorsement is not valid, and anyonewho takes a forged instrument does not acquiretitle and thus is not considered a holder. Anyonewho pays an instrument on which there is aforged indorsement is liable to the true ownerfor the amount of the instrument.Indorsers who receive consideration warrantthat: (1) the title is good; (2) all signatures aregenuine or authorized; (3) the instrument has notbeen altered; (4) no defense of any party is goodagainst the indorser; and (5) they have no knowledgeof insolvency proceedings that wouldaffect the instrument.To enforce the obligation of the indorser, theholder of an instrument must present it to themaker or drawer when it is due. If it is dishonored,the holder must notify the indorserwithin three business days after the date ofdishonor.554 Unit 5: Using Your Purchasing Power