Negotiable Instruments

Front 1

What do you need for someone to enforce a negotiable instrument?

Back 1

1. There has to be a negotiable instrument.
2. There has to be negotiation.
3. There has to be a HDC.
4. There has to be only real defenses -- not personal defenses.

Front 2

What is needed for negotiation of a check?

Back 2

The specific payee's signature and delivery.

Front 3

How do you negotiate bearer paper? Order paper

Back 3

You can negotiate bearer paper by delivery alone. To negotiate order paper you need the indorsement of the named payees plus delivery.

Front 4

What are the elements of an HDC?

Back 4

1. Take note for value
2. In good faith
3. Without notice of any defenses or claims to the instrument at the later of when the instrument is transferred or when the consideration for the instrument is paid.

Front 5

Does the Shelter doctrine apply to HDCs?

Back 5

Yes.

Front 6

What is the general rule about a bank paying out on a forgery?

Back 6

As a general rule, a drawee bank has a duty to its customer to pay out only as the customer orders. Thus, if a bank pays out on a forgery, the customer generally can get the bank to recredit the customer's account because the bank did not pay out according to the customer's order.

Front 7

What are the exceptions to the general rule?

Back 7

1. Fictitious payee situations
2. Fraudulent indorsement by an entrusted employee
3. Failure to use ordinary care.
4. The bank statement rule
5. Estoppel by certification.

Front 8

Let's say I fail to exercise ordinary care: I write a check to some phony, who runs off with my money. Can I still get my money back?

Back 8

Even though the bank has a good defense in that I acted without ordinary care, if the bank too acted without ordinary care, it might be liable.

Front 9

What do you need when you're presenting an instrument for payment?

Back 9

You have to warrant that you are entitlted to enforce the instrument, i.e., that you have good title to the instrument. To enforce the instrument, the instrument must contain all necessary indorsements.

Front 10

Let's say three people successively indorse a negotiable instrument. The final holder tries presents it for payment and the debtor dishonors it. Can the holder seek to recover from the other indorsers?

Back 10

Yes. A person who signs a negotiable instrument as an indorser enters into a contract that if the instrument is presented for payment and dishonored, the indorser will pay the instrument if given notice of the dishonor.

Front 11

What is the transfer warranty?

Back 11

The ORIGINAL payee (not subsequent HDCs) warrants that no defense is good against the transferor.

Front 12

Is alteration of a check a real defense, or is it a personal defense?

Back 12

It's a real defense, but the defense cannot be raised by the person who wrote it, if they were negligent (Grandpa leaving spaces to add zeroes).

Front 13

What are the elements of a negotiable instrument?

Back 13

Article 3:
1. Signed by the maker
2. Unconditional
3. Promise to pay
4. Fixed amount of money
5. to bearer or to order
6. on demand or at a definite time
7. without any undertaking or instruction not authorized by law.