Biz Law - Negotiable Instruments

Question 1

Negotiable instrument

Answer 1

A written promise or order to pay money

Question 2

Commercial paper

Answer 2

Contract for payment of money. Can be either negotiable or nonnegotiable.
Major functions:
- Substitute for money
– Extending credit
Advantages of commercial paper:
– Easier to transfer
– Less risk

Question 3

Types of negotiable instruments

Answer 3

– Draft
– Check
- Note
– Certificate of deposit

Question 4

Requisites for negotiability for an instrument

Answer 4

SWUPP

– Signed by maker or drawer
– in Writing on face of instrument
– Unconditional promise or order to pay
– Payable to order (has language “pay to order of name, except for checks) or bearer (not specific payee)
– Payable on demand or at a definite time

• Be a fixed amount of money
  – Not state any other undertaking or instruction by person promising for ordering to do any act in addition to payment of money

Question 5

Negotiation of commercial paper

Answer 5

Negotiation is transfer of possession of negotiable instrument, whether voluntary or involuntary, whereby the party receiving it becomes a holder.
Negotiation can be by either: delivery alone, delivery with necessary endorsement.

Question 6

Negotiation of order paper requirements

Answer 6

– Made payable to a named party

– And can be negotiated only by delivery with necessary indorsements of named party

Question 7

Negotiation of bearer paper requirements

Answer 7

– Made payable to bearer
– Maybe negotiated by delivery alone without any indorsement
– May also be negotiated by delivery with an indorsement

Question 8

Assignment of commercial paper

Answer 8

– Not negotiable instruments can be transferred the only by assignment
– Negotiable instrument that is order paper where transferred without necessary indorsement of named party, transfer is assignment not negotiation

Question 9

Indorsements

Answer 9

Types of indorsements:
– Blank or special
– Unqualified or qualified
– Nonrestrictive or restrictive

Question 10

Holder

Answer 10

Party that has negotiable instrument that is any of the following:
– Drawn/Issued/Indorsed to that party, to the order, or to bearer
– Endorsed in blank
Holder has same rights as assignee of contractual right.

Question 11

Holder in due course (HDC)

Answer 11

A holder that takes a negotiable instrument:
– For value
– In good faith
– Without notice that: instrument is overdue, instrument has been previously dishonored, any person has defense against paying instrument or claim to it, instrument contains unauthorized signatures, alterations, or is so irregular or incomplete as to call into question authenticity

Question 12

Importance of HDC status

Answer 12

Only if there is personal defense that could be used as excuse not to pay instrument. If none, holder or HDC can both collect on instrument.
If there is real defense to payment, neither holder nor HDC can collect.

Question 13

HDC types

Answer 13

– Taking for value
– Taking in good faith
– Taking without notice

Question 14

Defenses against HDC

Answer 14

Personal defenses are not good against HDC. Are valid against holders.
Real defenses stand up against HDC and holders.

Question 15

Discharge of liability

Answer 15

– Payment
– Cancellation
– Cancellation of another person’s endorsement
– Reacquisition
– By tender of payment of past due instrument that is not accepted, liability for future interest, costs and attorneys fees are discharged.
Discharge does not require consideration to be valid.

Question 16

Certification of a check by a bank

Answer 16

A drawee bank may, but is not required to, certify a check. Certification makes the drawee bank the acceptor of the check. Acceptor is primarily liable for payment on the check.

Question 17

Presentment of negotiable instruments

Answer 17

– Presentment for acceptance: demand for acceptance by holder on drawee
– Presentment for payment: demand for payment by holder

Question 18

Warranty liability of parties to a negotiable instrument

Answer 18

– Presentment warranties: parties who presents instrument for payment or acceptance warrant that they have good title, no knowledge is unauthorized, instrument not materially altered
- Transferee worn cheese: from transferor to transfer but not payors or acceptors

Question 19

Banks involved in processing of checks

Answer 19

Depository bank: first bank to receive deposit a check
– Payor bank: drawee on the check
– Collecting Bank: all banks that help collect on check other than payor bank
– Intermediary bank: all banks to which item is transferred in course of collection other than payor depository bank

Question 20

Collection between customers of the same bank

Answer 20

Check is paid if not dishonored by start of the second banking day after receipt

Question 21

Collection between customers of different banks

Answer 21

Banks must paycheck before midnight of the next banking day following receipt. UCC allows deferred posting. Checks received after 2 PM are recorded the next day.

Question 22

Banks order of charging checks to account

Answer 22

Banks may charge checks to the account or any order convenient to the bank.