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24 Cards in this Set
- Front
- Back
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Types of Negotiable Instruments
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Notes (promissory) 2 parties, maker and payee
Drafts (Checks)-3 parties, drawer, drawee, and payee |
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Types of Drafts (Checks)
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Ordinary checks-drawn on bank, payable on demand
certified checks, cashier's checks, teller's checks, traveler's checks |
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Negotiability(Neg) Elements
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Neg determined at issuance
Elements-(1)writing (form not relevant) (2)signed by maker or drawer (any mark or symbol w/ intent to authenticate) (3)contains unconditional promise OR order to pay. (4) a fixed amt.(principal not interest) (5)money (no goods or services) |
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What is an unconditional promise OR order to pay?
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CANNOT make an express condition or incorporate terms of any agreement EXCEPT another doc referencing rights in collateral, etc. but CAN contain references to other writings, consideration, reference where the $ is coming from, or can use consumer protection language(NO HDCs)
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Elements of Negotiability (Contd.)
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(6)CANNOT state any other promise or instruction (except concerning collateral or waivers)
(7)payable on demand (no date) OR at definite time. (8)words of negotiability (only notes) bearers and orders |
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How does one destroy negotiability?
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If you do NOT meet all 8 elements in cards 3 & 5 for p notes. You can say NON-NEGOTIABLE
w/ checks if you do NOT meet the 1st 7 elements...check does NOT needs words of nego. CANNOT destroy nego. of check by writing NON-NEGO on it or by altering check. |
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Holders
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Need to be a holder to have standing to sue on NI. Requirements:
(1)possession of bearer paper or possession AND proper indorsements of order paper. Drawee banks CANNOT be holders. Person receiving forgeries...think Frank Abagnale or Clifford Irving |
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What are types of indorsements?
Indorsement valid even if payee lacks capacity "To X and Y"-both must sign "To X or Y" either may sign |
(1) Blank indorsements..payee indorses, no naming of new payee..makes it bearer paper.
(2) Special indorsements..Payee indorses back and names new payee above indorsement...order paper (3)restrictive indorsements.."for deposit only" (4) possession w/o indorsement, NO holders UNLESS bank, NOT NEGO Indorsement must be on instrument OR separate doc affixed to instrument |
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Effect of Forgery on Nego.
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only affects nego. for order paper NOT bearer paper
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Holder in Due Course (HDC)..Requirements.
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HDC at point value given..nothing after can affect... Requires: (1)holder, (2)authenticity not in question, (3)gave value for NI (can be less than face), (4)good faith, (5)w/o notice (actual, receipt of notice,or should have known at time gave value)
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Who can't be a HDC?
Notice of what events bars one from being a HDC? |
Original payees, drawee banks, and subsequent transferees of forged order paper CANNOT be HDCs,
NI overdue, dishonored, has an unauthorized signature, alteration, any claim, any defense, or a failure to indorse |
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What is the Shelter Rule?
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Transferee taking a NI from a HDC takes HDC rights even if do not meet the requirements...NOT a HDC
Exception: Transferee engages in fraud or illegality regarding the NI |
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What are real defenses preventing HDC rights? HDC is protected from personal defenses and claims of maker or drawer
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(1)obligor lacks capacity (minor), (2) duress, (3)illegality voiding, (4) fraud in the factum (signer didn't know or have reasonable opportunity to know of NI's character or essential terms), (5)BR of obligor, (6)alteration, (7) forgeries
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Liability of Parties...Principal (P)-Agent(A) Liability
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If A authorized to sign and signs, P liable, If A NOT authorized, agent personally liable BUT NOT the P. p notes.. A not per liable if P IS IDed in the NI AND signs clearly as an A..A liable to any HDC UNLESS notice that A NOT intended to be liable..also non-HDCs UNLESS A proves that parties did NOT intend A to be liable. Checks...A NOT liable if P's name appears on check.
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Maker (M) Liability
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M must pay note when due and can be sued by H OR any indorser who paid NI
Co-Ms J+S liable..right of contrib if pay more than fair share Accomodation or surety co-M has right of contrib or reimburse |
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Drawer (D) Liability
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CANNOT disclaim liability on check but CAN for other drafts
2nd liability...D liable only if check presented (w/in 30d..if wait longer pray the D does not become insolvent or else no recovery) AND dishonored by Drawee D's liability discharged when accepted by bank..can limit liability w/ language on check stating void after X days |
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Indorser Liability (Anyone other than a M or D who put name on NI)
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CAN avoid liability by writing "without recourse" by name..Indorser can be liable to H AND any sub indorser
2nd liability..if presentment to M or Drawee, dishonor, AND notice w/in 30d Auto discharge if presentment NOT made w/in 30d, check is accepted by bank |
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Drawee (D'ee) Bank Liability
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NO liability to P'ee until D'ee signs check..If D'ee signs check, they have accepted it and incur 1st liability...D'ee does NOT have to accept check and CANNOT be sued for failing to accept
Final Payment when D'ee bank pays NI in cash OR does NOT revoke provisional settlement by 12pm deadline...CANNOT recover once paid ..except from D or claim breach of presentment P'ee name forged and D'ee bank pays P'ee can sue D'ee 4 conversion..MUST have received delivery of NI to sue...CANNOT sue if lost or stolen CAN continue to pay until 10d AFTER notice of death or incompetence of D. UNLESS someome w/ interest in the acct demands that bank stop paying |
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Accommodation parties
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Surety who signs NI BUT does NOT receive any benefit
Have 1st liability and right to reimburse 2nd liability if anomolous indorser Have to go after Acc first rather than Guarantor UNLESS acc insolvent OR CANNOT be found |
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Warranties...Presentment v. Transfer..mutually exclusive..can only sue on one..
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Checks: CANNOT disclaim warranties...any other NI:CAN
Transfer W..T'or must receive consideration (no gift)...D'ee OR M of note CANNOT sue on transfer must sue on presentment CAN be made to immediate T'ee AND and subsequent ones if T'or indorsed Specific W's... (1)T'or is H, (2) All signnatures authentic and authorized, (3) NO alteration, (4) NO good defenses against T'or, (5) NO knowledge of insolvency proceeding |
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Presentment W
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Presenter AND Previous T'ors can sue anyone in chain of title..Made to M who pays in g/ faith, D'ee who pays or accepts in g/faith
Checks: T'or entitled to indorse NI, NO alteration, NO knowledge that D's signature forgery or unauthorized |
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Other Issues
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Discharge by H: H can discharge by surrendering NI to obligor, destroying it, OR canceling it.
Check OR note: If NI accepted for debt, debt is suspended unless dishonored and then can sue for either NI or debt Certified, Teller's, or Cashier, just like paying in cash |
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Other Issues, Contd.
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If original NI lost, destroyed, or stolen, a person can still enforce NI if person in possession when loss occurred, loss NOT due to transfer or illegal seizure AND person CANNOT reasonable obtain original ...need security or bond
Bank CAN charge check against an acct. even if it creates an overdraft....customer NOT liable for overdraft if customer did NOT sign AND did NOT benefit from proceeds Bank CAN pay postdated check b4 date UNLESS Customer gives notice to bank of postdating |
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Stop payments
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ONLY D CAN stop payment by writing, dated, signed, describing item w/ certainty
Eff. for 6 mo. can be renewed....D has NO right to stop payment for |
