The guy in the Barbri lecture made a big deal about the fact that if you indorse a check, and it flies out the car window and someone else gets it, then you are screwed. Now if the other person signs the check, it becomes Order paper and I believe it is HDC. Is this true? If so, how is it true? Because the person who found the indorsed check and signed it over to himself did not receive it for value, so he cannot be a HDC. Is this the shelter rule?
Thanks
Commercial Paper HDC Question Forum
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july14bar
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Re: Commercial Paper HDC Question
Commercial paper isn't my best subject (so take what I have to say with a grain of salt) but I'll take a shot for practice:
I'm assuming that you're talking about a check with a BLANK indorsement flying out of the window (if the check were specially indorsed, nobody but the person named in the indorsement could become a holder because it would be order paper). In the case of a blank indorsement, the check would be bearer paper and the finder would definitely become a holder (all that's required to be a holder of bearer paper is possession-- even if it's stolen). Absent the shelter rule (if it applies), the finder wouldn't become an HDC in your hypo. Even though he's a holder, he didn't give executed value for the instrument and his taking was not in good faith or without notice that the check was unaltered, etc.
About the shelter rule-- If the original owner were an HDC, I guess the shelter rule could grant HDC status to the finder. One caveat- I'm not sure, but if the finder added his name to the blank indorsement, could that count as a forged indorsement? If the finders actions were fraudulent, the shelter rule wouldn't apply to him.
EDIT: I don't think the finder specially indorsing the blank indorsement would be fraud because he became a holder of the bearer paper check the second he possessed it. It seems like he would have been free to indorse it at that point. So yes, I think the shelter rule would apply (but I could be very wrong). One other thing to consider: Does the shelter rule only apply to intended transferee? Would it protect someone who found or stole bearer paper as opposed to receiving it via bequest?
I'm assuming that you're talking about a check with a BLANK indorsement flying out of the window (if the check were specially indorsed, nobody but the person named in the indorsement could become a holder because it would be order paper). In the case of a blank indorsement, the check would be bearer paper and the finder would definitely become a holder (all that's required to be a holder of bearer paper is possession-- even if it's stolen). Absent the shelter rule (if it applies), the finder wouldn't become an HDC in your hypo. Even though he's a holder, he didn't give executed value for the instrument and his taking was not in good faith or without notice that the check was unaltered, etc.
About the shelter rule-- If the original owner were an HDC, I guess the shelter rule could grant HDC status to the finder. One caveat- I'm not sure, but if the finder added his name to the blank indorsement, could that count as a forged indorsement? If the finders actions were fraudulent, the shelter rule wouldn't apply to him.
EDIT: I don't think the finder specially indorsing the blank indorsement would be fraud because he became a holder of the bearer paper check the second he possessed it. It seems like he would have been free to indorse it at that point. So yes, I think the shelter rule would apply (but I could be very wrong). One other thing to consider: Does the shelter rule only apply to intended transferee? Would it protect someone who found or stole bearer paper as opposed to receiving it via bequest?
