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;
46 Cards in this Set
- Front
- Back
|
WHAT GOVERNS THE LAW OF COMMERCIAL PAPER (NEGOTIABLE INSTRUMENTS)?
|
ARTICLE 3 OF THE UCC
|
|
|
WHAT IS THE BRIGHT LINE RULE OF NEGOTIABLE INSTRUMENTS?
|
WHEN A NEGOTIABLE INSTRUMENT IS DULY NEGOTIATED TO A HOLDER IN DUE COURSE, THE HOLDER IN DUE COURSE TAKES THE INSTRUMENT FREE OF ALL CLAIMS TO IT, FREE OF PERSONAL DEFENSE, AND ONLY SUBJECT TO REAL DEFENSES.
|
|
|
TYPES OF NEGOTIABLE INSTRUMENTS: THE PROMISSORY NOTE - CHARACTERISTICS AND VOCAB
|
PROMISSORY NOTE IS THE PROMISE MAKER
CONTAINS AFFIRMATIVE PROMISE TO PAY - RATHER THAN JUST AN IOU PROMISOR = THE MAKER PROMSEE = PAYEE (one who's owed money) |
|
|
TYPES OF NEGOTIABLE INSTRUMENTS: THE DRAFT - CHARACTERISTICS AND VOCAB
|
(THE DRAFT IS JUST A FUCKING CHECK)
Draft is the COMMANDER - Contains and ORDER TO PAY The DRAWER - gives the order (me) the DRAWEE - does the paying (bank) The PAYEE - is the one who collects (health insurance) |
|
|
WHO IS THE INDORSER?
|
APPEARS IN BOTH PROMISSORY NOTES AND DRAFTS
INDORSER IS THE PERSON WHO SIGNS ON THE BACK |
|
|
****HOW TO DIFFERENTIATE BETWEEN NEGOTIABLE INSTRUMENTS AND CONTRACTS
|
To qualify as a NEGOTIABLE INSTRUMENT, must have:
(1) a writing (2) payable to order or bearer (3) Signed by maker or drawer (4) reciting a sum certain (5)** Containing an UNCONDITIONAL PROMISE OR ORDER - AND NO ADDITIONAL PROMISES OR ORDERS (6) payable on demand at a definite time (7) payable in currency |
|
|
Signature Req
|
Must be signed by the MAKER if it is a NOTE
Signed by DRAWER if it is a DRAFT (this is not a formal standard - could be any indicia of authentication) |
|
|
Unconditional Promise Req v. contracts
|
must have UNCONDITIONAL promise to = note
UNCONDITIONAL order = draft By contract if it is conditional, or GOVERNED OR SUBJECT TO something else - CONTRACT |
|
|
Can a negotiable instrument refer to an outside source/another writing?
|
YES - just cant be SUBJECT TO etc - its ok to refer to another writing for a statement of rights, etc.
|
|
|
Can a negotiable instrument limit payment to a specific source/fund w/o becoming conditional?
|
YES - "I promise to pay from next funds I get from sperm donation = NEGOTIABLE
|
|
|
Sum Certain Requirement
|
Must state SUM CERTAIN or SPECIFICALLY ASCERTAINABLE SUM -
must be able to figure out how much is to be paid either from writing itself or reference to outside source. |
|
|
Is it still a sum certain if it says "+ interest" but does not state an interest rate?
|
YES - usually just use judgment rate which is set by state statute
AMOUNT OF INTEREST (but not amount of principal) DOES NOT HAVE TO BE SET - VARIABLE IS OK |
|
|
Currency Requirement: what does it mean, what is not included
|
CURRENCY = ANY TYPE OF MONEY
CURRENCY does not include GOODS |
|
|
NO ADDITIONAL PROMISES REQ
|
TWO IS A CROWD - "I promise ot pay you $4K and give you my tv" = non-negotiable
|
|
|
DEFINITE TIME REQ
|
A negotiable instrument is payable at a definite time if payable:
(1) ON or BEFORE a fixed date, or (2) at a FIXED PERIOD AFTER a stated date |
|
|
PAYABLE ON DEMAND REQ.
What if inst. is silent as to time of payment? |
Neg instrument must be payable on demand or at a definite time.
If silent - STILL NEGOTIABLE - payable on demand is presumed. |
|
|
DEFINITE TIME REQ - tricky question
Effect of an acceleration clause |
Must be payable on or before a stated date or at a fixed period after a stated date.
Trick question - "payable Feb. 1, 2006 but becomes immediately due and payable if prior to that time the redskins win the superbowl" - THIS IS NEGOTIABLE ACCELERATION CLAUSES ARE PERMISSIBLE AND DON'T DESTROY NEGOTIABILITY |
|
|
PAYABLE TO ORDER OR BEARER REQ
|
Payable to ORDER =
"Payable to ORDER of J" OR "Payable to ASSIGNS of J" Payable to BEARER = Payable to ANYONE WHO HAS IT, including "PAY TO CASH, PAY TO THE ORDER OF CASH" |
|
|
Does "Pay to Andy Garcia" satisfy the pay to order/bearer requirement?
|
NO - UNLESS IT'S A CHECK
OTHERWISE JUST A K DOESN'T CONTAIN ANY OF HTE MAGIC WORDS - "ORDER, ASSIGNS, OR BEARER" |
|
|
CONTRACT OR SIGNATURE LIABILITY - THE BASIC CONTEXT
|
Here D signed the negotiable instrument. When you sign it you promise to pay - and that's houw you get sued.
|
|
|
DETERMINING WHO IS LIABLE: WHEN THE MAKER SIGNS A PROMISSORY NOTE
|
MAKER (PROMISOR) merely by signing his name enters into a contract, where by he agrees to pay. If he doesn't pay he can get sued.
|
|
|
DETERMINING WHO IS LIABLE - INDORSER
|
Indorser signs name on back of the instrument - basically saying that if the check bounces indorser will pay. If he doesnt - he can be sued.
|
|
|
DETERMINING WHO IS LIABLE - THE DRAWER (PARTY WHO SIGNS THE CHECK)
|
BY SIGNING THE CHECK YOU PROMISE THAT IF IT BOUNCES, AND YOU ARE NOTIFIED, YOU WILL PAY.
If you fail to do so you can be sued. |
|
|
DETERMINING WHO IS LIABLE - THE DRAWEE (PARTY WHO PAYS THE CHECK)
|
Typically this is the Bank - THE BANK DOESN'T SIGN - SO IT ISN'T LIABLE (remember though - this is just signature liability)
|
|
|
****WHAT HAPPENS WHEN THE WORDS "WITHOUT RECOURSE" ACCOMPANY THE SIGNATURE
|
"Without Recourse" = a term of art used by INDORSERS and DRAWERS
It is a DISCLAIMER OF SIGNATURE LIABILITY Ex. JD indorses his paycheck w/ the words "without recourse - JD" - JD passes title but assumes no signature liability. |
|
|
WARRANTY OR TRANSFER LIABILITY - BASIC CONTEXT
|
Think of it as the SELLER's liability for selling a DEFECTIVE INSTRUMENT
D gets sued for BREACH OF WARRANTY |
|
|
WHO CAN BE DEFENDANT IN ACTION FOR BREACH OF WARRANTY?
|
Anyone who SELLS the negotiable instrument.
Thus DONORS are not liable |
|
|
WHO IS ENTITLED TO SUE THE D FOR BREACH OF WARRANTY? - WHEN D IS INDORSER
|
IF D HAS INDORSED -
ANY P IN POSSESSION can sue When D INDORSES and is not a DONOR - WARRANTIES RUN WITH THE INSTRUMENT! |
|
|
WHO IS ENTITLED TO SUE THE D FOR BREACH OF WARRANTY? - WHEN D IS NOT INDORSER
|
WARRANTIES DO NOT RUN WITH THE DOCUMENT WHEN D DOES NOT INDORSE IT
ONLY D'S **IMMEDIATE TRANSFEREE** CAN SUE HIM |
|
|
WHAT ARE THE 5 WARRANTIES MADE BY D?
|
(1) P HAS GOOD TITLE TO THE INSTRUMENT
(2) ALL SIGNATURES ARE GENUINE & AUTHORIZED (forgery = breach) (3) INST. HASN'T BEEN MATERIALLY ALTERED (4) NO DEFENSE OR CLAIM GOOD AGAINST THE D - IE, INSTRUMENT IS ENFORCEABLE (5) D HAS NO KNOWLEDGE OF BANKRUPTCY OR INSOLVENCY ACTIONS AGAINST THE MAKER/DRAWER |
|
|
DUE NEGOTIATION - WHAT DOES IT MEAN AND WHAT IS THE GENERAL IMPORT
|
Due negotiation means that there has been a PROPER TRANSFER of the instrument.
If instrument is properly transferred, holder MAY be eligible to be HOLDER IN DUE COURSE. |
|
|
PROPER TRANSFER: PAYABLE TO ORDER
|
When instrument is payable to order of a specific payee: NEGOTIATED BY DELIVERY OF THE INSTRUMENT
ANY FURTHER NEGOTIATION REQUIREES PAYEE TO INDORSE THE INSTRUMENT AND DELIVER TO THE TRANSFEREE THE INDORSEMENT MUST BE VALID. Ex. I lose my paycheck, payable to my order. Dick finds it, signs my name on the back and cashes it w/ Clueless. Is clueless a holder? NO - NOT PROPERLY NEGOTIATED - I HAD TO SIGN IT AND NEVER DID. |
|
|
PROPER TRANSFER - PAYABLE TO ORDER
|
INDORSMENT NOT REQUIRED..
(obviously - whoever has it owns it) |
|
|
WHAT ARE THE TWO TYPES OF VARIATIONS IN INDORSEMENTS?
|
(A) SPECIAL V. BLANK
Special Indorsement: (1) Names a particular person as INDORSEE (2) Indorsee must SIGN in order for the instrument to be further negotiated. Ex. I indorse my paycheck - "pay to anita /s/ ow. Anita is the indorsee, and must sign - same bad transfer rules apply if forged. BLANK INDORSEMENT - (1) Does not name a specific indorsee (2) It may be NEGOTIATED BY DELIVERY ALONE (B) RESTRICTIVE INDORSEMENT E.g., "for deposit only". If check is stolen and bank cashes it, CAN SUE BANK FOR CONVERSTION |
|
|
THE HOLDER IN DUE COURSE - DEFINITION
|
A HDC IS A HOLDER WHO TAKES AN INSTRUMENT:
(1) FOR VALUE, AND (2) IN GOOD FAITH, AND (3) W/O NOTICE TAHT IT IS OVERDUE OR HAS BEEN DISHONORED OR IS SUBJECT TO ANY DEFENSE OR CLAIM |
|
|
HDC - THE "FOR VALUE" REQ
WHAT IS THE DIFFERENCE BETWEEN VALUE AND CONSIDERATION? |
To be an HDC holder must GIVE VALUE for the instrument.
Value IS NOT consideration, for two reasons: A PROMISE is NOT value OLD VALUE is GOOD VALUE |
|
|
HDC - THE GOOD FAITH REQUIREMENT
DESCRIBE THE TEST(S) APPLIED |
TWO PART TEST:
(1) HONESTY IN FACT - SUBJECTIVE "PURE HEARD AND EMPTY HEAD" (2) OBSERVANCE OF REASONABLE COMMERCIAL STANDARDS OF FAIR DEALING - SUBJECTIVE |
|
|
THE HDC - THE LACK OF NOTICE REQ
WHAT IS THE TEST |
Holder must acquire instrument without notice that it is OVERDUE, has been DISHONORED or is subject to any DEFENSE OR CLAIM.
The test is OBJECTIVE TEST: DID THE HOLDER KNOW OR HAVE REASON TO KNOW OF THE PROBLEM |
|
|
WHAT IF THE HOLDER HAS NOTICE THAT THE PRINCIPAL IS IN ARREARS?
|
CANNOT QUALIFY AS HDC
|
|
|
WHAT IF HOLDER HAS NOTICE THAT PAYMENT OF INTEREST IS IN ARREARS?
|
Here holder CAN qualify as an HDC
|
|
|
THE HDC - LACK OF NOTICE REQ - NOTICE OF ANY DEFENSE OR CLAIM AGAINST THE INSTRUMENT'S ENFORCEMENT - WHAT ARE THE VARIOUS SITUATIONS WHERE THIS COMES UP?
|
(1) WHERE APPEARANCE OF INST. GIVES NOTICE
(e.g. says VOID on it) - cannot be an HDC (2) NOTICE THAT OBLIGATION OF ANY PARTY IS VOIDABLE X sells chair to G claiming it is an antique, but its really from Ikea. G signs a note for $4K for the chair, X indorses that note and sells the note to B. Between X and G - obligation to pay is VOIDABLE b/c G has defense against enforcement. HOWEVER - B can STILL BE HDC - IF he doesnt have NOTICE or REASON TO KNOW of that defense (3) NOTICE OF COMPETING CLAIM TO INSTRUMENT Here transferee can still qualify IF no notice or reason to know that instrument was LOST OR STOLEN from true owner. **(4) NOTICE THAT FIDUCIARY HAS NEG. INST. IN BREACH OF DUTY - ONLY TIME STANDARD IS DIFFERENT - holder CAN qualify as HDC if he didn't ACTUALLY KNOW that fiduciary violated his duty. Only time standard is ACTUAL KNOWLEDGE |
|
|
THE HDC & THE SHELTER RULE - WHAT IS IT AND WHAT DOES IT DO
|
THE SHELTER RULE: A TRANSFEREE ACQUIRES WHATEVER RIGHTS HER TRANSFEROR HAD. (ie, transferee "steps into the shoes" of transferor)
EFFECT OF SHELTER RULE: Gives transferees who otherwise would not be able to attain HDC status the same rights as an HDC (eg, DONEES). |
|
|
THE BENEFIT OF HDC STATUS: WHAT IS THE RULE?
|
A HDC (and those that take shelter) take the instrument: (1) FREE from CLAIMS, (2) FREE from PERSONAL DEFENSES, and (3) SUBJECT TO REAL DEFENSES.
|
|
|
WHAT IS A CLAIM FOR PURPOSES OF HDC PROTECTION
|
A CLAIM IS A RIGHT TO A NEGOTIABLE INSTRUMENT B/C OF SUPERIOR OWNERSHIP.
THUS HDC DEFEATS SUPERIOR OWNER |
|
|
WHAT ARE PERSONAL DEFENSES FOR PURPOSES OF HDC PROTECTION?
|
EVERY DEFENSE AVAILABLE IN THE ORDINARY CONTRACT ACTION:
LACK OFCONSIDERATION, WAIVER, ESTOPPEL, FRAUD IN THE INDUCEMENT, UNCONSCIONABILITY |
|
|
WHAT ARE THE REAL DEFENSES WHICH AN HDC IS STILL SUBJECT TO?
|
(MAD FIFI^4)
MATERIAL ALTERATION - Changes in the terms of instrument (ie, turning a 1 into a 7 - unless maker was negligent) DURESS FRAUD IN THE FACTUM - lie about the instrument (note difference from fraud in the inducement) INCAPACITY ILLEGALITY INFANCY INSOLVENCY |
