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35 Cards in this Set

  • Front
  • Back
What is a "note" and who is involved in its making/execution?
Instrument where maker promises to pay payee.
What is a note called when the maker is a bank?
Certificate of Deposit
What is a "draft" and who is involved in its making/execution?
Instrument where drawer orders drawee to pay payee.
What is a draft called when it is drawn on a bank (even w/o words of negotiability) and payable on demand is a bank?
A "check"
What is an indorsement?
Signature other than maker, drawer, or acceptor?
What is the difference between a special and a blank indorsement?
Special indorsement identifies the person to whom payable; blank doesn't.
What is the difference between a restrictive and an unrestrictive indorsement?
Restrictive indorsement limits payment; unrestrictive doesn’t. (ie, whether it can be only cashed, only deposited, etc)
What does a qualified indorsement (e.g. "w/o recourse") do?
It negates secondary liability of indorser re: contract liability. BUT, liability under warranty theory will almost always still exist.
What does an anomalous indorsement signify?
An accomodation, i.e. "out of chain"
What must a instrument be to be considered negotiable?
It must be: 1. A writing 2. signed by maker/drawer 3. that is an unconditional 4. promise or order (not IOU) 5. To pay a fixed amount 6. of money 7. with no unauthorized promises 8. on demand or at a definited time 9. to bearer or to order at time of issue (unless check)
Negotiability: When is a principal liable for the signature of an agent? When is agent liable?
The principal will be liable if agent is authorized. Agent only liable if he signed w/o showing who authorized party was, or w/o showing his representative capacity.
Negotiability: What effect does a forger's signature have on negotiability?
It is operative as to forger, not person whose name is forged.
Negotiability: in this context, what does "unconditional" mean?
a. no express conditions (implied or constructive OK)
b. not subject to another writing. (Secured by... OK) c. limitations of funds O.K.
Negotiability: what effect does interest rates have on "fixed amount"?
None; variable interest rates are OK. if rate not mentioned, "judgement rate" will be mentioned.
Negotiability: what promises qualify as "other unauthorized promise?
everything except collateral or attorneys fees.
Negotiability: what effect does not stating a time for repayment have on the instrument? ditto with acceleration clauses?
it makes it demand paper. acceleration clauses are OK.
What is order paper? how is it negotiated?
Order paper is an instrument payable to a specific person. It is negotiated by delivery and specific person's indorsement.
What is Bearer paper? How is it negotiated?
Bearer paper is an instrument payable to the bearer (shocking, i know). It is negotiated by mere delivery alone.
What is the Last Indorsement Rule?
If the last indorsement was special, the paper is order paper. If last indorsement was blank, it's bearer paper.
What must someone do to be a Holder in Due Course?
They must 1. take for value 2. in good faith 3. Without knowledge of overdueness, dishonor, claim, defense, forgery, irregularity, or incompleteness which questions authenticity.
What 3 entities are never HDCs?
Bank, estates, and people who acquire through judicial sales.
What are the Real Defenses that are the F in FAIDS?
Forgery of Name of payee or special indorsee; Fraud in Factum, ie obligor signs w/o knowing what they're signing.
What are the Real Defenses that are the A in FAIDS?
Alteration of Instrument (filling in blanks OK, though); Adjudicated Insanity
What are the Real Defenses that are the I in FAIDS?
Infancy; Illegal subject matter of the underlying transaction.
What are the real defenses that are the D in FAIDS?
Duress (extreme, ie gun to head); Discharge in insolvency
what are the real defenses that are the S in FAIDS?
Statute of Limitations (3 years for draft, 6 for notes, unless no demand, then 10); Suretyship/Accomodation Defense (if accomodation known to HDC)
What is the FTC Amelioration rule?
If a human buys consumer goods or services on credit, the HDC rule does not apply, ie, the puny human could assert personal defenses.
Is the underlying K to an instrument not being fulfilled a defense to a HDC?
What is the Shelter Rule?
anyone who takes after HDC gets right of HDC, except participant in fraud.
What must a Holder do to go after the indorser on the theory of secondary liability (from K law)?
There needs to be 1. presentment (holder goes to primary party and demands payment), 2. Dishonor (primary party refuses), and 3. Notice of Dishonor (Holder tells Secondary liability party.)
What effect does "w/o recourse" next to the indorsement have on secondary liablity?
prevents holder liability. HOwever, that leads to a discussion on warranty liability.
What is warranty liability?
made by anyone who transfers for consideration. If indorsed, runs to all subsequent transfers, if not, only to immediate transferee. Works on its own, no need for Presentment, etc.
What does warranty liability warrant?
That there is a right to enforce the instrument, that all signatures are geunine, that here has been no alteration, that there are no defenses, and the transferor knows of no insolvency proceedings be initiated.
What rights does the Holder have against the Drawee?
None, unless there was acceptance or the check was certified, in which case the are liable for consequential damages and the drawer is discharged.
What rights does the Drawer have against the Drawee?
They have normal contractual relationship rights.