Part 11- Appendix B: Uniform Commercial Code, Note 15

Summary of Appendix B B-53 to B-56: Negotiable Instruments – Indorsements, Enforcement, and Claims Indorsements 1. Types of Indorsements (§3-205): o Special Indorsement: Specifies the person to whom the instrument is payable, requiring their indorsement for further negotiation. o Blank Indorsement: Converts the instrument into bearer paper, allowing transfer by possession alone. o Anomalous Indorsement: Made by someone who is not the holder; does not affect how the instrument is negotiated. 2. Restrictive Indorsements (§3-206): o Limitations on Transfer: Indorsements restricting payment to a specific person or purpose (e.g., “for deposit”) are enforceable. o Banks must honor such restrictions or risk liability, but others can disregard them unless aware of a breach of fiduciary duty. 3. Reacquisition (§3-207): o A former holder who reacquires an instrument can cancel subsequent indorsements, potentially restoring the instrument to bearer status. Enforcement of Instruments 4. Who Can Enforce (§3-301): o Holders (including wrongful possessors) and nonholders with holder rights can enforce instruments. 5. Holder in Due Course (§3-302): o A holder must:  Take the instrument for value, in good faith, and without notice of issues like forgery, dishonor, or claims against it. o Certain acquisitions (e.g., by legal process or bulk sale) do not confer holder in due course status. 6. Value and Consideration (§3-303): o Value includes security interests, payment of antecedent claims, or exchange for another negotiable instrument. o Consideration is sufficient if it supports a simple contract, and a defense exists if issued without it. 7. Overdue Instruments (§3-304): o Instruments become overdue based on their payment terms:  On-demand instruments: Overdue the day after demand.  Time instruments: Overdue the day after their due date or default. Claims and Defenses 8. Defenses and Claims in Recoupment (§3-305): o Defenses:  Infancy, duress, illegality, fraud, or discharge in insolvency.  Breach of contract defenses available in simple contract enforcement. o Claims in recoupment (e.g., for damages from the transaction) are limited to reducing the amount owed. 9. Claims to Instruments (§3-306): o A non-holder in due course is subject to claims of ownership or rights to recover the instrument. 10.Notice of Breach of Fiduciary Duty (§3-307): o Parties accepting instruments from fiduciaries are liable if they knowingly participate in or ignore signs of a breach of fiduciary duty. Additional Key Provisions 11.Proof of Signatures (§3-308): o Signatures are presumed valid unless challenged; the burden of proof lies with the challenger. 12.Notice of Consumer Protection (§3-305(e)): o In consumer transactions, missing required disclaimers (e.g., the issuer’s defenses against the payee) allow consumers to assert defenses against holders or transferees.