Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
162 Cards in this Set
- Front
- Back
|
negotiable
|
an instrument is in a special form
|
|
|
negotiated
|
instrument is transferred in a special way
|
|
|
holder in due course
|
one who takes the instrument for value + good faith + no notice of defenses or claims on instrument
|
|
|
how can a person enforce an instrument
|
a negotiable instrument is negotiated to a holder in due course
|
|
|
Article 3
|
What UCC article deals with commercial paper
|
|
|
Note
|
two party commercial paper
|
|
|
what is a two party commercial paper
|
a note = written and signed promise by one party to pay money to someone else
|
|
|
maker
|
the one who makes the written and signed promise
|
|
|
payee
|
same as bearer - the one who is promised to be paid money by the maker
|
|
|
Certificate of Deposit
|
an acknowledgment that a sum has been received by the bank + a promise by the bank to repay the money
|
|
|
who is the one that makes a note
|
a maker
|
|
|
who is the one who draws a draft
|
a drawee
|
|
|
What is a three party commercial paper called
|
a draft
|
|
|
What is a draft
|
when one person writes and signs instructions to another person for them to pay money to a third person
|
|
|
who is the party that writes and signs the instructions for the draft
|
drawer
|
|
|
who is the party that receives the written instructions from the drawer so they can pay a third party
|
drawee
|
|
|
who is the recipient of the drawee's payment
|
payee or bearer
|
|
|
bill of exchange
|
same as a draft
|
|
|
what is a check
|
a draft that is drawn on a bank and payable on demand
|
|
|
what happens when a check is identified as something else on the front
|
as long as it is drawn on a bank and payable on demand, it's still a check - even if it says money order
|
|
|
what happens if an instrument could qualify as a note and a draft
|
it can be enforced as either
|
|
|
Negotiable instrument made negotiable by Art. 8
|
investment securities
|
|
|
negotiable instrument made negotiable by Art. 7
|
documents of title
|
|
|
An example of investment securities
|
stocks and bonds
|
|
|
examples of document of title
|
warehouse receipts and bills of lading
|
|
|
what impact does the UCC have on money
|
none - UCC doesn't apply to money
|
|
|
Issue
|
first delivery of instrument by maker or drawer to give rights on the instrument to any person
|
|
|
who is an issuer
|
maker or drawer of the instrument
|
|
|
negotiability
|
written and signed + unconditional + promise or order + to pay a fixed amount of money + payable to order or bearer + payable on demand or at a specific time + doesn't state any unauthorized undertaking or instruction
|
|
|
when is a promise or order conditional
|
expessly states a condition on payment OR states that the promise or order is subject or governed by another writing
|
|
|
what is the impact of stating that the promise or order arises out of a separate writing
|
doesn't make it conditional
|
|
|
what situations can exist that make the promise or order look conditional, but it isn't
|
refers to another writing for statement of rights regarding collateral, prepayment or acceleration OR limits payment to particular source or fund OR requires as a condition to payment a countersignature
|
|
|
what happens if an instrument refers to a separate writing
|
contents are irrelevant to negotiability and the rights of the holder in due course are not limited by the separate writing
|
|
|
what can a separate writing do to the terms of the negotiable instrument
|
between the parties, can be used to modify the terms of the instrument
|
|
|
what is a promise
|
written undertaking + to pay money + signed by person who is undertaking to pay
|
|
|
what is an order
|
a written instruction + to pay money + signed by person giving order
|
|
|
what is a writing
|
printing, typing or any other intentional reduction to a tangible form
|
|
|
what is a signature
|
handwritten, typed, printed or any other matter made - can be any name that is adopted as a signature
|
|
|
where does the signature have to appear on the document
|
it can be at the end or in the body
|
|
|
what is money
|
any medium of exchange authorized or adopted by a government
|
|
|
what happens if an instrument is payable in currency
|
it is still negotiable
|
|
|
what happens if an instrument calls for payment in foreign currency
|
can be paid in the foreign money or its equivalent in US dollars
|
|
|
what considerations for payment make an instrument non negotiable
|
when they call for payment with something other than money or allows an alternative
|
|
|
what is the principal requirement to make an instrument negotiable
|
the principal due must be fixed
|
|
|
what is necessary in order for interest to be due on an instrument
|
the instrument must provide for the payment of interest
|
|
|
what type of interest is required for a negotiable instrument
|
it can be fixed or variable
|
|
|
what happens if there is an unspecified interest rate
|
as long as the instrument says it will be payable with interest, the judgment rate will be implied
|
|
|
what is the judgment rate
|
what the court decides the rate should be
|
|
|
order paper....
|
must be paid to only to the named person
|
|
|
bearer paper....
|
must be paid to anyone who legitimately has the instrument
|
|
|
what does it mean to be payable to order
|
the promise is payable to the order of an identified person - "pay to the order of John Smith"
|
|
|
when is an instrument payable to bearer
|
states payable to bearer OR doesn't state a payee OR payable to cash
|
|
|
what happens if the signature of the instrument is made by a machine
|
it is payable to the person intended by the one who supplied the name of the payee
|
|
|
methods of identifying a payee...
|
name, office, account number
|
|
|
what happens if an instrument is payable to an account number
|
can only be paid to the person named on the account
|
|
|
what happens to an instrument that is payable to a trust
|
payable to the representative
|
|
|
what happens to an instrument that is payable to an agent
|
payable to the represented person or the representative
|
|
|
is it possible to name multiple people as payees on a negotiable instrument
|
yes
|
|
|
what does it mean for the instrument to be payable on demand
|
states that is payable on demand OR does not state a time for payment
|
|
|
Payable on demand....
|
means that can be payable at the will of the holder
|
|
|
when is an instrument payable at a definite time
|
fixed date OR elapse of a specified period of time after sight or acceptance OR at a readily ascertainable time
|
|
|
what happens if the stated time or event is uncertain as to the time
|
instrument is not negotiable because the time is not readily ascertainable
|
|
|
what is an acceleration clause
|
one that accelerates the time of payment when an event occurs or at the option of the maker or holder
|
|
|
what happens if there is an extension clause at the option of the maker or when an event happens
|
can be included w/out impacting negotiability as long as the extension is to a further definite time stated in the instrument
|
|
|
what happens if there is an extension clause at the option of the holder
|
is always permitted because the holder has the option of giving extra time for the payment
|
|
|
what are acceptable undertakings or instructions that can be inclued in negotiable instruments
|
power to give, maintain or protect collateral OR power to holder to confess judgment or realize on or dispose of collateral OR wiver of beneift of any law that is intends to protect the obligor
|
|
|
what happens if there are contradictory terms on the instrument
|
typewritten terms control printed terms ; handwritten terms control typewritten and printed; words control figures unless they can't be read
|
|
|
what happens if there is a plain statement that an instrument is non negotiable
|
even though it meets the requirements, it will be non negotiable because of hte statement
|
|
|
what happens when there are two or more people who have the same liability on an instrument
|
they are jointly and severally liable in the capacity in which they sign
|
|
|
what happens if there is an incomplete instrument
|
can still be enforced according to the incomplete terms
|
|
|
what happens if an instrument is completely without authority
|
treated as a fraudulently altered instrument
|
|
|
how do you become a holder in due course
|
first become a holder of the negotiable instrument through proper negotiation
|
|
|
what is negotiation
|
process for transferring a negotiable instrument
|
|
|
definition of negotiation
|
transfer of possession + by someone other than issuer + to person who is the holder
|
|
|
what is a holder
|
person in possession of the instrument
|
|
|
a holder is...
|
a person in possession of an instrument who has the right to enforce it
|
|
|
negotiation of a bearer instrument takes place...
|
when possession is transferred
|
|
|
negotiation of an instrument that is payable to an identified person takes place.....
|
when possession is transferred to the identified person and they sign it
|
|
|
what endorsement requires are there to make sure the right to enforce an instrument is present
|
the payee's endorsement has to be authorized and valid
|
|
|
what happens when someone forges a check
|
the title to the check stops with the original payee and no one taking the check after the forgery can be a holder
|
|
|
what impact on a genuine signature that is obtained from fraud or from infant or incompetent
|
is still effective
|
|
|
what must take place in order for the right to enforce an instrument to pass
|
the necessary signatures must be secured
|
|
|
what happens when an instrument connects multiple names with "and"
|
instrument is payable to both jointly and all named must endorse
|
|
|
what happens when an instrument connects multiple names with "or" or "and/or"
|
instrument is payable to the payees severally and can be endorsed by either to pass the right to enforce
|
|
|
what happens if an instrument is delivered w/out an endorsement
|
still effective to transfer possession but can't be a negotiation until the missing endorsement is made
|
|
|
what happens to a transferee who doesn't have all the necessary endorsements
|
can't have status as holder ; can't negotiate instrument
|
|
|
what options does a transferee have when they didn't get all the necessary endorsements
|
could sue asking for an order for the transferor to endorse the instrument OR if for an instrument that is due, could sue to enforce w/out the endorsement - would have to prove that had ownership rights
|
|
|
what happens when a bank takes an instrument for collection
|
they become the holder of the instrument as long as the customer was the holder when they delivered it to the bank - doesn't matter if customer didn't endorse
|
|
|
when is notice of an adverse claim or defense for an instrument measured
|
at the time the transferee obtains the missing endorsement
|
|
|
what happens is the endorsement tries to convey less than the complete amount of the instrument
|
there is not a negotiation and the transferee is not a holder
|
|
|
a special endorsement...
|
names a particular person as endorsee
|
|
|
words of negotiability...
|
are not required in an endorsement
|
|
|
a blank endorsement...
|
is not accompanied by the naming of a specific endorsee
|
|
|
what happesn when a blank endorsement is made on a negotiable instrument
|
it becomes a bearer instrument and anyone who takes delivery of it can negotiate it
|
|
|
what happens if there is a forgery of a name that is not needed in the chain of title
|
doesn't keep later takes from becoming holders
|
|
|
what happens if there is a forgery of a drawer's name
|
no break in the chain of title - subsequent tranferees can qualify as holders
|
|
|
what happens if there are multiple endorsements
|
the last endorsement controls what is needed to further negotiation
|
|
|
when "without recourse" is added to the endorsement...
|
it becomes a qualified endorsement and it limits the legal liability that would otherwise be imposed on endorsers
|
|
|
what happens if any other language is added to an endorsement
|
becomes a restrictive endorsement
|
|
|
examples of restrictive endorsements
|
conditions (pay Flor is she paid the money she owed) trust endorsements (pay John in trust for Jane) ; restricting further negotiations (for deposit only)
|
|
|
Just because you indicate in your endorsement that you want to limit payment to a particular person ...
|
it won't be effective in preventing further transfer or negotiation of the instrument
|
|
|
what happens if there is a condition to payment in an endorsement
|
it is ineffective to condition payment
|
|
|
what happens if "for deposit" is in the endorsement
|
the bank has to follow the instructions that are in the endorsement
|
|
|
an anomalous endorsement...
|
is when a person who is not a holder of the instrument endorses the instrument
|
|
|
a holder in due course ...
|
takes the instrument for value + in good faith + not knowing that the instrument is overdue OR has been dishonored OR there is an unauthorized signature OR there is a claim OR any party has a defense or claim in recoupment
|
|
|
what is the two step proces of determining if a person is a holder in due course
|
first are they a holder then do they hold in due course
|
|
|
holder =
|
have possession + instrument is payable to bearer or person who possesses + free of forgeries
|
|
|
due course =
|
holder takes for value + good faith + no notice of overdue/dishonored OR unauthorized signatures OR a claim against OR party has defense or claim in recoupment
|
|
|
what constitutes value
|
performance of consideration OR a security interest in instrument OR payment of antecedent debt OR trading instrument for another one OR giving in exchange for irrevocable obligation
|
|
|
an executory promise...
|
is a promise to give value in the future and is not value
|
|
|
if take an instrument in payment or collateral for existing debt...
|
= value although wouldn't be consideration for contract law
|
|
|
value given in exchange for commercial paper...
|
doesn't have to match the face amount of the instrument
|
|
|
you are a partial holder in due course when...
|
you pay less than the agreed upon value for the intrument
|
|
|
if credit the depositor's account...
|
still not value
|
|
|
when does a bank become a holder for value
|
when they credit depositor's account and can permit withdrawals of the amount credited
|
|
|
Good faith =
|
honesty in fact + reasonable commercial standards of fair dealing
|
|
|
honesty in fact...
|
is subjective and not the reasonable person standard - based on what the actor believed
|
|
|
fair dealing...
|
is objective - must proceed fairly in light of facts and commercial standards
|
|
|
what is notice
|
actual knowledge and reason to know from facts and circumstances
|
|
|
when does the purchaser have notice that the instrument is overdue
|
when has reason to know: principal amt is overdue OR notice of default on any installment of principal OR acceleration of instrument has been made OR demand has been made
|
|
|
a claim on an instrument...
|
is whan another has a property or possessory right in the instrument or its proceeds
|
|
|
when is notice effective
|
when received at such time and manner as to give reasonable opportunity to act on it
|
|
|
Just because the purchaser has notice of these things, doesn't mean they have notice of a defense or claim
|
date is wrong OR issued in return for executory promise OR signed for accommodation OR an incomplete instrument has been completed OR person negotiating instrument is fiduciary OR there's a default in the payment of interest OR the document has been filed OR was purchased at a discount OR that there is a discharge of a party
|
|
|
what transactions preclude from becoming holder in due course
|
getting instrument by: legal process or purchase @ creditor's sale OR acquiring as successor to estate OR puchasing as part of bulk transaction
|
|
|
when do you determine if someone is a holder in due course
|
at the moment the instrument is negotiated and the holder gives value - whichever is later
|
|
|
what happens if a transferee finds out about a claim or defense before negotiation or giving of value
|
won't qualify as holder in due course
|
|
|
what is the shelter rule
|
a transferee acquires whatever rights the transferor had
|
|
|
what is the purpose of the shelter rule
|
to protect the free negotiability of commercial paper
|
|
|
in what situations will the shelter rule not give holder in due course rights
|
when people are parties to fraud or illegality affecting the instrument
|
|
|
what happens to holder in due course rights once someone has qualified as a holder in due course
|
it transfers to subsequent transferees unless they are a party to fraud or illegality related to the instrument
|
|
|
what happens if a holder is not a holder in due course and the obligated party raises a defense
|
the obligated party would be successful in asserting any defense that an obligor under an ordinary contract to assert against transferee
|
|
|
what protection does being a holder in due course provide for those who have a defense raised
|
the defenses against the payment are limited to those which are called real defenses
|
|
|
a claim is...
|
affirmative right to a negotiable instrument because of superior ownership
|
|
|
real defenses...
|
can be asserted against both the holder indue course and non holder in due course transferees
|
|
|
what happens to the holder in due course when the payee or the special endorsee's name is forged
|
no subsequent taker can be a holder in due course
|
|
|
what happens if a person whose name is forged ratifies the signature
|
subsequent takers can qualify as holders in due course as long as they meet the other requirements
|
|
|
holder in due course needs...
|
value + good faith + no notice of any problems
|
|
|
what happens if the name of anyone other than payee and special indorsee is forged
|
no impact on right to enforce - subsequent takers can qualify as holders in due course
|
|
|
what are the two types of fraud
|
real and personal
|
|
|
what is real fraud
|
fraud in the fact ; induced the obligor to sign the instrument w/out knowlege or reasonable opportunity to learn of its character or essential terms
|
|
|
personal fraud
|
is most of the types of fraud seen = is a personal defense that can't be asserted against a holder in due course
|
|
|
what happens when fraud occurs and the defendant didn't take reasonable steps to ascertain the nature of the transaction
|
can't assert fraud in the factum even though the defendant didn't know that he was signing a negotiable instrument
|
|
|
an alteration is...
|
a change in the terms of the instrument
|
|
|
what are some examples of those who don't have the capacity to contract
|
if declared incompetent or corporations that didn't take the steps to make sure they could transact business in the state
|
|
|
what must take place before incapacity can be a real defense
|
the state has to render the contract void from the beginning - not just voidable
|
|
|
when is infancy a real defense
|
when it would be a defense under state law for a simple contract action
|
|
|
what happens if there is illegality in the underlying transaction for an obligation
|
makes the obligation void and a real defense
|
|
|
when is duress a part of a contract situation
|
when one party acts involuntairly
|
|
|
when is duress a real defense
|
when state law would render the contract void
|
|
|
what is included in insolvency proceedings
|
an assignment for the benefit of creditors and any proceeding intending to liquidate or rehabilitate the estate of the person
|
|
|
what happens if the SOL has run on an instrument
|
no one can enforce the instrument even if a holder in due course
|
|
|
3 year SOL for....
|
unaccepted drafts, against the acceptor of certified checks or issuer of teller's checks, for conversion of an instrument , breach of warranty, enforceing other obligations that come from Art. 3
|
|
|
6 year SOL....
|
notes payable at a definite time or on demand ; actions on CDs
|
|
|
an accommodation party is...
|
one who signs an instrument for the purpose of incurring liability on the instrument w/out being a direct bene
|
|
|
what are suretyship defenses
|
extension of due date; material modification of obligation OR impairment of collateral
|
|
|
what happens if the discharge is apparent on the face of the document or the holder in due course knows of the discharge
|
will be a personal defense and not assertable against a holder in due course
|
|
|
examples of personal defenses on a negotiable instrument
|
lack of consideration, failure of consideration, theft, breach or warranty, failure of condition precedent
|
|
|
Consideration must...
|
support a negotiable instrument
|
|
|
what happens if there is an absence of consideration
|
can be used as a valid defense against anyone but a holder in due course
|
|
|
Suppose there is a partial failure of consideration
|
will be a pro tanto defense
|
|
|
what happens when a payment is made to someone who would be able to enforce the instrument
|
normally the liability of the obligated party would be discharged
|
|
|
what would make discharge not take place when payment is made to the one who could enforce the instrument
|
if the payment is made even though there's a known injunction against payment; person who makes the payment has accepted indemnity against loss ; OR person making payment knows the instrument is stolen and payment is being made to the one in wrongful possession
|
