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91 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Are personal defenses good against a holder in due course of a negotiable instrument? |
No.
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What are the two parties to a note?
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Maker and payee.
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What are the three parties to a draft?
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Drawer, drawee (bank), and payee.
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What are the six elements of a valid negotiable instrument?
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1. Signed; 2. Writing; 3. Negotiable words; 4. Unconditional promise or order to pay; 5. Time certain; 6. Money certain
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What are the elements of a holder in due course?
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1. Took for value; 2. In good faith; 3. No notice of defects.
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What are personal defenses?
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Mistake, unauthorized completion, condition precedent, fraud in inducement, lack of consideration.
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What are real defenses that work against a holder in due course?
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Fraud in factum, illegality, duress, lack of capacity, SOL, forgery, unauthorized signature, material alteration.
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Is the maker of a note or the drawer of a draft always primarily liable and potentially secondarily liable via presentment or endorsement warranties?
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Yes.
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What is a certified check?
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Where bank agrees in advance to pay when presented.
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What is a cashier's check?
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Where drawer and drawee are same used to pay a remitter.
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What are the elements of a negotiable instrument?
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1. Writing; 2. Signed; 3. Unconditional promise (note) OR order (draft) to pay; 4. fixed amount of money; 5. at a specific time (w or w/o prepayment or acceleration); 6. No conditions; 7. Negotiable words.
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Do drafts, in order to be negotiable, need negotiable words?
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No.
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Do notes, in order to be negotiable, need negotiable words?
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Yes.
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For "bearer" notes, can they be negotiable if made to a specific person?
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No. Must be made to "bearer, to order of bearer, to cash, to order of cash, to John Smith or bearer" but not solely "to John Smith," thus not negotiable.
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Is a note that says, "Payable to Ivan Hannel" a negotiable instrument?
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No. Must say "to order of."
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Is a check that says, "Payable to Ivan Hannel" negotiable?
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Only notes, not drafts, require "language of negotiability." So, yes, the check (draft) is negotiable.
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What words can you put on a note to make it non-negotiable?
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Non-negotiable.
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Can you make a check non-negotiable by putting "non-negotiable" on it?
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No.
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To be a holder of bearer paper, you have to have it...
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In possession.
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To be a holder of order paper, you have to...
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In possession and proper indorsements.
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Can a drawee bank (of a draft) be a holder?
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No.
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What is a blank indorsement?
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When the payee signs the check it converts it to bearer paper.
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Ivan writes Jon a check and Jon indorses it. His "blank endorsement" becomes bearer paper.
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Can a payee, after indorsing the check, convert it back to order paper by putting a new payee on the back?
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Yes.
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If you put "for deposit only," then drawee bank has a restrictive indorsement and must do what?
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Deposit the check or be liable for conversion.
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If a transferree holds a note that has not been indorsed, it he a holder in due course?
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No. Required indorsement.
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If a customer of a bank is a holder and deposits it in a bank, does the bank become a holder?
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Yes.
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If the check says, "To X and Y," must both sign?
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Yes.
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If a check says, "To X or Y," who must sign?
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Either.
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Is an indorsement valid if the payee who indorsed lacks capacity?
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Yes. Negotiable instruments are treated like cash once indorsed. It's not like a contract that's had fraud in the inducement.
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Can a later transferree of a forged note become a holder in due course?
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No. Why not? There was never a negotiation. Thus, not a negotiable instrument.
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A blank endorsement is when?
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Payee just signes name. Instrument becomes bearer paper.
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A special endorsement is when?
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The payee indorses and then writes the name of a new payee below/above his name.
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Does the drawee bank get a draft via negotiation?
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No, and that's why they don't become a holder in due course. They get the draft via a presentment.
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Can a drawee bank, the original drawer, or the holder of a forged draft become a holder in due course?
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No. The drawer, drawee bank and a holder of a forged draft can't become a HDC.
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What are the requirements for a holder in due course?
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1. Hold (possess); 2. For value; 3. Good faith (in a real transaction); 4. No authenticity issues; 5. Without notice when you gave value.
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Is a person in possession of order paper a holder in due course if there is no indorsement by the payee?
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No. He only has the right to get an indorsement.
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Can a person who receives order paper but has notice of issues with it before the indorsement, gets the indorsement, is he now a holder in due course?
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No. If he had notice before indorsement, not a holder in due course.
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What are the real defenses to a holder in due course?
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1. Minor who can't enter contracts; 2. Duress; 3. Lack of legal capacity; 4. Illegality; 5. Fraud in the factum; 6. Discharge of obligor in bankruptcy; 7. Alteration; 8. Forgeries; Suretyship; 9. Statute of limitations.
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Is a holder in due course subject to personal defenses?
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No, only real defenses.
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Can the maker of a note or the drawer of a draft sue to recover the note or check from a holder in due course?
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No.
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Does the rule of derivative title apply in case of negotiable instruments?
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No.
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Can a transferree who got the instrument by fraud transfer it to a holder in due course, buy it back, and become a holder in due course himself?
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No.
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Is duress a real defense against a holder in due course?
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Yes.
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Is lack of legal capacity (insanity) a defense against a holder in due course?
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Yes.
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Is fraud in the factum a defense against a holder in due course?
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Yes.
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Is bankruptcy a defense to a holder in due course?
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Yes.
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Is suretyship a defense to a holder in due course?
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Yes. ??
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Is the statute of limitations a defense to a holder in due course?
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Yes.
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If an agent for a principal who is not authorized signs (indorses) a note/draft, is that agent liable? Is the principal liable?
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Agent is liable. Principal is not.
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If there are co-makers of a note, can a co-maker collect a contribution from the other co-makers if a holder collects from him the entire share?
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Yes.
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Can a drawer of a check disclaim liability on it?
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No.
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Can a drawer of a draft that is NOT a check disclaim liablity on it?
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Yes, if he writes, "Without recourse" on it.
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What does it mean for a check to be dishonored?
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Means the drawee refused to pay the instrument.
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Is the drawer's liability on a check discharged when it is accepted by a drawee bank?
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Yes.
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Can a drawer limit his liability by writing on the check, "Void after August 1, 2008?"
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Yes.
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Who is an indorser?
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Anyone, other than the maker of a note or the drawer of a draft, who puts their signature on an instrument.
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Can you become an indorser without liability to other parties?
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Yes, if you put, "without recourse" on it.
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If a drawee bank signs a check ("certifies"), does it become liable?
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Yes.
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I guess this is where the drawee bank signs my check creating a certified check, meaning it is also liable on the check (draft).
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Can a drawee bank be sued for failure to accept (certify) a check?
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No. Obvious that bank has the right to believe a check is invalid and not certify it.
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If a drawee certifies a check, does the maker or an indorser have any liability?
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No.
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If a drawee bank pays to an indorser, can they recover from the indorser/payee?
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No. But they can go after the drawer or after the indorser for "breach of presentment warranty."
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If I get a check but someone steals it off my desk and forges my signature on it, presents it to the bank which certifies and pays it (in cash) to the forger, do I have a claim against the drawee bank?
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Yes, for conversion.
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If a bank gets notice of the death of a customer (or incompetence), how many days to they get before they must stop paying on the account?
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10 days.
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What is the name for a party who signs as a surety for a note (agrees to pay it if maker cannot) but doesn't get any of the moneys from it?
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Accommodation party.
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What words does an accommodation party need to put on the note?
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"Surety" or "Guarantor."
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If you sign as a accommodation party/surety, who do you have a right to reimbursement from?
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The accommodated party (probably the maker of the note).
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If you just sign as an indorser, and don't put "surety" on the note next to your signature, who do you have a right of reimbursement from?
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Any other indorsers or a right of reimbursement from the accommodated party.
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Can you disclaim warranties on checks?
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Yes.
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Can you disclaim any other warranties?
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No.
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If you put "guaranteed collection only" on it as a surety, does the payee or indorser have to go first after the accommodated party/maker?
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Yes.
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Who cannot sue on the basis of a transfer warranty?
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Drawee bank or maker of note cannot sue on transfer warranty, only sue on presentment warranties.
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Ivan writes a check to Jon. Bob fraudulently takes Jon's check and signs Jon's name on it and gives it to Steve as payment for something. Steve presents it to Chase, Ivan's bank. Chase pays Steve. Chase can now sue Steve on the breach of the presentment warranty, not the transfer warranty. Steve can sue Bob and Ivan for the breach of the transfer warranty.
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Who can sue on the basis of a transfer warranty?
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Anyone who paid consideration for the note or draft.
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What are the two types of warranties?
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Presentment and transfer warranties.
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Can you still enforce an instrument that you lose--not due to a transfer/seizure?
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Yes. If you put up a bond.
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Can a bank charge you for an overdraft if you did not sign the check?
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No. Seems obvious.
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Can a bank cash a postdated check?
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Yes, unless you give bank reasonable notice.
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Can you do a stop payment order?
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Yes, must give bank reasonable notice. Lasts 6 months.
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Can a payee complain if a bank dishonors a properly payable check?
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No. Perhaps because of no privity?
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If person puts "payment in full" on a check, does that fulfill the obligation?
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Yes. Acts as an "accord and satisfaction."
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Does the drawer have a duty to inspect monthly statements and notify drawee bank of fraud within 1 year?
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Yes, or bank doesn't have to credit drawer's account.
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Can a payee make a claim of conversion against a drawee bank if someone forges the payee's name and cashes the check?
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Yes.
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Ivan writes Sarah a check (draft). The check is signed illegally by Cindy as Sarah and cashes the check. The bank is liable to Sarah for the forgery.
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If the payee wins against a drawee bank in a claim of conversion (forgery), can the drawer also sue the bank?
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No. Only 1 recovery.
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Ivan (drawer) writes check to Sarah (payee). Someone else who is not Sarah presents the check to the drawee bank and gets the money due to Sarah.
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What is the rule that protects the bank in cases of forgery?
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Imposter rule.
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If a person forges the signature of a payee (not the drawer), can a depository bank sue up the chain of title, and for what?
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Yes, for breach of the presentment warranty.
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If someone alters (fraudulently) the negotiable instrument for the amount due, time due, etc, can a holder in due course sue a previous tranferror for the changed amount or only the original amount?
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Original amount.
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If someone who is unauthorized completes a negotiable instrument for a certain amount, can a holder in due course sue for that amount or the original amount?
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The amount stated rather than what would have otherwise been the original amount.
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Can a drawer sue a drawee bank to recover for an altered check?
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Yes.
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What is a defense that the drawee bank can use against a draft that has been alterered?
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Negligence: If drawer's negligence substantially contributed to the alteration, cannot complain.
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What is the statute of limitations for an error or alteration on a bank statement?
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1 year rule.
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What is the warranty called for a drawee?
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Presentor's warranty.
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What is the warranty for a transferrer (payee to another payee, for instance)?
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Transfer warranty.
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