Indorsements. Universal Premium Acceptance Corp issued more than $1 million in drafts, intending the payee to be Great American Insurance Co When the drafts were issued, they were nonnegotiable instruments. Walter Talbot, an insurance agent, intercepted

Question

the drafts, forged Great American's indorsements in blank, and deposited the drafts in a phony account at York Bank & Trust Co After Talbot was caught and convicted, Universal filed a suit in a federal district court against York to recover some of its losses. One of the issues was whether Talbot's indorsements converted the nonnegotiable drafts into negotiable bearer instruments. Did they? Why or why not?

Answer 1

Indorsements
The court ruled in York's favor, holding in part that the drafts were negotiable. Universal appealed. The U.S. Court of Appeals for the Third Circuit reversed and remanded the case. The appellate court held in part that indorsements in blank on nonnegotiable drafts do not convert them into negotiable bearer instruments. The court explained that under the UCC, "a blank indorsement on a negotiable instrument transforms it into a bearer instrument, but that * * * has no application to a non-negotiable item. An item which is non-negotiable in its inception remains so. Mere indorsement of such a draft does not change its character."