Business Law III: UCC Article 3 Flashcards
UCC Article 3
Negotiable Instruments
Orders to pay
Drafts/Checks - 3 party instruments consisting of drawer, who orders drawee, to pay a payee
Promises to pay
Notes/CDs - 2 party instruments consisting of maker, who promises to pay a payee
Drafts
- Sight draft - payable on demand immediately
- Time draft - payable at specific time
- Trade/Banker’s acceptance
Checks
- Cashier’s check - drawer/drawee are same bank
- Teller’s check - draft drawn by one bank on another
- Traveler’s check - draft payable on demand that requires countersignature
- Certified check - check drawn by drawer on which drawee bank accepts primary/absolute obligation to pay
Notes
Promissory - note payable on demand/within definite time to a specific payee or bearer
CDs
A note made by a bank acknowledging it has a deposit of funds payable to holder (most are time-interest instruments)
Negotiation of Bearer Instruments
negotiated by mere delivery to a holder
Negotiation of Order Instruments
negotiated by delivery plus an indorsement
Blank Indorsement
Specify no particular holder to receive payment
- Converts order instrument to bearer instrument
- Transfer warranties extended to subsequent holders
- Blank indorser has secondary liability to pay all subsequent holders
Special Indorsement
Specify person to whom payment or to whose order payment is to be made
- Converts bearer into order or continues order instrument
- Transfer w/ consideration extends warranties to subsequent holders
- Indorser has secondary liability to pay all subsequent holders
Qualified Indorsement
“without recourse”
- disclaims contract signature (secondary party) liability
- Transfer warranties extended to all subsequent holders
Restrictive Indorsement
- Conditional (conditioned upon happening of event)
- Prohibitive (prohibits further transfer of instrument)
- For deposit/collection (makes indorsee bank collection agent of indorser)
Holder in Due Course (HDC)
1. must be a holder 2 must take the instrument for value 3. in good faith 4. without notice that instrument is - overdue - been previously dishonored - of any claim or defense on the part of any person
Holder
anyone who takes possession of a negotiable instrument that is made payable to him/her, the bearer or is negotiated to him/her