Ucc Article 3 Commercial Paper Mnemonics

Front 1

One 'MUST -F- NOW' to be a negotiable instrument.

Back 1

• The 8 elements of negotiable instrument (NI)
(1) M – must be paid in MONEY only (US/foreign currency)
(2) U – promise to pay must be UNCONDITIONAL
(3) S – SIGNED by maker or drawer

(4) T - payable at definite TIME or on Demand

(5) F - Fixed Amt (Principal must be fixed)

(6) N - No additional instruction or undertaking

(7) O - payable to ORDER or to Bearer

(8) W - must be in Writing

Front 2

'T-SAID' he warrants the indorsement

Back 2

• An indorser who transfers a NI and whose signature appears thereon warrants to his immediate transferee and to any subsequent holder: T-SAID
o T: has good TITLE
o S: all SIGNATURES are original and not forgery
o A: not materially ALTERED
o I: no knowledge of INSOLVENCY proceedings of the maker/drawer
o D: no DEFENSES to the instrument are good against her

Front 3

A Holder in Due Course cannot know that the negotiable instrument is 'ODD'

Back 3

A Holder in due course is one who takes a negotiable instrument for VALUE, in GOOD FAITH and without ACTUAL NOTICE that the instrument is OVERDUE, DISHONORED or that there are any DEFENSES to the negotiable instrument. ['ODD']
O: OVERDUE
• Ex: A note due on 5/1/09 is overdue on 5/2/09.
o Note: Think about why someone is selling an instrument that is overdue.
• A check is STALE 30 days from the date of issuance and no HIDC can take the negotiable instrument after the 30th day.
o Note: This doesn’t mean you can’t cash old checks. 6 year SoL for checks.
o Checks are stale after 30 days. Can’t get HIDC if you got a check that is more than 30 days old!!!
• A holder who takes the check on a 31st day after check cannot take HIDC status – but may have recourse under SHTELTER DOCTRINE.
• 30 Day Rule applies to CHECKS only (put into bank for collection). 30 Day Rule doesn’t apply to NOTES.
o Checks involve 3 parties (maker of the note, payee, bank)
o Notes involve 2 parties (maker of note

Front 4

Personal Defenses (Will not prevail against a Holder in Due Course) = MUFFIN

Back 4

• A holder in due course (HIDC) takes free from all MUFFIN defenses of the 3rd party with whom the holder has not dealt.
o PERSONAL DEFENSES THAT WILL NOT PREVAIL AGAINST A HOLDER IN DUE COURSE (HIDC)
 Mistake
 Unconscionability of the underlying transaction
 Failure of consideration
 Failure of a condition subsequent or condition precedent
 Inducement fraud (fraud in the inducement of the contract - SIR M)
 Non-completeness of a completed instrument

Front 5

'DAFFIDILS' are real defenses and they prevail against and stop HDC

Back 5

• HDC takes subject to Real Defenses: “DAFFIDILS”
o D – DURESS (threat of violence) (not economic duress) Ex: gun to your head
o A – material ALTERATION Ex: altering for a different amt (words over #'s)
o F – FORGERY
o F – FRAUD IN THE FACTUM
 Fraud in the factum : arises when a person signs a NI believing that she was signing something entirely different
 Fraud in the inducement: fraudulently convincing a person to knowingly sign a negotiable instrument
o I – ILLEGALITY
o D – DISCHARGE in bankruptcy of the maker/drawer
o I – INFANCY of the maker/drawer/endorser
o L – LACK of mental capacity
o S – STATUTE of Limitations
 What’s SoL for NI?
• Check for wages: 6 years
• Check for personal loan: 6 years
• If for sale of goods: 4 years

Front 6

Presentment Warranties

T- SAID when presenting to Payor

Back 6

T - Good Title (entitled to enforce)

S- signatures are authentic

A - Not Altered

I -

D -

Front 7

HDC

"Harry Potters Petroneus Fooled Voldemort, Granger & Neville"

Back 7

H - must be a holder... meaning

P- Possession of the N.I.

P - Payble to either the person possessing or payable to order

F - Free of Forgery

V - Value - paid value (can be antecedent debt)

G - Good Faith (w/o notice of violation of another's rights)

N - Notice - without notice of any defect