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23 Cards in this Set

  • Front
  • Back
What is a note?
2 party paper - MAKER (primary liab) promises to pay PAYEE

CD - bank promises to repay
3 party paper - DRAWER (conditional or secondary liab) orders DRAWEE to pay PAYEE

e.g. check - draft payable on demand and drwon on a bank
Inconsistency - heirarchy between words v. figures; type v. handwriting
handwriting over type over print

words over figures
sig by someone other than that of maker, drawer or ACCEPTOR - a drawee who has agreed to pay the instrument
special indorsement
id's person to whom payable. BLANK does not.
Restrictive indorsement
Limits payment. UNRESTRICTIVE does not
Qualified indorsement
"without recourse" - negates 2ndary liab. UNQUALIFIED does not.
Anomalous indorsement
indicates ACCOMODATION ("out of chain"). NONANOMALOUS does not.
Accomodation parties
liable in capacity in which they sign, i.e., dad who signs K for kid to buy car. Surety has rt of recourse against accomodated party
Holder in Due Course doctrine
Holder v. Maker! PF case:
1. negotiable instrument
2. negotiated
3. holder in due course
4. takes free of personal defenses and claims - SUBJ ONLY TO REAL DEFENSES
Negotiable instrument/Elements of Negotiability
1. writing - tangible
2. signed by maker - agency law applies. forgery operative as to forger
3. unconditional - no express; implied/constructive OK
4. promise or order to pay
5. a fixed amt of money - must be able to det amt now
6. on demand or at a definite time (silence = demand, accel clauses OK)
7. to bearer or to order at time of issue (unless it's a check)
8. no other unauth purpose
Rules for negotiation (2 kinds)
1. ORDER - proper indorsement + delivery (think of a check)
2. BEARER - delivery alone (think of money order)
Last indorsement rule
1. SPECIAL/ORDER - if last endorsement is special, then pay to order (/s/ sue, pay bob; bob must sign and deliver to sally)
2. BLANK/BEARER - if last ind is just sue's sig, then deliv to bob, bob can just give to sally
What is a holder in due course?
An HDC is one who has acquired possession of a negotiable instrument through proper negotiation
1. for value,
2. in good faith, and
3. without notice of any defenses to it.
"Free from Personal Defenses and Claims, but subj to real defenses..." (list out defenses that can apply)

1. forgery, fraud in factum (switched docs)
2. alteration, adjudicated insanity
3. infancy, illegality
4. duress, dischg in insolvency
5. suretyship defenses (if notice of suretyship), statute of limitations (3 yrs for drafts, 6 yrs for notes, 10 yrs otherwise)
FTC amelioration
affects HDC - NO HDC rts, human buys consumer goods or svcs on credit, covered by FTC
Shelter Rule
anyone who takes after an HDC gets the rts of an HDC, even if she knew of overdueness, forgery, irregularity, etc.
What relationship between Holder v. Indorser? 3 step timeline?
K of 2ndary liability!

1. presentment
2. dishonor
3. notice of dishonor
Warranty liability (3 steps)
anyone who transferes an instrument makes warranties "off instrument"
1. issuance - no warranties
2. transfer: right to enforce (title), sig genuine (no forger), no alteration, no defense, no knowledge of insolvency
3. presentment - final surrender. presentment makes warranty #1 but not #2
What relationship between Holder v. Drawee?
no relationship, no liab unless acceptance (certification). if cert, drawee liable for conseq dmgs and drawer dischgd
What relationship between Drawer v. Drawee? 3 step timeline?
Contractual relationship (think: you and your bank)
Exceptions to Drawer v. Drawee rule
1. fictitious indorsements = effective. Negligence shifts burden to drawer. Imposter; payroll padding; corporate comptroller
2. drawer negligent in drafting
3. drawer negligent in notifying
Bank recovery (finality) w/ regards to :

- forged drawer sig
- forged indorsemt
forged drawer sig - pymt is final, and no recovery by bank from innocent party

forged indorsemt - pymt not final; bank can recover from innocent pty whom it pd