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22 Cards in this Set

  • Front
  • Back

Define Negotiable instruments

A special form of contract that satisfies the requirements established by Article 3 of the UCC

Negotiable Instruments are also known as ____________

commercial paper

Examples of Negotiable instruments

checks and promissory notes

A check is ________ and is _______________

A distinct form of draft; payable on demand

Define promissorry note

A two party negotiable instrument that is an unconditional written promise by one party to pay money to another party

What are the the three parties when writing a check

drawer (writes check); Drawee (bank); Payee (person being paid)

What is 2 things are a promissory note evidence of?

extension of credit and promise to repay

Who are the parties involved in a promissory note?

maker (promises to pay); payee (extends credit)

What are the 7 requirements for negotiable instruments according to the UCC?

Be in writing, be signed by maker or drawer, be an unconditional promise or order to pay, state a fixed amount of money, Not require any undertaking in addition to the payment of money, Be payable on demand or at a definite time, Be payable to order or bearer

What is an order paper

An instrument that is negotiated by (1) delivery and (2) endorsement.

What is bearer paper

An instrument that is negotiated by delivery; endorsement is not necessary.

What are the four types of endorsements

blank,special,qualified, restrictive

Blank Endorsement

An endorsement that does not specify a particular indorsee. It creates bearer paper.

Special Endorsement

An endorsement that contains the signature of the indorser and specifies the person (indorsee) to whom the indorser intends the instrument to be payable. It creates order paper.

Qualified Endorsement

An endorsement that includes the notation "without recourse" or similar language that disclaims liability of the indorser.

Restrictive Endorsement

An endorsement that contains some sort of instruction from the indorser.

Define holder in due course

A person who accepts a check as payment

To qualify as a holder in due course, a transferee of commercial paper must meet the following requirements set forth by the Uniform Commercial Code (UCC):

The person must be the holder of a negotiable instrument.

The person must pay value for the instrument.

The person must take the instrument in good faith.

The person must take the instrument without notice that it is overdue, dishonored, or encumbered in any way.

The instrument must bear no apparent evidence of forgery, alterations, or irregularity.

Value is given when the holder…

* Performs an agreed-on promise
* Acquires a security interest in or lien on the subject instrument
* Takes the instrument in payment of or as security for a previous claim
* Gives a negotiable instrument in payment
* Gives an irrevocable obligation as payment

Under the UCC’s taking-without-notice-of-defect requirement, people cannot qualify as a holder in due course if they have notice that the instrument is defective in any of the following ways:

The instrument is overdue

The instrument has been dishonored

The instrument contains an unauthorized signature or has been altered

There is a claim to the instrument by another person

There is a defense against the instrument

Under the UCC’s no-evidence-of-forgery,-alteration,-or-irregularity requirement, a holder does not qualify as a holder in due course if...

at the time the instrument is issued or negotiated to the holder, it bore apparent evidence of forgery or alteration or is otherwise so irregular or incomplete as to call into question its authenticity.

Personal defenses include:

Mental illness that makes a contract voidable instead of void

Illegality of a contract that makes the contract voidable instead of void

Ordinary duress or undue influence

Discharge of an instrument by payment or cancellation