Question

26–1. Indorsements.  A check drawn by Cullen for $500 is made payable to the order of Jordan and issued to Jordan. Jordan owes his landlord $500 in rent and transfers the check to his landlord with the following indorsement: “For rent paid, [signed] Jordan.” Jordan’s landlord has con- tracted to have Deborah do some landscaping on the prop- erty. When Deborah insists on immediate payment, the landlord transfers the check to Deborah without indorse- ment. Later, to pay for some palm trees purchased from Better-Garden Nursery, Deborah transfers the check with the following indorsement: “Pay to Better-Garden Nursery, without recourse, [signed] Deborah.” Better-Garden Nursery sends the check to its bank indorsed “For deposit only, [signed] Better-Garden Nursery.” (See page 494.) (a) Classify each of these indorsements. (b) Was the transfer from Jordan’s landlord to Deborah, without indorsement, an assignment or a negotia- tion? Explain.

Answer 1

(a)

Classify each of these indorsements as follows:

1. "For rent paid [Signed] Jordan” Blank indorsement. Under blank indorsement, the words written on the check "for rent paid [signed] Jordan” is an improper means of transfer and negotiation of an instrument. 2. “Pay to Better-Garden Nursery, without recourse. [Signed] Deborah" Special and qualified indorsement. Under special and qualified indorsement, Deborah must deliver and indorse this instrument if she wishes to negotiate the check properly. 3. “For deposit only. [Signed] Better-Garden Nursery” Restrictive indorsement. A restrictive indorsement does not prohibit a further transfer of the instrument. Additionally, it does not prohibit the negotiation of the instrument.

(b)

As per Section (UCC 3-201(a)], when an instrument is negotiated in a manner that the transferee becomes a holder, it is called negotiation. For order paper instruments, an indorsement along with delivery is required for negotiation as per [UCC 3-201(b)]. Jordan issued an order paper and accordingly, he must indorse and deliver the check signed for rent to his landlord. However, blank indorsement, where the indorser only signs the check, changes the nature of the order paper to the bearer instrument. A bearer instrument can be negotiated without an indorsement. Instead, it only requires the delivery of a check. Consequently, the landlord negotiated the check to Deborah.