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32 Cards in this Set

  • Front
  • Back
Holder In Due Course
1. Holder (Possession and Good Title)
2. Due Course (For Value, In Good Faith, without knowledge or Notice)
3. Exceptions: Transactions precluding HDC status (judicial sale, bulk transaction not part of regular course of business)
Negotiable Instrument
WSUP TO NOT
1. Writing
2. Signed by Maker (Drawer)
3. Unconditional
4. Promise or Order
5. To pay a fixed amount
6. of money
7. No other unauthorized promise
8. On demand or at a Definite 9. To "Order" or to "Bearer"
Examples of Order
Pay to the order of
Pay to ____ or her order
Examples of Bearer
Pay to Bearer
Pay to the order of Bearer
Pay to Cash
Pay to ________
Pay to the order of andy or to bearer
Pay to order of Andy and to Bearer
Negotiated:
An instrument is negotiated when it is transferred to a subsequent party who becomes a holder.
Negotiated: Order
Proper Endorsement Plus Deliver
Negotiated: Bearer
Delivery Alone
Last Endorsement Rule:
Controls the character of endorsement
Special Endorsement=
Order Paper
Blank Endorsement
Bearer Paper
Claims and Defenses
An HDC takes an instrument free from personal defenses and ownership claims, but subject to real defenses.
Real Defenses
FAIDS
Forgery
Fraud in the Factum
Alteration
Incapacity
Illegality
Duress
Discharge in Insolvency; Discharge of the note
Suretyships with Notice (HDC knows a prior party signed instrument as a surety
Statute of limitations.
Personal Claims
All claims and defenses other than real.
Shelter Rule
A transferee acquires whatever rights her transferor enjoyed, taking "shelter" in the status of her transferor.
i) HDC Rights
ii) does not apply if the transferee is party to fraud or illegality
iii)
Holder v. Endorser: Contract Liability
1) Prerequisites to Liability
a) Presentment-checks 30 day limit
b) dishonor
c) Notice of dishonor

2. Effect of qualified Endorsement (Get out of liability)
Holder v. Endorser: Breach of Transfer Warranty Liability
Made by (potential defendants) anyone who transfers for consideration; Run to (potential plaintiff) immediate transferee and to all subsequent transferees if transfer is by endorsement. (Go, Go, No, NO, No. )
a) Good Title
b) Genuine Signatures
c) No Material Alteration
d) No Defenses
E. No Knowledge of Insolvency Proceedings.
Holder v. Drawee (Obligation discharged when check is paid)
No liability, unless Acceptance (certification
Acceptance by a bank discharges drawer.
Drawer v. Drawee: The Properly Payable Rule
Bank must pay checks that are properly payable; must nbo pay checks that are not properly payable.
Drawer v. Drawee: The property payable Rule: Wrongful Dishonor
Drawee should pay, but doesn't--is properly payable, but not paid
Drawer v. Drawee: The property payable Rule: Wrongful Honor
(Drawees pays, but shouldn't have)
Wrongful Honor: Stop Payment Orders
a) stop payment orders
-customer identified the item and given notice to bank. Oral (14 days) Written (six months)
b) Stale Checks
c) Post Dated Checks
Wrongful Honor: Stale Checks
Six months old or older may pay them if they act in good faith.
Wrongful Honor: Post-Dated Checks
if the customer gives notice and identifies the item.
Wrongful Honor: Checks paid after drawer's death
properly payable until the bank knows of death, then 10 window to pay checks validly.
Wrongful Honor: overdraft
May pay on items that create overdrafts, but not required to.
Wrongful Honor: Forgeries and Alterations
Generally not properly payable. However,
a) effect of Drawer's Negligence. May "validate" forgery or alterations, precluding (either in whole or in part) customer from asserting the bank violated Properly payable Rule
1. Fictitious Endorsements Treated as Valid.
--by impostors (you write check to impostor)
--by employee"responsible" check writing who forge signatures
2. Drawer's negligent Conduct Precludes Drawer's WRongful Honor Claim
--Generally (check signed blank
--Late Notice to Bank of Forgery or Alterations covered by Bank Statement
3. Common Law (ratification, authority, estoppel
Forged Drawer's Signature
Payment is final; no recovery for bank unless it has a restitution claim against a wrongful party the bank paid.
Forged Endorsement.
Payment not final bank may recover from the party that presented the instrument of any prior transferor.
Presentment Warranties
Made by (potential defendants) presenter all prior transferors; run to (potential plaintiff) drawee (check) or maker (note)
a. Checks
i) Good title
ii) No material Alteration
iii) No knowledge drawer's signature is unauthorized.
b. Other Instruments
i) good title
Opening Statement: Negotiable Instrument
These transactions are governed by Article 3 (Negotiable Instruments) and 4 (Checks of the Uniform Commercial Code. thus, our first question is negotiability because it triggers ARticle 3 and because where a negotiable instrument is negotiated to a holder-in-due course (HDC), the HDC takes the instrument free of personal defenes and claims and subject only to real defenses. For an instrument to be negotiable, it must satisfy strict rules of formality: it must be in writing, sigend by the maker (note) or drawer (check), containing an unconditional promise or order to pay a fixed amount of money, on demand or at a definite time, and contain no additional unaurhorized promises or undertakings. Moreover, if the instrument is a note, it must also be made payable ot order or to bear; checks are not exempt from this final rquirement of negotiablilty.
Negotiated
For an instrument to be negotiate, it must be transferred to a subsequent party who becomes a holder. A holder means both possession and good title. Order paper is negotiated by proper indorsement and delivery; bearer paper is negotiated by deliver alone. Blank indorsements create beaer paper; special indorsements create order paper.
Defenses
In addition to being a holder, X is also a holder in due course. A holder become a HDC by giving value, and acting in good faith and without notice of the problems with or defenes to the instrument. An HDC can sue the other parties to the instrument for payment, and those parties are able to defend agains that suit only on narrow groungs called real defenses and not on broader grounds called personal defenses.