Transfer of an order instrument by indorsement and delivery extends warranty liability to any subsequent holder who takes the instrument in good faith.

Question

Quizplus · Accepted Answer

This statement is true. When an order instrument (such as a check or promissory note) is indorsed and delivered to another party, the original indorser is warranting that the instrument is genuine, that the indorser has good title to it, and that there are no undisclosed claims or defenses against it. This warranty extends to any subsequent holder of the instrument who takes it in good faith, meaning they have no reason to believe there is any problem with the instrument or the chain of ownership. If any problems do arise, the original indorser can be held liable for any damages caused by the problems.

Transfer of an Order Instrument by Indorsement and Delivery Extends