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57 Cards in this Set

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Which Article of the UCC governs Negotiable Instruments?
Article 3
Where is West Virginia's version of Article 3 located?
WVC §46-3-101 et seq
How many people/entities are party to:
1) Notes
2) Drafts
A Note is a 2-party commercial paper; it is a written and signed promise by one party to pay the payee/bearer

A Draft is 3 party commercial paper. It is a written and signed order by the "drawer" to the "drawee" demanding payment to the "payee/bearer"
Is a CD more like a note or a draft?
It is like a note because 2 parties are involved; but the Code specifies CDs as an instrument made by a bank
What are the terms used
to identify the writer of:

1) Note

2) Draft
1) A Maker Makes a Note

2) A Drawer Draws a Draft
What is a Bill of Exchange?
Another word for a Draft
What is a Check?

Is a Money Order a Check?
A Check is a specific type of Draft.
Yes, even if it is called a Money Order, it is still a check
What are the requirements of an instrument to be deemed a check?
1) Drawn on a bank

2) Payable on demand
What if an instrument qualifies as both a Draft and a Note?
The person entitled to enforce will be able to enforce it as either.
Does the UCC apply to cash?
NO
What other instruments are negotiable, even though they are governed by seperate Articles of the UCC?
Investment Securities - (stocks and bonds)

Documents of Title - (warehouse receipts and Bills of Lading)
What Article of the UCC governs Investment Securities?
Article 8
What Article of the UCC governs Documents of Title, such as warehouse receipts and bills of lading?
Article 7
What Article should be used in writing essays on the bar exam concerning Documents of Title and/or Investment Securities?
These should be listed as negotiable instruments and discusssed by analogy under Article 3
What form must an instrument take to meet the requirements of negotiablity?

This very important to memorize!
It must:
- be written and signed
- be unconditional
- be a promise or an order
- to pay a fixed amount (with or without interest)
- be payable to order or bearer
- be payable at the time it is issued or first comes into the possession of a holder (payable on demand or at a definite time)
- It must NOT state any unauthorized undertaking or instruction by the promisor
Why must a negotiable instrument be "uncondtional"?
The UCC wants these instruments to be a convienent substitute for cash; so that the recipient will know exactly what he is getting from the looking at the instrument
What will cause an instrument to become condtional and not negotiable?
- Expressly states a condition to payment (if the team wins the Super Bowl)

- States that the promise or order is governed by another writing (This note is subject to the sales agreement between the parties dated August 1st)
What if the language states "This note is given as a down payment on the contract to rent the building"?
This is not a "condition" on payment; does not change the negotiability
What about uncertainty of amount?
This will destroy the negotiablity of the notes
Does the recital of consideration in the note destroy negotiability?
No
What if the promise or order refers to another writing for a statement of rights regarding collateral, prepayment or acceleration
This does not deem the promise or order conditional - it is still a negotiable instrument.
What if the promise or order limits payment to a particular source, such as "I promise to pay you out of my next wheat crop"?
This does not deem the promise or order conditional - it is still a negotiable instrument.
What if the promise or order requires a countersignature as a condtion to payment by a person who has a signature specimen on the instrument.
This does not deem the promise or order conditional - it is still a negotiable instrument.
- Many traveler's checks are made this way.
What are the requirements of the "signature" on a Note or Draft?
The UCC is very liberal - it may be typed, written or made in any other manner to adopt for the purpose of making a signature.
- It may placed in any area on the instrument (not just at the end)
May an instrument be negotiable if it calls for payment in the form of foreign currency?
Yes, but NOT if it calls for payment in ounces of gold or something else other than money
Must principal and interest be fixed?
The principal amount must be fixed, the interest does not need to be fixed, it may even be a variable rate and require reference to another document for the amount of interest.

*No interest will be due if the instrument does not call for the payment of interest.
What if the instrument states that it is payable with interest, but does not state the amount of interest?
The judgment rate is implied (the rate on a court judgment)
Order paper is payable to....
ONLY the person named on the order
Bearer paper is payable to...
anyone legitimately possessing the instrument
What is payable to order?
The instrument must name an identified person or his order
What is pay to the bearer?
The instrument does not state a payee (incomplete), states that it is payable to the bearer or states that it is payable to cash or an otherwise unidentified person
How is the payee identified in absence of designation?
By the intent of at least one of the makers or drawers.
What if the signature is made by machine?
The intent of the person who supplied the information to the machine governs.
May a payee be designated by only account number or office name?
Yes
To whom is the instrument payable if made payable to an account number?
The owner of the account
To whom is the instrument payable if made payable to a trust or estate?
The representative of the trust or estate
To whom is the instrument payable if made payable to an agent or other representative?
the principal or the representative
May an instrument name more than one payee?
yes
What is the special rule for check in West Virginia?
Checks that are missing "magic words" of negotiability (not payable to order or bearer) are still negotiable
To be negotiable, when must an instrument be made payable?
On demand or at a definite time
What makes an instrument payable on demand?
1) it states that it is payable on demand, at sight or otherwise indicates that it is payable at the will of the holder

2) does not state a time for payment
What constitutes a "definite time" for payment?
1) a fixed date

2) on elaspe of a specified period of time (60 days after presentment for payment)

3) some other time readily ascertainable at the time the instrument is issued "subject to rights of
(i) prepayment,
(ii) acceleration,
(iii) extension at the option of the holder
or (iv) extension to a further definite time at the option of the maker or acceptor or automatically upon or after a specified act or event."
What if the instrument is payable upon a certain event, but uncertain as to time?
The instrument is then non-negotiable because the time for payment is not readily ascertainable
What effect does an acceleration clause, that accelerates the time of payment on the occurence of an event or at the option of the maker, have on negotiability?
None, it is permissible and does not destroy negotiability.
What are the 3 types of extension clauses?
1) At the option of the maker

2) Happening of an event

3) At the option of the holder
Which of the 3 extension clause types do not affect the negotiability of the instrument if written properly?
At the option of the maker and upon the happening of a stated event
***As long as the time is ascertainable!!!
- "May be extended by the maker for one month following the original due date"
- NOT "may be extended by the maker"
Which extension clause is least likely to affect the negotiability of the instrument?
At the option of the holder - unless the drawer or maker objects and tenders payment at the same time.
Generally, an instrument may not contain any unauthorized undertakings or promises. However, the WVC explicitly permits 3 undertakings that may be included. What are they?
1) An undertaking or power to give, maintain or protect collateral

2) An authorization or power to the holder to confess judgment or realize on or dispose of collateral

3)A waiver of the benefit of any new law intended for the advantage or protection of the obligor

**any other undertaking will destroy negotiability
If an instrument contains contradictory terms that are typewritten, printed and handwritten, which controls?
In order from most controlling to least:
- Handwritten
- Typewritten
- Printed
Which has more control authority: numerals or words?
Words control, unless they are illegible or ambiguous.
$5,000 five hundred dollars - is construed as an order to pay $500
What is an "Opting Out" statement on an instrument?
Such as in advertisements for a discount, an instrument is not negotiable if it contains a conspicuous statement that it is not a negotitable instrument or that Article 3 does not apply.

** This rule does not apply to checks
If two or more people sign as makers of a note, who has the liability?
They each have liability for the entire amount of the note
May an incomplete instrument be enforced under Article 3?
Yes, either by the incomplete terms or according to an authorized completion.
- Completions that are not authorized are treated as fraudulently altered instruments
What status does a holder need for the protection of the UCC?
Holder in Due Course
What is the first step to becoming a Holder in Due Course?
Negotitation - to transfer the possession by a person other than the issuer to a person who therby becomes its holder (not a transfer of possession by the issuer, because that is deemed an "issue")
What is the best definition of a holder for exam puposes?
- a person in possession with a right to enforce it.
How are bearer instruments negotiated?
simply by transferring the possession of the instrument.