Term
| Formal Requirements of Negotiability: |
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Definition
1. A writing, signed by the maker/drawer
2. Containing an unconditional promise or order
3. To pay a fixed amount of money
4. To order or bearer
5. Payable on demand or at a definite time
6. Without stating any additional undertaking or instruction |
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Term
| Examples of unconditional promises (that do not invalidate a negotiable instrument): |
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Definition
1. Reference to other documents (although a promise or order CANNOT be subject to another writing or condition)
2. Payment from a particular fund
3. Countersignature required |
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Term
| Order instrument vs. Bearer instrument: |
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Definition
1. An instrument is payable to order if it identifies a person or people; order paper must be delivered and properly indorsed by the holder
2. An instrument is payable to bearer if it so states, no paynee is identified, or it is made payable to cash; it requires only delivery, not indorsement |
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Term
| To become the holder in due course (HDC) of a negotiable instrument, one must: |
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Definition
1. Take the instrument as a holder
2. For value
3. In good faith, and
4. Without notice of certain infirmities of the instrument or the transaction out of which the instrument arose
5. Also, there can be no apparent evidence of forgery or incompleteness to call the instrument's authenticity into question |
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Term
| Are indorser's restrictions on transfer usually effective? |
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Definition
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Term
| If a note says it will bear interest but does not say how much, what is the interest rate? |
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Definition
| The established judgment rate in the jurisdiction of the place of payment of the instrument at the time interest first accrues |
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Term
| When conflicting or contradictory terms exist within an instrument: |
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Definition
| Handwritten terms take precedence over typewritten terms, typewritten terms over printed terms, and words over numbers |
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Term
| An instrument is payable on a fixed date if it is payable: |
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Definition
1. On a fixed date,
2. At the end of a definite period after sight or acceptance, or
3. At a time readily ascertainable when the instrument is issued
Note: An acceleration clause that keys payment to an event that is uncertain to happen does not destroy the negotiability of the note |
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Term
| When does a check work to satisfy a disputed debt? |
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Definition
| When a claim is subject to dispute, the claim can be discharged if the person, against whom the claim is asserted, in good faith tenders an instrument that contains a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim, and the claimant obtains payment of the instrument |
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Term
| What is the effect of a fraudulent alteration on an instrument? |
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Definition
| A fraudulent alteration generally discharges a party whose obligation is affected by the alteration, unless that party assents or is precluded from asserting the alteration |
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Term
| If a party does not want to accept an accord to satisfy a debt, how long do they have to return the money? |
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Definition
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Term
| When will an unauthorized signature on an instrument be treated as though it was authorized? |
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Definition
1. The issuance of an instrument to an imposter or a fictitious payee
2. An employee’s violation of an employer’s trust,
3. Negligence that contributes to an alteration or forgery, and
4. The failure of a bank customer to examine his bank statement and report any alteration or forgery |
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