Term
| What are the requirements to be a negotiable intrument? |
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Definition
1) Unconditional
2) Promise or order
3) to pay a fixed amount of monry (interst is ok or other charges described in the order) that:
a) is payable to order to bearer at the time it is issued or first comes into possession of a holder;
b) is payable on demand or at a definite time; and
c) doesnt state any unauthorized undertaking or instruction by the person promising or ordering payment. |
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Term
| Under Art. 3 an instrument will be deemed conditional and therefore nonnegociable if what is found? |
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Definition
1) Expressly states a condition to payment; or
2) states that the promise or order is SUBJECT TO or GOVERNED BY another writing.
NOTE: merely referring to or stating that the promise arises out of a seperate writing doesnt make the promise or order conditional. |
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Term
| Art. 3 specifically provides that a promise or order will not be deemed conditional if it what? |
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Definition
1) Refers to another writing for a statement of rights regarding collateral, prepayment or acceleration;
2) Limits payment to a particular source or fund;
3) Requires as a condition of payment a countersignature (like travelers checks)
4) Contains a statment required by law |
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Term
| An instrument can call for payment in foriegn currency and will be honored in the foriegn currency or its equivalent in USD at the current bank exchange rate at the time and place the instrument is paid. what consideration would be improper? |
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Definition
| Anything other than money. For example an 1oz of gold means that the instrument is not negociable. Also, if the instrument allows for payment in something other than money in the alternative, then it is not negociable. e.g. 400USD ot 1oz gold. |
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Term
| If an instrument requires interest, but it is not stated what result? |
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Definition
| The "judgment rate" will be applied. that is the maount of interest a judgment would accrue. |
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Term
| Does an acceleration clause harm negociabilty? |
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Definition
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Term
| What are the three types of extentions that are permissable for negociable instruments? |
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Definition
1) at the option of the maker,(to a further definite time stated on the instrument)
2) automatic at the happening of an event(same conditions as above); and
3) at the option of the holder (alwasy good unless maker of the note wants/can pay now) |
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Term
| To be negociable and instrument usually cant contain any unauthorized undertakings or promises. The Code explicitly authorizes what under takings/ instructions? |
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Definition
1) power to give, maintain or protect collateral;
2) power to the holder to confess judgment, realize on or dispose of collateral; and
3) waiver of any law designed to protect the obligor (waiver of homestead, presentment, notice of dishonor etc.) |
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Term
| What are the rules of construction on negociable instruments? |
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Definition
if there are contradictory terms then
1) typewritten terms control preprinted;
2) handwritten controls both
3) Words control figures |
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Term
| Under the code, who is a HOLDER? |
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Definition
| A holder is someone in possession of an instrument with a right to enforce it. |
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Term
| How is bearer paper negociated? |
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Definition
| Simple transfer of possession. (can simply state cash) |
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Term
| How is order paper negociated? |
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Definition
| transfering possession of the instrument along with the indorsement of the identified person. |
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Term
| As to order paper, must the payee's indorment be valid? |
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Definition
| Generally, the right to enforce an instrument will not pass unless the indorsement is authorized and valid. NOTE: Indorsement is effective for negociation even if made by infant or one lacking capacity, obtained by fraud or other legality, part of an illegal transaction or made in the breach of duty. |
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Term
| order paper must be indorsed to effect prper negociation. What are the rights of transferees w/o indorsement? |
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Definition
While the istrument cant be negociated (dude isnt a holder) so must bring a suit to either
1)compel indorsement or
2) enforce instrument (must prove ownership rights) |
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Term
| The lack of an indorsement on order paper is not an issue for banks b/c of certain rules. What are they? |
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Definition
| Under Art. 4 a depository bank (where paper is first deposited) takes for collection is a holder if the depositor was a holder (lacking indorsement). If the bank holds the check as collateral then no dice. NOTE: this rule doesnt protect the bank from mishandling funds represented by the instrument |
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Term
| What is the effect of an indorsment on an instrument? |
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Definition
| When an indorser signs an instrument, it has the effect of entering into a contract that if the instrument is presented for payment and is dishonored, and the indorser is given notice of the dishonor, she will pay on the instrument according to its terms at the time of the indorsement. Thus, even if the instrument is modified after the indorsement, the indorser is only liable for the amount that was indorsed for. |
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Term
| What is the defination of a holder in due course (HDC)? |
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Definition
a holder that takes the instrument:
1) for value
2) in good faith; and
3) Without notice that:
a) The instrument is overdue or has been dishonored,
b) the instrument contains an unauthoerized signature
c) there is a claim to the instrument
d) Any party has a defense or claim in recoupment
NOTE: the instrument must not bear apparent evidence of forgery or alteration or be so irregular as to call into question its authenticity. |
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Term
| Tho qualify as a HDC one must give value. What are the five types of value? |
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Definition
1) Performance of the agreed consideration
2) Aquisition by the holder of a lien or a security interest in the instrument other than a lien obtained by judicial proceeding;
3) Taking the instrument as PAYMENT or security for an antecedent debt;
4) Trading a negotiable instrument for another instrument; 0r Giving the instrument in exchange for the incurring of an irrevocable obligation to a 3d party |
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Term
| What if the "HDC" only pays part of the agreed upon price? |
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Definition
| Then there is a partial failure of consideration. The HDC is only an HDC in proportion to the amount paid. |
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Term
| What things under UCC Art. 3 would not constitute notice of a defense or claim? |
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Definition
1) Date, or lack thereof
2) Executory Promise (unless there is actual notice)
3) Accomidating party
4) Incomplete instrument (unless improper completion)
5) Fiduciary Negotiated (w/o knowledge of breach of trust)
6) Default on interst or other instrument (unless the default was on an intrument of the same series)
7) Filing or recording [e.g. If a security agreement on the paper has been made and financin ststement filed under Art 9 (perfecting a security int) Does NOT prevent a subsequent holder for value w/o actual notice of the security from becoming an HDC) |
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Term
| What is the shelter rule? |
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Definition
| It is the basic rule of commercial law that a transferee acquires whatever rights the transfor had. The exception to the shelter rule si that NO ONE who was a party to fraud or illegality affecting the instrument can never gain shelter. |
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Term
| What are the real defenses whihc can be asserted against both HDC and others? |
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Definition
1)forgery
2) Fraud in the factum
3) Alteration of the instrument
4) incapacity to contract
5) infancy
6) illegality- (like gambling debts)
7) Duress (one party acts involuntarily)
8) Discharge in Insolvency Proceedings
9) Statute of Limitations
10) Suretyship defenses
11) Discharges known to HDC |
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Term
| What are the personal defenses (cannot be asserted against a HDC) |
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Definition
| Any contract defesne that is not listed under the real defenses. |
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