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25 Cards in this Set
- Front
- Back
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What is a note?
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Promise to pay by the maker to the payee
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What is a cerificate of deposit?
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Instrument made by a bank containing:
-acknowledgement of money received, and -promise to repay |
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What is a draft?
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Order by the drawer to the drawee (bank) to pay the payee
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What is a check?
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Draft drawn on a bank and payable on demand
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What is necessary for an instrument to be negotiable?
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1. written and signed
2. unconditional 3. promise/order 4. to pay a fixed amount of money that: -is payable to order or bearer when issued or first in possession of a holder - payable on demand or at a definite time, AND -states no unauthorized understaking or instruction |
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When is an instrument conditional?
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1. Expressly states a condition for payment, or
2. subject to another writing (recitation of consideration is OK) |
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A note must have a promise to pay, not an IOU acknowledging a debt.
The principal must be fixed and money (interest ok) |
NA
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What does payable 'to order' mean?
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To the order of an identified person.
Payable to beare anytime there is no identified person |
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What are the only authorized undertakings (instructions) for negotiability?
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1. Undertaking/power to give, maintain, or protect collateral
2. Waiver of a law that protects the obligor. 3. Dispose of collateral / Confess judgment (this one unenforceable in TX) |
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How are bearer instruments negotiated?
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Transferring possession
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How are order instruments negotiated?
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- Transferring possession, AND
- identified person's indorsement |
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What can a transferee do if he does not have all required indorsements?
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Does not have holder status, but can sue in equity for indorsement.
Can also sue to enforce if the instrument is due. |
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What happens if a drawer forges the signature of someone else?
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No problem for later holders because it works as the genuine signature of the forger.
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What is required for due course?
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1. value
2. good faith, and 3. without notice |
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What is good faith for due course?
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Honesty in fact (subjective), AND
observance of reasonable commercial standards (objective standard) |
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What constitutes notice for due course?
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1. Instrument is overdue (principal overdue, acceleration made, 90+ days for check)
2. Notice of unauthorized signature or alteration 3. Notice of claims to the instrument 4. Defenses (infancy, duress) or claims in recoupment by obligor. |
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How much time necessary for notice to kill due course status?
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reasonable opportunity to act on it
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Can a successor in interest (from an estate or other organization) be an HDC? What about part of a bulk transaction not in regular course of business of transferor?
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Nope.
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What are the applicable Statutes of Limitations for defending against HDCs?
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3 years:
- after dishonor of unaccepted drafts - after demand on cashier's/certified checks 6 years - notes payable at a definite time or on demand - certificates of deposit |
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What is the mnemonic for the real defenses valid against HDCs?
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FAIDS
Forgery Fraud Alteration Adjudicated incompetency Infancy Illegality Duress Discharge in insolvency proceedings Statute of Limitations Suretyship |
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What is required before a holder can look to an indorser for payment?
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1. presentment (demand)
2. dishonor, AND 3. notice of dishonor (within 30 days of dishonor) |
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Who makes a warranty on commercial paper?
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Anyone who transfers for consideration.
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To whom do warranties run?
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By indorsement - all subsequent holders
not by indorsement - immediate transferee only |
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What transfer warranties are made by a transferor?
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1. He is entitled to enforce (all indorsements are genuine and transferor is a proper party for presentment)
2. All signatures are genuine or authorized 3. Instrument was not materially altered 4. No defense is good 5. No knowledge of insolvency by maker or drawer, AND 6. If remote, creation was by the drawer. WARRANTIES ONLY ARISE IF CONSIDERATION FOR TRANSFER, but remember he could still be an indorser = secondary liability |
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What are the presentment warranties?
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Unaccepted draft
1. Warrantor is entitled to enforce ("good title") 2. Not altered 3. No knowledge that the drawer's signature is unauthorized 4. Remotely created item = authorized by drawer Other instruments 1. Entitled to enforce |
