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27 Cards in this Set
- Front
- Back
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What are the requirements for negotiable instruments?
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1. Unconditional;
2. Promise or order to pay; 3. Fixed amount of money; 4. Payable to order or bearer; 5. On demand or fixed time 6. No other undertakings or instructions |
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How do you make an instrument non-negotiable?
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Any can make any instrument non-negotiable by writing "non-negotiable" except for checks
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Can a check be made non-negotiable by writing "non-negotiable" on it?
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NO
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When is an agent personally liable?
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Agent is liable personally, unless there is an unambiguous agency capacity and the principal is named in the agreement
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Requirements to be a Holder in Due Course
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1. Holder
2. Negotiable instrument 3. No facial irregularity 4. Good faith 5. For value 6. W/O notice of either overdue (missed payment), unauthorized signatures, or that there are any defenses or claims to it |
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Defenses with a Holder in Due Course
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A holder in due course takes free of personal defenses (lack of consideration, Statue of Frauds)
A holder in due course does not take free of real defenses (infancy, duress, illegality, incapacity, fraud, SOL) |
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What can you do if you don't qualify as a holder in due course yourself?
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Try to qualify through the person that transferred you the instrument by using the shelter rule
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What is the shelter rule?
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The shelter rule states that a transferee acquires whatever rights his transferor had
It allows a person to obtain the rights of the HDC who formerly held the instrument even though the transferee fails the requirements of an HDC |
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What are the elements of a transfer warranty?
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You are authorizing that:
1. The signatures are authentic; 2. There are no material alterations; and 3. There are no defenses to this instruemtn |
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What are the elements of a presentment warranty?
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The presenter is a person entitled to:
1. Enforce 2. There is no alteration 3. No knowledge of a forgery of the drawer's signature |
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What is the liability of the maker of a note?
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Maker must pay to the terms when the note comes due
Maker can be liable to the endorser who paid a holder or another endorser |
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What is the liability of the drawer of a draft?
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The drawer is secondarily liable only after the instrument has been presented and has been dishonored
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What is the liability of the indorser?
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Indorser is liable to later indorsers and an indorser can sue against prior indorsers
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When can an indorser be liable?
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The indorser can be liable only if there has been:
1. Presentment within 30 days; 2. Dishonor; and 3. Notice of dishonor was received by the indorser within 30 days |
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What is liability of the drawee?
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Generally, a drawee is not liable because it has not signed the instrument
Exception where the drawee accepts the instrument or the drawee certifies the instrument |
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Final Payment
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Final payment limits the bank's recourse under the presentment warranty if the bank pays the instrument in cash or if they do not revoke a provisional settlement by midnight of the following day
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Can the bank pay a post-dated check?
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The bank can pay a post-dated check unless the customer gives notice that reasonably identifies the check to the bank
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Written Stop Payment
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If the bank receives a written stop payment, the bank is under an obligation to enforce it
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When must a bank enforce a stop payment order?
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The bank must enforce a stop payment order when:
1. It's in writing; 2. Signed by the customer; and 3. It describes the instrument with certainty |
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How long are written stop payments valid for?
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Six months
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When is the bank liable for wrongful dishonor?
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When it refuses to pay a properly payable check
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What are the defenses to wrongful dishonor?
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1. Paying the check would cause an overdraft on the drawer's account; or
2. The check is more than six months old (stale) |
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Can the bank pay an overdraft?
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The bank can pay a check even if it causes an overdraft
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What is a "stale" check?
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A check that is more than six months old.
To pay a stale check, the bank must pay it in good faith |
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"Change in the Obligation" Check Alteration
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A person goes in and actually changes who the check is made out to or changes the amount of the check
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"Unauthorized completion" check alteration
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A gives B a check and tells B, "You can fill the check out for $100"
B instead fills the check out for $1,000 |
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Change in Obligation - Dealing with a Non-HDC
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If the HDC changed the amount himself, it is a complete discharge of the entire obligation
The HDC cannot even enforce the original amount If the HDC did not alter the amount himself, he can still purse it for the original amount |
