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CHAPTER 23
NEGOTIATION AND DISCHARGE
Answers to Learning Objectives
(Page 269)
1. Negotiation by indorsement is accomplished by signing the back of the instrument. The different
types of indorsements are: blank, special, qualified, and restrictive.
Lesson Outline
1. Negotiation is the transfer of a negotiable instrument in such a way that the transferee becomes the
holder of the instrument.
determines whether the instrument must be indorsed by more than one of the payees.
4. There are four types of indorsements:
a. A blank indorsement, which consists of the name only.
b. A special indorsement, which designates the particular person to whom payment is to be made.
c. A qualified indorsement, which has the effect of qualifying, or limiting, the liability of the
indorser.
d. A restrictive indorsement, which states that the indorsee holds the paper for a special purpose or
as an agent or trustee for another. It does not affect the negotiability of the instrument.
(p. 271) In this case, the Marcinos admitted signing the note to BNC, but said U.S. Bank could not
enforce it. However, the fact that U.S. Bank held the note indorsed in blank made it the holder
and therefore gave it the right to enforce the note. U.S. Bank Nat’l Assn. v. Marcino, 2009 WL
685175 (Ohio App.)
Chapter 23 Negotiation and Discharge
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Answers to Questions
(Page 275)
1. An indorsement is a signature on the back of an instrument (usually the holder’s) along with any
directions or limitations regarding use of or liability for the instrument.
5. When there are multiple payees … By making an indorsement all indorsers except qualified indorsers
agree to pay any subsequent holder the face amount of the instrument if the holder presents the
instrument to the primary party when due and the primary party refuses to pay.
6. a. A blank indorsement consists of the name only. John Jones has a check payable to himself.
He is in a store and wishes to use the check to pay for what he has purchased. He is safe in
indorsing the check in blank.
b. A special indorsement designates the particular person to whom payment is to be made. Pay to the
order of Mary Smith. (Signed) A. Roe. Roe wished to mail this check to Smith in payment of a
debt she owed Smith. To prevent someone else from cashing this check without indorsement, Roe
could use this special indorsement.
7. By making an indorsement all indorsers except qualified indorsers agree to pay any subsequent
holder the face amount of the instrument if the holder presents the instrument to the primary party
when due and the primary party refuses to pay.
Answers to Case Problems
(Page 276)
1. No. The court pointed out that the allonges were not in any way attached to the note. Since they
were not attached they did not meet the UCC’s requirements for an allonge. HSBC Bank USA v.
Thompson, 2010 WL 3451130 (Ohio App.)
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note. As a result the note was not discharged. Manley v. Wachovia Small Business Capital, 349
S.W.3d 233 (Tex. App.)
5. Yes. The court said that cancellation of a debt by the obligee extinguishes it and the cancellation
can be express or tacit. In this case returning the payments and issuing the 1099-C which had an
adverse tax impact on Crow was a tacit cancellation of the debt. Credit Recoveries, Inc. v. Crow,
989 So.2d 233 (La.App.)