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23 Cards in this Set

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What makes a note negotiable?
1. In writing.
2. Signed by maker or drawer
3. Contain an unconditional promise/ order to pay
4. Be for a fixed amount of money (must be money)
5. Payable on demand or at a definite time.
6. Payable to order or to bearer (except checks).
7. Contain no additional undertaking or instruction.
Verbage for a Order Paper
Pay to the Order of or ____ or Order
Verbage for Bearer Paper
To Bearer
Difference between a Note or Draft
A note is a two party paper, draft is a three party paper.
What does a HDC get you?
If transferred in the proper way, the HDC gets Freedom from Personal Defenses for Maker or Drawer.
Process of Negotiation (Becoming a Holder) - Delivery - Bearer vs. Order
Bearer - Requires mere delivery (whoever acquires possession will be holder)
Order - Requires delivery and endorsement (signature)
Special vs. Blank Endorsement
Special - Names a particular person (Pay to John Smith) - Order Paper
Blank - Can be negotiated by delivery alone - Bearer Paper
REMEMBER - The last endorser defines whether order or bearer paper.
What is a Qualified Endorsement Without Recourse
This negates the endorsers contractual liability for payment (still liable on warranties)
Commercial paper protected under Article _?
3
If you are a holder as per proper process of negotiation, what do you need to be a HDC?
If you take the paper:
- For Value
- In Good Faith (Honest Fact)
- Without notice of defenses to or claims of ownership
Will antedating and post dating destroy HDC?
Will purchasing the note at a discount destroy HDC?
No & No
What defenses are the HDC free from and subject to?
Free from Personal Defenses, subject to real defenses.
Personal Defenses are...
Fraud in Inducement, failure of consideration, theft of instrument after signed, breach of contract, impossibility, mistake or unauthorized completion.
Real Defenses are
FFAAIIDDSS
Fraud in Exectution
Forgery of a necessary signature
Adjudicated insanity
Alteration of instrument (material)
Infancy
Illegality
Duress
Discharge in bankrupcy
Suretyship defenses
Statue of limitations (six years)
Article _ covers bills of lading and warehouse receipts.
7
Article 7 - Bills of Lading and Warehouse Receipts - Who as rights to goods delivered
The person who holds "a document of Title." Remember the issuer who delivers goods pursuant to a document of title is not liable for mis-delivering even if that title was stolen.
Article 9?
Secured Transactions
What are secured transactions?
Involve a debt secured by a form of collateral or "security interest" to fulfill a credit obligation.
What is attachment and what are the effects on third parties?
A security interested becomes effective the moment it attaches. Creditors DO NOT have rights against third parties concerning attachment UNLESS the interest is Perfected (perfection serves mostly as a notice). Does not apply to Land, Wage Claims and Statutory Liens (Mechanical Liens)
PMSI (Purchase Money Security Interest)
Has priority over all other security interests
How does a PMSI arise?
i) A creditor sells the collateral to the debtor on credit, retaining a security interest for the purchase price.

ii) The creditor advances funds used by the debtor to purchase the collateral

In general, the creditor advances funds used by the debtor to purchase the collateral
What duties do secured parties have?
1 - File or send debtor a termination statement or confirm the unpaid amount
2 - To use reasonable care to preserve any collateral.
What is the process of attachment? (Remember you need all three)
i) Agreement
- Either - Written or electronic authenticated record of the security agreement.
- The creditor's taking possession or control of the collateral (ie pledge)
ii) value must be given by the party in exchange for the interest (ie the loan is the value you use the equipment as the debt)
iii) The debtor must have rights in the collateral.

REMEMBER - A financing statement is not required for attachment but relates only to perfection.