Lgst410 Exam 3 Cards

Front 1

Define negotiable instruments

Back 1

A written document containing the signature of the creator that makes an unconditional promise or order to pay a sum certain in money at either a time certain or on demand, substitute for cash

Front 2

Define a note

Back 2

A promise, by the maker of the note, to pay a payee

Front 3

Define draft

Back 3

An order by a drawer to a drawee to pay a payee

Front 4

What seperates a note from a draft?

Back 4

A note is a two-party instrument, while by definition, a draft is a three-party instrument

Front 5

Define a demand instrument

Back 5

The payee can demand actual payment at any time

Front 6

Define a time instrument

Back 6

Payment can be made only at a specific time designated in the future

Front 7

Define a CD

Back 7

A promise made by a bank to pay a payee a certain amount of money at a future time

Front 8

Define a check

Back 8

A specific draft, drawn by the owner of a checking account, ordering the bank to pay the payee from that drawer's account, always a demand instrument and never a time instrument

Front 9

What are the requirements for negotiability of a negotiable instrument?

Back 9

1) The instrument is a written document, writing requires relative permanence or moveability
2) It is signed by the creator of the instrument, Signature can be mark, made by means of a machine, but person signing must have present intention to authenticate a writing
3) The instrument has an unconditional promise or order to pay
4) The amount to be paid is a sum certain in money
5) Payment is to be made either on demand or at a fixed future time,; if time of payment not stated, UCC presumes demand instrument
6) The document must contain the words of negotiability "to the order of" or, in the alternative, words indicating that it is a bearer instrument,order paper (payable to specific person)and bearer paper (treated like cash)
Endorsement generally converts order paper to bearer

Front 10

What are the two exceptions to the time-certain requirement of negotiable instruments?

Back 10

1) Instrument that permits acceleration of payment does not violate this requirement as long as there is a fixed date of payment if the acceleration clause is not effected
2) An instrument that permits an extension of the payment is still negotiable if there is a fixed time for payment provided that the maker does not have the right to extend the time of payment indefinitely

Front 11

Define negotiation

Back 11

The transfer of possession to a third party who becomes the holder of the negotiable instrument

Front 12

Define holder

Back 12

A party who possess a negotiable instrument payable to the party or to the bearer of the instrument

Front 13

What is the difference in negotiation between order paper and bearer paper?

Back 13

Bearer paper requires only a delivery of the instrument to the holder by the payee, order paper requires delivery and an endorsement

Front 14

Why must drawers be careful when delivering an instrument?

Back 14

If the drawer is negligent in how he or she makes the delivery, the drawer may be liable for notes paid with forged or unauthorized endorsements

Front 15

Define allonge

Back 15

An additional piece of paper attached to the negotiable instrument with the endorsements

Front 16

What are the two kinds of unqualified endorsements?

Back 16

Blank and special

Front 17

What is a blank endorsement?

Back 17

The payee's or last endorsee's signature, nothing else. Turns previous order paper into bearer paper, can now only be negotiated by delivery only

Front 18

What is a special endorsement?

Back 18

The endorser's signature along with a named endorsee

Front 19

What are the two kinds of qualified endorsements?

Back 19

Blank qualified endorsements and special qualified endorsements

Front 20

What makes an endorsement qualified?

Back 20

The addition of the words without recourse, stating that the endorser does not intend to be bound to this guarantee

Front 21

Define restrictive endorsements

Back 21

Attempt to either limit the transferability of the instrument or control the manner of payment under the instrument

Front 22

Endorsement for deposit or collection only

Back 22

turns endorsement into blank restrictive endorsement

Front 23

Endorsement to prohibit further endorsement

Back 23

Endorsement that uses the word only, does not prohibit further transfer, provides some protectoin

Front 24

Conditional endorsement

Back 24

Condition of payment aka Pay to Billy Budd but only upon his completion of the remodeling he is doing at my house

Front 25

Trust endorsement

Back 25

Used when the instrument is being transferred to an agent or trustee for the benefit of either the endorser or a third party

Front 26

What happens to an endorsement with a misspelled name?

Back 26

Endorser may endorse the document with the misspelled name, the actual name, or both

Front 27

What happens in the case of endorsement to alternative or joint payees?

Back 27

Alternative- Pay to the order of John or Smit, endorsement of any one of the listed payees is sufficient
Joint- require the endorsement of all listed payees before the instrument may be negotiated, when instrument is silent as to the issue of whether the listed payees are joint or alternative, instrument to be interpreted as containing alternative payees

Front 28

What is the purpose of HDC?

Back 28

To protect a financial intermediary, must be paid first because HDC has higher rights to negotiated instrument

Front 29

What are the four qualifications a party must meet regarding taking of an instrument to be considered a HDC?

Back 29

1) Party must be a holder of a complete and authentic negotiable instrument
2) The holder must take the instrument for value
3) The holder must take th instrument in good faith
4) The holder must take the instrument without notice of defects

Front 30

What does taking an instrument for value mean?

Back 30

The party must take the instrument in exchange for a promise that has already been performed, promises that have not yet been performed as "value"

Front 31

A holder can take an instrument for value if the holder does what 5 things?

Back 31

1) Performs the promise for which the instrument was issued
2) Acquires a security interest or other lien in the instrument
3) Takes the instrument for payment of a preceding claim
4) Exchanges the instrument for another negotiable instrumen
5) Exchanges the instrument for an irrevocable obligation to a third party

Front 32

What are the exceptions to the value requirement for HDC?

Back 32

Holder is not an HDC if she or he takes the negotiable instrument
1) By purchasing it at a judicial sale or by taking it under legal process
2) By acquiring it through taking over an estate
3) By purchasing it as part of a bulk transaction not in the regular course of business of the transferor

Front 33

What is the good faith requirement for HDC and what are the two ways in which it can be interpreted?

Back 33

honestly believes instrument is not defective, e.g. inadequate consideration or suspicious circumstances,
Objective=decide whether the holder purchased the instrument with a proper degree of caution through a usual and ordinary manner of conducting business
Subjective=Whether the holder acted honestly when taking the instrument

Front 34

What are the defects a holder may be aware of that would prevent them from becoming an HDC?

Back 34

1) Instrument is overdue
2) Instrument dishonored
3) Instrument issued as part of a series in default
4) INstrument has been altered or contains an unauthorized signature
5)There is a claim to the instrument
6) Another party has a defense or claim in recoupment to the instrument

Front 35

What conditions define a person as having notice?

Back 35

1)She has actual knowledge of the fact
2) She receives notice or notification of it
3) The facts and circumstances known to the person at the time in question give the person reason to know that the fact exists

Front 36

When does an instrument become overdue for demand and time instruments?

Back 36

Demand-Outstanding for an unreasonably long period of time after its date
Time- Any time after the expressed due date on the instrument

Front 37

When does an instrument become dishonored?

Back 37

When a party refuses to pay the instrument

Front 38

How does the Shelter Principle apply to HDC?

Back 38

Even if a holder cannot attain HDC status, the holder can acquire the rights and priveledges of an HDC if the item is being transferred from an HDC

Front 39

Signature Liability

Back 39

When a person signs a negotiable instrument, he or she is potentially liable for the instrument

Front 40

Warranty Liability

Back 40

A party may be liable if the transfer of the instrument breaches a warranty associated with the instrument

Front 41

_______ and _________ are primarily liable for negotiable instruments while ________ and ________ are __________ liable

Back 41

Issuers and acceptors, drawers and endorsers, secondarily

Front 42

Primarily Liable

Back 42

A party who is primarily liable for an instrument must pay the stated amount on the instrument when it is presented for payment, begins as soon as instrument is issued, must pay without resorting to any other party

Front 43

Maker

Back 43

Party that has promised to pay

Front 44

Acceptor

Back 44

Drawee of a draft who accepts and signs the draft to agree to pay the draft when it is presented, primarily liable

Front 45

Secondarily liable

Back 45

A party must pay the amount on the instrument if the primarily liable party defaults

Front 46

Endorser

Back 46

A party who signs an instrument to restrict payment of it, negotiate it, or incur liability

Front 47

Drawer

Back 47

A person who signs as a party ordering payment

Front 48

Presentment

Back 48

Making a demand for the drawee to pay

Front 49

Three conditions that must be met for a drawer or endorser to become liable

Back 49

1) Holder of the instrument must present the instrument in a proper and timely fashion
2) the instrument must be dishonored
3) Notice of the dishonor must be given to the drawer

Front 50

Three requirements for presentment of a negotiable instrument

Back 50

1)Instrument must be presented to the proper party
2) Instrument must be presented to the proper party in the proper way
3) Instrument must be presented to the proper party in a timely manner

Front 51

Dishonored

Back 51

When a holder presents an instrument within a timely and proper manner but acceptance or payment is refused, refusal to pay does not count, must be explicit

Front 52

Accomodation party

Back 52

Party who signs an instrument to provide credit for another party that has also signed the instrument

Front 53

When can an agent's signature create liability for the principal?

Back 53

As long as the agent is authorized to sign a negotiable instrument on behalf of a principal