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20 Cards in this Set
- Front
- Back
- 3rd side (hint)
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What are the 5 steps of analyzing a commercial law question?
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1.Determine what instruments are involved
2. Determine what law applies 3. Chart the path of the instruments from party to party deciding whether it was negotiated 4. Determine the potential defensesto liability each party may raise and whether these are good defenses against a P 5. Determine the potential laibility of the parties |
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What do you analyze in step 1: determine which instruments are involved?
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1. Do we have a note?
2. Do we have a check? |
A note: 2 party commercial paper where the maker promises to pay money to the payee or bearer
A Draft: THree party commercial paper where the drawer orders the drawee to pay a payee Indorsements: 1. Special ( Payable to X + sign) or Blank (only a sign) 2. Qualified (w/o recourse) or unqualified 3. Restrictive (says " for deposit only => violation is the tort of conversion) or Unrestrictive |
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What do you do if you have a note?
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HDC will be the main part of your analysis
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What do you do if you have a check?
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You will apply the HDC rule but the main part of the analysis will be the properly payable rule
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PPR: bank must pay checks that are properly payable ; must not pay checks that are not properly payable. There are two types of bank errors: wrongful dishonor or wrongful dishonor. (discussed later)
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What do you do to analyze step 2: determine what law applies
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To determine what law applies you see if the instrument is negotiable or not.
If the instrument is not negotiable CL of K applies. If it, UCC 3 applies. |
Note this in your answer but always apply UCC and 4 noting that are assuming negotiability
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What is the paragraph to remember for step 2: determine what law applies
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1. These transactions are governed by Art 3 (negotiable instruments) and 4 (Checks) of the UCC.
2. Thus, our 1st ques is negotiability because it triggers art 3 and because where a negotiable instrument is negotiated to a HDC , the HDC takes the instrument free of personal defenses and claims and subject only to real defenses 3. For an instrument to be negotiable , it must satisfy strict rules of formality: it must be a writing, signed by the maker (note) or drawer (check), containing an unconditional promise or order to pay a fixed amount of money, on demand or at a definite time, and contain no additional unauthorized promises or undertakings 5. Moreover, if the instrument is a note, it must also be made payable to order or to bearer; checks are now exempt from his final reqr of negotaibility. 6. Here,.... |
1. writing: tangible form
2. Signed by the Maker or Drawer: any mark that shows intent. Included verbal authorization if there is intent 3. Unconditional: no express conditions 4. Promise or order: the promise is a commitment not a mere IOU , the order is a direction not a request or mere authorization 5. To pay a fixed amount: the principle must be fixed but the interest rate may vary 6. of money: currency but not commodities 7. No other unauthorized promises: the three promises permitted are : a) re: collaterals b) confess jdgmts c) waiving legal rights 8. On demand or at a definite time: On demand if it says so, "at sight" or is silent. definite time means a fixed date 9. To order ( must have the word order), or to bearer ( must have the word bearer or pay to cash - pay to Kelly is a non-negotiable note. |
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In step 3: charting the path of the instruments, in which stages do you decide whether there was negotiability?
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1. Parties involved at the issuance stage
2. Transfer stage 3. Presentment stage |
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Which parties are involved in the issuance stage?
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1. Maker (note) / Drawer (check)
2. to payee |
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Which parties are involved in the transfer stage?
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1. Indorser
2. Indorsee (via special indorsement) 3. Perhaps some theives or forgers |
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Which parties are involved in the presentment stage?
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1. Holder (perhaps HDC) presents to
2. Maker (Note) or 3. Drawee ( Check) 4. for payment |
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What is the paragraph that you need to memorize for step 3: charting the path of negotiability
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1. For an instrument to be negotiated, it must be transferred to a subsequent party who becomes a holder
2. A holder means both possession and good title ( free of forgeries or missing signatures of payee and any special indorsees). 3. Order paper is negotiated by proper indorsement and delivery 4. Bearer paper is negotiated by delivery alone 5. Blank endorsements create bearer paper 6. Special endorsements create order paper 7. Here, ... |
1. Last indorsement Rule applies: what was the last indorsement that was made? Was it special or blank?
2. If special, then we are looking at order papers 3. If blank, then we have a bearer paper 4. Then you see if there was a proper indorsement + delivery for the order paper 5. Or just delivery for the bearer paper. |
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What do you need to know about step 4: potential defenses
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If the P is a HDC, then P takes free of personal defenses and is subject only to real defenses (FAIDS)
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Personal Claims and defenses: all claims that are not real defenses - misrepresentation, breach of K, etc.
Exception: Shelter rule: A transferee acquires whatever rights her transferor enjoyed, taking shelter in the status of her transferor (HDC rights - limitation: shelter rule does not apply if the transferee if a party to fraud or illegality affecting the instrument) |
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What is the paragraph that you need to memorize for step 4 ;potential defenses?
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1. Here, in addition to being a holder , X is also a holder in due course.
2. A holder becomes a HDC by giving value, acting in good faith and without noticeof problems with or defenses to the instrument 3. Here, X.... 4. An HDC can sue the other parties to the instrument for payment, and those parties are able to defend against that suit only on narrow grounds called "real" defenses (FAIDS), and not on broader grounds called "personal" defenses. 4. Here, X will be able to recover from ... |
F: Forgery ( forgery of names necessary to title (payee & any special indorsee) prohibits proper negotiation and thus precludes later HDC)
F: Fraud in Factum: narrow class available only to those who can't read - since it is signing a document without knowing that it's a negotiable instrument. Alteration ( Material) Incapacity: Infancy, adjudicated insanity => same as K law Illegality Discharge of Insolvency (bankruptcy); Discharge with notice ( you were released from it ) => not tested Suretyship with notice (HDC knows a prior party signed instrument as a surety) SOL: 6 yrs after dishonor of check, 6 yrs after due date of notice, 10 yrs after date of check |
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What are the various liabilities involved in step 5: determine potential liabilities?
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1. K liability
2. Warranty Liability 3. Conversion (Tort) liability 4. The underlying obligation 5. Properly payable rule of Art 4 |
1. Holder v. Indorser ( K liability, breach of transfer warranty liability
2. Holder v. Drawee ( obligation discharged when check is paid) - No liability unless acceptance ( certification i.e. certified or cashiers check - so acceptance by a bank discharges drawer) 3. Drawer v. Drawee ( K relationship): PPR |
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What is K liability?
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From signature to instrument. Maker/ Drawer has primary liability; indorsers have secondary liability
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1. Prereq to liability: a) presentment - checks have a 30 day limit - so you have to ask the primary party first b) dishonor c) notice of discharge
2. Effect of qualified indorsement: here you wrote "w/o recourse" so you are not liable |
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What is warranty laibility?
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1. Transfer warranty liability arises upon any transfer for consideration
2. Presentment warranty liability arises upon presentment |
There are five transfer warranties MADE by potential D , who is anyone that transfers for consideration; and they RUN to potential P who are the immediate transferee and all subsequent transferees if transfer was by indorsement.
The five warranties (for checks) are: 1. Good title (the only thing needed for other instruments) 2. Genuine signatures 3. No material alteration 4. No defenses 5. No knowledge of insolvency proceedings |
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What is conversion liability?
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arises upon mistreatment of personal property (notes/ checks)
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What isthe underlying obligation?
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It is usually contractual obligation for which the note or check was issued. This is suspended when an instrument is issued but springs back once an instrument is dishonored
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What is the PPR rule of art 4?
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Banks that violate the properly payable rule (e.g. paying over valid stop payment order or forgery) are liable to their customers; however, customers are frequently precluded by their negligence ( e.g issuing checks to imposters) from asserting a violation of this rule
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There are 2 types of bank errors:
1. Wrongful doshonor: when the drawee should pay, but doesn't . So it is properly payable but not paid, 2. Wrongful Honor ( drawee pays but shouldn't have - it is not properly payable, but is paid) This arises when: a) Stop payment orders : these are valid when customer has identified the item and given the bank notice (oral valid for 14 days, written valid for 6 mo) b) Stale checks: These are checks that are 6 mo or olders. Bank may pay them but is not req to. c) Post dated checks: These are valid if the customer gave the bank notice (oral 14 days, written 6 mo) and identified the item. d) Checks paid after drawer's death: these are properly payable until bank knows of the death and includes 10 day window after notice e) Overdrafts: banks may pay but are not req - depends on K f) Forgeries and alterations: these are generally not properly payable exxcept for 1) fictitious indorsements by imposters or EE resp. for writing checks 2) customer's negligence like writing a blank check or with pencil 3) late notice to the bank. |
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What is the paragraph that you need to memorize for step 5: determining potential liabilities?
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1. In addition to bringing suit against Y based on Y's status as (maker/indorser etc) X may also be able to sue.... on the basis of ....
2. Y may then be able to recover from Z on the basis of ..... |
Regarding drawee/ payor banl recovery:
1. When there is a forged drawer's signature: payment is FINAL. No recovery for bank unless it has restitution claim against the wrongful party 2. When there is a forged indorsement, payment is NOT FINAL (we have a breach of warranty of presentment) and the bank may recover from the party that presented the instrument or any prior transferor. |
