Term
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Definition
check or draft
Bank acct holder (drawer) orders the ban (payor) to pay out money from deposit acct to a TP(payee) |
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Term
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Definition
a type of order where the drawer and the drawee are the same bank
Customer who buy the cashier's check is called the remitter |
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Term
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Definition
| promissory note like a CD promise by bank to pay back money on deposit |
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Term
| What are the 7 factors for being a negotiable instrument |
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Definition
1. Written and signed promise or order to pay
2. Unconditional - can limit payment to particular source and refer to another doc but cannot make subject to terms of another doc
3. transfers money
4. fixed amount - formula ok (words > #s)
5. Magic Words - to order (of) or to bearer
6. Definitie time - default is upon demand, acceleration and prepayment ok
7. "no extraneous undertaking" - no weird promises |
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Term
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Definition
| Using a discounted full payment instrument to finalize settlement of obligation where there is a disputed obligation |
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Term
| What is required for "accord and satisfaction" |
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Definition
Drawer must act in good faith to settle a bona dife dipute with respect to existence of a debt
Full payment appears conspicuously on the instrument
Payee doesn't refund the payment in 90 days
BOLO: scratches out full payment and deposits anyway |
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Term
| What is a blank indorsement? |
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Definition
| Simple signature turns order paper into bearer paper. Anyone is possession is the next holder. |
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Term
| What is a blank indorsement? |
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Definition
| Simple signature turns order paper into bearer paper. Anyone is possession is the next holder. |
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Term
| What is a special indorsement? |
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Definition
Signature under an instruction direction payment to some specific person
Instrument continues as order paper, or is now order paper if it was bearer paper before |
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Term
| What is a restrictive indorsement? |
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Definition
| signature under a restriction "for deposit only" which requires money from payment for the instrument to go into indorser's deposit acct. |
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Term
| Maker is _________ ___________ but can assert ... |
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Definition
primarily liable
defenses to payment |
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Term
| What are the defenses to payment |
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Definition
Failure of consideration
Fraud
Payment |
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Term
| How do you make someone the holder of bearer paper? |
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Definition
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Term
| How do you make someone the holder of order paper? |
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Definition
| pass possession and indorse the instrument |
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Term
| What are the advantages of being a holder in due course? |
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Definition
Can enforce the instrument free of personal defenses to payment
Free of property claims of someone else to the instrument |
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Term
| What are the requirements for being a Holder In Due Course (HIDC)? |
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Definition
Must be a HOLDER
Acquired the instrument for VALUE (no donations/future promises)
GOOD FAITH - taken the instument honestly in fact and the observance of reas standards of commericial fair dealing AND
acquired the instument WITHOUT NOTICE of the following problems:
overdue/dishonored/principal payment default
unauthorized signature/forgery/tampering
Someone has a claim/ppty right to the instrument
any drawer or maker has a defense to pymt |
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Term
| What are the defenses against a holder in due course? |
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Definition
Infancy - not of majority
Illegality of the underlying debt
Fraud in factum - maker did not know he was signing an NI or have any reasonable way of knowing
Discharge in bankruptcy
F |
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Term
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Definition
Can inherit the rights of an HIDC if that person acquired the instrument from an HIDC.
e.g. the orig. HIDC donated it to A, A can be a HIDC even though they did not give value under the shelter rule. |
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Term
| When are indorsers liable? |
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Definition
Indorsers are secondarily liable to pay on dishonored instruments and there is:
dishonor by the maker's/drawee bank's refusal to pay a not or check when due and presented
timely notice of dishonor |
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Term
Who of the following can waive liablity:
Maker
Drawer
Indorser |
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Definition
Maker and Drawers cannot
Indorser can waive liability to pay dishonored instrument if they sign "without recourse" |
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Term
| What are the 5 things any person who transfers an instrument in exchange for value warrants? |
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Definition
1. transferor is entitled to enforce the instrument
2. all signatures on the instrument are authentic and authorized
3. the instrument has not been altered
4. the instrument is not subject to any defense or claim that ban be asserted against the transferor
5. the transferor doesn't know that the maker/drawer has initiated bankruptcy. |
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Term
| If someone accepts an instrument and there is a problem with one of the transfer warranties, what can the holder do? |
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Definition
| The holder can enforce a dishonored instrument either on indorser liability against the indorser (if not waived) or the transfer warranty against the transferor and any previous indorser. |
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Term
| Only someone who sign an instrument is.... |
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Definition
| liable, writing another person's name counts as the writer's signature, not the named person |
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Term
| What happens when a check is improperly negotiated? |
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Definition
possessor not a holder and the instrument is not properly payable to that person
only holder can indorse or negotiate an instrument |
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Term
| What if the maker/drawer/payee failure of ordinary care substantially contributed to the forgery? |
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Definition
The maker/drawer/payee will be precluded from asserting the forgery or alteration against any who gave value for the instrument in good faith.
If the person asserting preclusion based on the maker/drawer/payee negligence ALSO failed to exercise ordinary care in paying the item, the loss is distributed per each party's negligence |
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Term
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Definition
| Drawers must review their bank acct statements "reasonably promptly" (ONE MONTH) or they be liable for ongoing fraud or forgery. |
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Term
| How long to challenge under statement review rule? |
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Definition
1 year to report first forgery
The first two statements are free, later ones by the same forger are on the drawer. |
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Term
| What if a check is made out to santa claus? |
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Definition
| any endorsement in the fictitious name are effective. |
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Term
| Can impostors effectively negotiate an instrument? |
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Definition
| Yes, by endorsing in the named payee's name |
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Term
| Is an instrument effective if an employee fraudulently endorses employer's instrument? |
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Definition
| Forged endorsement is effective to negotiate the instrument |
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Term
| What if the instrument's endorsement is valid, but the instrument is altered e.g. made out for $100 altered to Nine Hundred? |
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Definition
Generally alteration discharges maker/drawer liability but:
if fraudulently changed --> orig terms can be enforced but only if acquired in GF for fair value and without notice of alteration e.g. check good for $100
if the amount is left blank and later fraudulently compelted --> enforced for altered amt according to its terms as completed but only if acquired in GF for fair value and no notice of the atleration. |
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Term
| If Mel let his brother who just got of jail live him and the bro starts writing checks from the checkbook he finds in Mel's desk drawer, is Mel responsible? |
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Definition
| Bank could argue that Mel didn't exercise ordinary care by letting his felon bro in his home, Mel could argue he paid his debt to society and that the Bank did not |
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