Commercial Paper And Secured Transactions

Front 1

Negotiable Instruments: Creation

Back 1

An instrument will be freely negotiable so long as it is:
(1) in Writing
(2) Payable to the order or of OR to the bearer of the instrument
(3) a certain sum
(4) signed by the maker or drawer
(5) Unconditional
(6) Payable in currency
(7) at a definite time or on demand

Front 2

Source of Law

Back 2

UCC Article 3

Front 3

Holder in Due Course

Back 3

A holder in due course is one who obtains a promissory note for value and without notice of any defect or defense to its validity. The holder in due course is protected from any personal defenses the obligor may have, and is only subject to REAL defenses

Front 4

Holder in Due Course: Real Defenses

Back 4

Material alteration to the instrument
Duress,
Fraud in the factum (there has been a lie about the instrument)
Infancy,
Incapacity,
Illegality, and
Insolvency.

Front 5

Liability of Drawee Bank

Back 5

A check is a type of negotiable instrument known as a draft. When a holder presents a bank with a properly negotiated instrument (ex: a check), the bank must pay the holder according to the terms of the instrument.

However, a drawee bank must honor the instrument (ex: check) as drawn. Thus, if (a) the amount is altered by a third-party, (b) the signature of the drawer is forged, (c) the bank disburses funds to a forger of the payee or indorsee's signature OR (d) if the order to pay is conditional and the condition has not been satisfied, the drawee bank cannot charge the account and is liable for doing so.

In addition, a bank is required to keep a copy of the drawer's signature and compare it with the signature on the check.

Front 6

Signor/Endorser liability

Back 6

Anyone who signs a check has signor/endorser liability. A maker of a check signs a check and is thus liable if he or she does not pay the instrument.

Anyone who endorses an instrument is liable for the value of the instrument to a party to whom he transfers the instrument.