How Is A Negotiable Instrument Properly Transferred

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Due Negotiation or "Duly Negotiated"

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Means there has been a proper transfer

*Transferee is a holder and he may be eligible to be a HOLDER IN DUE COURSE.

When the instrument is payable to the order of a specific payee, it is negotiated by "Delivery of the instrument to that payee"

any further negotiation requires that the payee "indorse the instrument and deliver to the transferee

Indorsement Must Be Authorized And Valid

Paula Abdul loses her paycheck, payable to her order. Simon finds it, signs Paula's name on the back and cashes it at Randy's music shop. Is Randy a holder?

NO, this is a bad transfer. The instrument was payable to order, and therefore the payee (PA) had to indorse it. She never did. Thus, Randy can never be a HDC (Holder in due course)

Payable To Bearer

If the instrument is payable to bearer, Indorsement is not required.

PA loses her paycheck, payable to bearer. Simon finds it at Randy's music shop. Is Randy a holder?

YES

Special Indorsement

One that names a PARTICULAR PERSON as "indorsee," The indorsee MUST SIGN in order for the instrument to be further negotiated

*BD indoreses his paycheck, "pay to helen Gamble, /s/ BD." Helen is the INDORSEE. Helen loses the chick. Jimmy finds it, signs Helen's name on the back and cashes it at Gullible Grocery. Is GC a holder?

NO, it's a bad transfer. Helen never indorsed the check