CHAPTER 3: PARTIES TO THE INSTRUMENT

A.Actions and Parties in Instrument’s Life

 Issue: The first delivery of an instrument by the maker or drawer, whether to a holder or
non-holder, for the purpose of giving rights on the instrument to any person.
o Non-issuance is a defense to payment
 Transfer: Delivery by a person other than its issuer for the purpose of giving to the person
receiving delivery the right to enforce the instrument.
o Transferee receives whatever rights the transferor had.
o The transferor potentially makes warranties to the transferee and subsequent
parties.
 Presentment: Presentment means a
o demand made by or on behalf of a person entitled to enforce an instrument
o to oblige or drawee
o To pay (or accept) the instrument
o Made at reasonable time/means
o Must exhibit instrument,
 Give ID
 Sign receipt on instrument
o Note: not dishonor if improper presentment
B.Typical Check and Note
 Check: Drawer  Payee  Depository Bank  Payor Bank (aka Drawee Bank)
Issued Transfer Presented
 Note: Maker Payee  Transferee
Issue Transfer
C.To Whom the Instrument is Initially Payable
 When written, instrument is initially payable to bearer or to an identified person.
 An instrument is payable to whomever the issuer intended to pay, regardless of whether
or not they got the name right.
 Instruments made to multiple parties using “and” is payable to all of them and may be
negotiated only by all of them, while instruments made to multiple parties using “or” is
payable to any of them and me by negotiated by any or all of them in the instrument’s
possession.
D.To whom the instrument becomes payable next
 Holder can make instrument payable to next person depending on if its bearer or order
paper. If bearer paper, can simply hand over to next person. If order paper, holder can
transfer or indorse
 Holder: a person when
o in instrument’s possession, and
o instrument is payable to that person (depends on if its bearer or order paper).
 Indorsement
o Indorsement means a signature, other than that of a signer as maker, drawer, or
acceptor, that alone or accompanied by other words is made on an instrument (or
affixed paper to instrument) for the purpose of (i) negotiating the instrument, (ii)
restricting payment of the instrument, or (iii) incurring indorser's liability on the
instrument
 o Regardless of the intent of the signer, a signature and its accompanying words is
presumed an indorsement unless the accompanying words, terms of the
instrument, place of the signature, or other circumstances unambiguously indicate
that the signature was made for a purpose other than indorsement.
o Types:
 Blank indorsement: simply signing his name on it turning into bearer
paper.
 Special indorsement: by writing “pay X signed Y” on it making it payable
only to X. Can specially endorse to third party or yourself.
o Holder may convert blank endorsement to special endorsement.
Forged Signatures
 Forged signature is not effective as signed.
 But it counts as signature of forger
 Subject to validation rules.
Cases
Problem 3.1
John Cleese’s publisher pays him with a check made to “Jan Cheese.” Who is it payable to?
John Cleese because he was intended to be the person paid.

Problem 3.2
Who are these payable to?
Payable to “John and Mary Cheese”
Different if payable to John or Mary Cheese?
What if the payees’ names are stacked:
John Cheese
Mary Cheese

“and” payable to both jointly. “or” paid to either one. Stacked names

Problem 3.3
Issue: “issued”? Once a retired postal worker has been issued a pension check, it is too late to
change pension plans. Murray, a recent retiree, contacts the pension office to change his plan to
give his spouse rights of survivorship. The office informs him it is too late. Just that morning,
they had cut and signed his first check and had it ready to send. If the court goes by the UCC
definition, has the check been issued?

A check is issued when delivered for the first time. The check has not been issued.
Problem 3.4
Transference? Sigmund signs promissory note in getting a mortgage loan from Jung Bank. Jung
Bank signs an assignment, selling its rights in the note to Anna Bank. But Jung Bank does not
deliver possession of the note to Anna Bank. After Sigmund fails to make payments on the note,
Anna Bank seeks to enforce the note. Has the note been transferred to Anna Bank?

Borrower is still liable for 100K. The only question is who are they liable to under Article 3.
Transfer requires delivery which did not occur here, so Sigmund must answer to Jung Bank.
Problem 3.5
Aspidel Realty gets dozens of promissory notes by duping investors. Too lazy to sign them all
properly, Aspidel simply prints out duplicate signed pages and folds them around the notes.
Aspidel sells the notes to a local bank and disappears. Are the notes payable to the bank?

The notes are not indorsed because the folded pages were not affixed to the notes. So the local
banks are not holders.

Problem 3.6
Fordham Ford presents Lightning McQueen a big check for winning the Windy 500. McQueen
gives the check to his friend Mater as a present. Tater ceremoniously deposits it at Local Bank,
who sends it on to Zitibank, Ford’s bank, for payment. Who has presented the check, as UCC
Article 3 defines presentment?
Prob. 3.7
(see diagram in slides)
Who is a holder? An indorser?
When was it issued? Transferred? Presented?
Drawer? Issuer? Payee? Drawee?

Dawson owes money to Pauli and writes check to Pauli. Pauli writes pay grocery on the back of
it and exchanges it for grocery. Grocery then wants to deposit it in their account at ONB. They
sign “grocery” and give it to messenger. Messenger takes it over to ONB takes for deposit for
grocery. ONB sends it to Mystic Bank who pays ONB from Dawson’s account.
Check is order from Dawson to mystic to pay holder of check.
Dawson is the Drawer of instrument.
Drawee is Mystic, the bank the check is written to.
Payee: the payee is Pauli. The check becomes payable to different people but payee is the first
person to whom check is made out.
Issuer: the same as drawer. We deal with notes. Drawers write checks. Makers writes notes. The
general term for both is issuer.
Dawson issues to Pauli.
Transfer when Pauli gives to grocery. Grocery gives possession to messenger but that’s not
transfer. When messenger delivers to ONB that’s transfer from grocery to ONB via messenger.
ONB takes check and delivers it to mystic. This is not a transfer. When they give to mystic they
give not for purpose of letting mystic collect but having mystic pay it.
Pauli wrote pay grocery, Pauli. Grocery signs when giving to messenger. ONB signs it. Who is
an endorser. Anybody who signed it other than Dawson, unless they wrote signed as witness or
signed as recipient. Are endorsers. So Pauli, grocery, and ONB endorsed it.
Last question is who’s a holder. Two questions to ask. A holder if payable to me and I’m in
possession. Dawson isn’t holder cause its not payable to him. Pauli is holder. If pauli wrote Pay
grocery signed pauli, this is a special endorsement. If holder makes special endorsement the
instrument is payable to the named person. So its now payable to grocery and it was delivered to
grocery. So grocery is holder. Grocery then took it and just signed their names. Just signing
name is blank endoresement. If holder makes blank endorsement that’s payalbe to bearer then.
Now its bearer paper. When grocery gives to messenger they didn’t intend for it to be payable to
him, but messenger is a bearer who can deposit. Messenger is holder. M delivers to ONB who is
not a holder. ONB delivers to M. Mystic isn’t a holder.

Prob. 3.8
Employer issues a check to Laura. Thief steals it, signs Laura’s name, and transfers it to Mystic
Bank. Is Mystic Bank a holder?
What if Laura had indorsed it in blank before it was stolen?
If Thief then forged another name below Laura’s signature?
If Laura had indorsed in blank and gave to her mother - who wrote “Pay to Lilly” above
Laura’s signature?
Employer writes check to Laura. Thief steals it and forges laura’s endorsement and transfers to
mystic bank. Is mystic a holder. Mystic is in possession but it must be payable to you. Its payable
to Laura. Thief forges L’s signature. Until Laura signs it or transfers her rights its not payable to
anybody else. She didn’t do either one. The thief’s signature forged just counts as thief’s
signature which means nothing.

Problem 3.8.2
Employer writes check to Laura who says I’ll endorse now and deposit later. Now its stolen by
thief. Theif goes to Mystic bank where he forges laura’s dad’s signature “LL” and gives to MB.
Is MB a holder. Yes. Its payable to L. L endorsed it in blank making it bearer paper. Thief forged
LL signature but we don’t need it. Its payable to bearer, aka thief. MB is not the thief.
IF the quesiton is MB holder, the answer is yes.

Problem 3.8.3
Laura gets her check again. She just endorses it in blank signing “Laura” She gives to mom as
present who realizes its bearer paper. She says I’ll write over L’s blank endorsement “Pay Lilly”
so its payable to me Lilly. She can do this. Holder of instrument is entitled to convert blank
endorsement to special endorsement. She didn’t have to do this. She could have just wrote under
L’s signatue “pay lilly” signed lilly. Its simpler to write over L’s name.
So its now payable to Lilly. Thief’s forged signature doesn’t count and still payable to Lilly. Lilly
made smart move by making paper payable to her and so it couldn’t be payable to thief. Made
bearer paper payable only to her.