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21 Cards in this Set

  • Front
  • Back
A check does not discharge the obligation for which it is given, but merely....
suspends the obligation until paid.
If a check payable to a particular person is lost or stolen and is not indorsed by the payee, the payee_____________.
retains ownership of the check.
What effect does forging the payee's name have on the check?
Generally, it breaks the chain of title and no subsequent possessors of the instrument can qualify as holders.
To be a negotiable instrument, an instrument must be a written and signed:
Unconditional;
Promise or order;
To pay a fixed amount of money that:
-is payable to order or bearer when issued or first in possession of a holder;
-is payable on demand or at a definite time; and
-states no unauthorized undertaking or instruction
The right to enforce the negotiable instrument will not pass unless the payee's indorsement is _______ and ________.
authorized and valid

*cannot become an HDC
What is a blank indorsement?
A signature that is not accompanied by the naming of a specific indorsee.

May then be negotiated by delivery alone.
A ______ is a person in possession of an instrument with the right to enforce the instrument.
holder
Due Course requires the holder to take....
for VALUE, in GOOD FAITH, and WITHOUT NOTICE..
The holder must purchase the instrument w/o "notice" of certain things. What does "notice" include?
BOTH ACTUAL AND REASON TO KNOW Examples:
Instrument overdue;
Unauthorized signature or alteration;
Claims to the instrument;
Defenses or claims in recoupment
*Notice must be received in such time and manner as to give a reasonable opportunity to act on it.
What are the real defenses available against an HDC?
"FAIDS"

Forgery
Fraud
Alteration
Adjudicated incompetency
Infancy
Illegality
Duress
Discharge in insolvency proceedings
SOL
Suretyship
Before a holder can look to an indorser for payment, the holder must fulfill three prerequisites:
Presentment
Dishonor
Notice of Dishonor
Whenever a person (i) transfers an instrument (ii) for consideration, the transferor makes the following five transfer warranties:
1. He is entitled to enforce the instrument;
2. All signatures are authentic and authorized;
3. The instrument has not been altered;
4. No defense or claim of any party is good against him; and
5. He has no knowledge of any insolvency proceedings that have been instituted against the maker, acceptor, or drawer.
Under the UCC, an oral stop payment is effective for _____ and then lapses unless confirmed in writing w/in that period. A written stop payment order is binding for __________.
14 days

6 months
Generally, an unauthorized signature is ineffective as the signature of the person whose name is signed but is effective as the signature of ________.
the signer.

*The unauthorized signer therefore assumes all obligations to any party who gave value for the instrument.
Commercial Paper:

What constitutes "negligence"?
1. leaving blanks or spaces on the instrument;
2. mailing the instrument to someone with the same name as the payee; AND
3. failing to follow internal procedures designed to avoid forgeries.
Failure to examine one's bank statement is _______.
a form of negligence.

*the customer may be estopped from demanding recredit on other items forged or altered by the same wrongdoer.
If the bank fails to exercise ordinary care in paying a check, the loss is allocated __________, but if the bank did not pay in good faith, the _____ bears the entire loss.
between the bank and the customer


bank
A customer may not assert an alteration or a forgery of his signature if he does not notify the bank within _______ after the bank has made the instrument available to him.
1 year.
A customer may not assert a forged instrument more than _________ after the cause of action accrues.
3 years.
Presentment Warranties on Unaccepted Draft
1. entitled to enforce
2. the draft is not altered
3. no knowledge that the drawer's signature is unauthorized
effect of:

forged indorser's signature vs. forged drawer's signature
A forged indorser's signature destroys "good title," but a forged drawer's signature does not.
-If a bank pays out on a forged drawer's signature, payment is final and the bank cannot recover the money back from the party paid (no presentment warranty is broken)
If a bank pays out on a forged indorser's signature, a presentment warranty is broken.