Commercial Paper Ucc 3-Mee

Front 1

Define a note and identify the parties

Back 1

A promise to pay money--a two party instrument (IOU that is a promise to pay)

Maker-the promisor promises to pay
Payee-the promissee is entitled to payment

Front 2

What is a certificate of deposit?

Back 2

A note instituted by a financial institution that acknowledges receipt of money and the promise to repay the money.

Front 3

Define draft and identify the parties

Back 3

A draft is an order to pay--a three party instrument

Drawer orders payment
Drawee is ordered to make payment (check payor bank)
Payee received payment.

Front 4

Define check and identify the different types and their requirements

Back 4

A draft is payable on demand and the drawee is a financial institution.

(1) ordinary check;
(2) certified check (ordinary check that is accepted);
(3) Cashier's check (drawer and drawee same bank. person buying the check is the remitter);
(4) Teller's check (check drawn by one bank on another bank. person buying is a remitter);
(5) traveler's check (demand instrument requiring a counter signature by a person whose specimen signature already appears in the instrument).

Front 5

Can an instrument opt out of negotiability?

Back 5

Yes, unless it is a check.

Front 6

Elements of negotiability

Back 6

(1) in writing;
(2) signed by maker or drawer (any symbol with present intent to authenticate);
(3) unconditional promise or order to pay;
(4) fixed amount;
(5) in money;
(6) no other undertaking or instruction other than payment;
(7) payable on demand or at a definite time; and
(8) contains words of negotiability.

Front 7

Items that make promise or order conditional (thus not negotiable)

Back 7

(1) express condition to payment;
(2) promsie or order "subject to" or "governed by" another record;
(3) Incorporation of rights or obligations by reference.

Front 8

Items that do not make a promise or order conditional (do not affect negotiability)

Back 8

(1) Statement of Consideration;
(2) reference to another record (e.g. as per or in accordance with);
(3) incorporation by reference of items that would not hurt holder (e.g., rights as to collateral, rights to pay early, right to get paid early);
(4) limitation of payment to a particular fund or source;
(5) countersignature;
(6) consumer protection language (but will prevent HDC).

Front 9

Give examples of bearer language

Back 9

(1) payable to bearer;
(2) indication that possessor entitled to payment;
(3) no payee stated;
(4) to cash or to order of cash;
(5) not payable to identified person;
(6) when there is both order and bearer language.

Front 10

What does holder status require?

Back 10

Possession of negotiable instrument and good title (i.e., bearer or order with indorsement).

Front 11

Define a blank indorsement and its effect

Back 11

Payee signs signature only. It creates bearer paper.

Front 12

How do you determine who the payee is?

Back 12

Intent of issuer. (remember multiple party rule based on and or or)

Front 13

What right does a holder have?

Back 13

Many, mainly the right to enforce payment.

Front 14

When is HDC relevant?

Back 14

When the obligor raises a defense to payment.

Front 15

Elements of HDC status

Back 15

(1) negotiable instrument;
(2) holder;
(3) authenticity not apparently questioned;
(4) holder pays value;
(5) good faith; and
(6) without notice of any claims or defenses at the time of acquisition.

Front 16

Define notice

Back 16

Actual or reason to know from all the facts and circumstances at the time.

Front 17

When does a person have reason to know that a claim or defense exists?

Back 17

(1) due date has passed (check 90 days after issue);
(2) instrument dishonered (e.g., marked as insuff. funds);
(3) uncured default on another inst. issued part of same seried;
(4) unauthorized sign.;
(5) alteration.

Front 18

Define shelter rule

Back 18

The transfer of an instrument vests in the transferee the right that the transferor had (property-recording stats; neg.HDC status). However, it merely shelters the transferee as opposed to actually making the transferee a HDC..

Front 19

What are the real defenses that a HDC will still be subject to?

Back 19

(1) infancy (to extent that it is defense in contracts);
(2) duress;
(3) lack of legal capacity;
(4) illegality;
(5) Fraud in the execution (fraud in factum) (don't confuse with fraud in inducement);
(6) discharge in insolvency;
(7) omssion of required consumer protection language;
(8) statute of limitation: Note 6 years from due date and unaccepted draft 3 years after dishonor or 10 years after issuance;
(9) payment to former holder;
(10) alteration;
(11) forgeries.

Front 20

Define fraud int he execution

Back 20

(1) signer lacked knowledge of the instrument's character or essential terms and (2) signer lacked reasonable opportunity to learn of the instrument;s character or essential terms. (didn't know and couldn't reasonably know what they were signing)

Front 21

When are indorsers liable on contract?

Back 21

After (1) presentment within 30 days of indorsement; (2) dishonor; and (3)notice of dishonor within 30 days.

Front 22

When is a drawer liable on contract?

Back 22

(1) presentment to drawee within 30 days unless solvent and (2) dishonor upon proper presentment.

Certification discharges the drawer

Front 23

Define accommodation party

Back 23

A person who signs an instrument to lend his or credit to another party but who does not receive any direct benefit. They are presumed to be a guaranty of payment. but may limit by language such as collection only.

Front 24

Define anomalous indorsement

Back 24

An indorsement by a person who not a holder of the instrument. An anomalous indorsement is an accommodation party.

Front 25

When do transfer warranties arise?

Back 25

Survive final payment and transferor receives them for consideration (i.e., doe not arise in gift).

Front 26

Who can never sue for presentment warranties?

Back 26

Drawees and makers as they get the instruments presented not transferred.

Front 27

What are the transfer warranties and can they be disclaimed?

Back 27

(1) warrantor is entitled to enforce the instrument;
(2) all signatures are authentic and authorized;
(3) no alteration;
(4) no good defenses against transferor;
(5) no "knowledge" of insolvency proceeding.

Checks-No
Non-checks-yes

Front 28

What are the presentment warranties for an unaccepted draft?

Back 28

(Eat All Known ugly drugs)
(1) warrantor is entitled to enforce the draft;
(2) no alteration;
(3) no knowledge of unauthorized drawer's signature.

Front 29

What presentment warranty as to instruments other than unaccepted draft?

Back 29

Warrantor entitled to enforce draft or obtain payment.

Front 30

Requirements for enforcement of negotiable instrument not in possession

Back 30

(1) person was entitled to enforce when the loss occurred;
(2) loss was not due to transfer or lawful seizure;
(3) person cannot reasonably obtain the original; and
(4) protection is given for the payor (e.g., security or bond).

Front 31

How long do stop payment orders last?

Back 31

Oral 14 days unless confirmed in writing. Written 6 months.

Front 32

Requirements for stop payment orders and Defenses

Back 32

(1) stop payment order describes the item with reasonably certainty; and
(2) stop payment received with reasonable time to act on it;

Only drawer can stop payment (not remitter)

Def.: did not comply with requirements of no loss.

Front 33

Define stale check and its implication

Back 33

Check that is more than 6 months old. Drawee does not have to honor the check but may do so in good faith.

Front 34

Accord and satisfaction by a check

Back 34

The check conspicuously indicates that cashing the check acts as payment in full of an existing obligation which is unliquidated or subject to a dispute and the payee cashes the check.

Front 35

Exceptions to accord and satisfaction by a check

Back 35

(1) payee returns to homey within 90 days; or
(2) payee is an organization an had previously notified the drawee of a particular person or address to send payment in full checks.

Front 36

General rules as to forgeries as to liability of alleged maker

Back 36

The alleged make as a general rule is not liable for the forgery because it is the forger's signature that appears on the instrument. Drawee bank must recredit the alleged drawer's account as the checks was not properly payable unless it has a defense.

Front 37

Bank's defenses to recrediting the drawer's account?

Back 37

(1) drawer's negligence;
(2) bank statement rule (duty to inspect and report within 1 year or 30 days for repeat offender)

Front 38

Situations where party is precluded from asserting forgery of payee's name

Back 38

(1) imposter rule; and
(2) Fraudulent endorsements by employees

Front 39

What is the imposter rule?

Back 39

The issuer is estopped from denying the validity of the forged indorsement because they acted carelessly in issuing the check and thus contributed to the forgery.

Front 40

Explain the fraudulent indorsement by employees rule

Back 40

If an employer entrusts an employee or an independent contractor with responsibility with respect to an instrument and the employee makes a fraudulent indorsement, the indorsement is effective. Payee is estopped to assert the forgery. (applies also to ind. contractors)

Front 41

Liability of drawee for paying a forged check

Back 41

(1) conversion liability to payee;
(2) not properly payable liability to drawer. (drawee protected from double liability)

Front 42

What can drawee bank sue on when it has repaid the drawer after improperly paid check.

Back 42

Present warranty against the presenter )(depository bank)

Front 43

Who can depository bank say after paying out for violating presentment warranty when presented a forged check?

Back 43

Transferor for breaching transfer warranties.

Front 44

Effect on HDC for an unauthorized change in obligation or an unauthorized completion

Back 44

Change in obligation-HDC may enforce original amount

Completion-HDC may enforce as completed (think about how in this case the drawer was stupid for leaving open spaces)

Front 45

Effect on non-HDC for an unauthorized change in obligation or an unauthorized completion.

Back 45

Fraudulently made by holder=total discharge to obligor

Not fraudulently made by holder=liable as to original terms

Front 46

Remember this

Back 46

Indorsers are secondarily liable for an instruments that is dishonored. The maker/drawer is primarily liable for a dishonored instrument. This is a different analysis than transfer/presentment warranties.

Front 47

Can you disclaim warranty liability?

Back 47

Yes, but unlike contract liability, a no recourse statement will not suffice.