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MN 464 Exam 2 > Chap 26 > Flashcards

Chap 26 Flashcards

1
Q

negotiability

A

is a legal concept that allows written instruments to be used as a readily accepted form of payments is substitution for money

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2
Q

negotiable instruments closely

A

approximate cash, but are not an exact equivalent because, unlike cash, there is a risk of nonpayment of the negotiable instrument

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3
Q

under common law

A

the payment of money was a contract right only of the intended payee

contract rights and obligations could not be assigned

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4
Q

eventually, however, the law permitted

A

contractual rights to be assigned, giving the assignee the right to collect on the debt

this remains the law of assignments: the assignee stands in the shoes of his assignor

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5
Q

negotiation means

A

theres a holder

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6
Q

assignment vs negotiation

A

in an assignment, the assignee gets only the contract rights that the assignor had and is subject to the same claims as the original obligor had against the assignor

it was difficult for merchants to find people willing to accept an assignment

thus, the concept of the holder in due course is developed, allowing certain good faith transferees who give value to acquire the right to be paid, free of most of the defenses to which an assignee is subject

this made the paper marketable by the merchants

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7
Q

types of negotiable instruments

A

drafts

notes

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8
Q

check is a type of

A

draft

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9
Q

CD is

A

promissory note issued by bank

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10
Q

a draft involves 3 parties

A

the drawer (owner or controller of the money) orders a second party, the drawee (who is in possession of the money that belongs to the drawer) to pay a fixed amount to the payee

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11
Q

a time draft is

A

a draft payable at a specified future date (e.g. pay to the order of pauline 30 days after the date or pay to the order of pauline 30 days after sight

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12
Q

a sight draft is

A

payable on presentation to the drawee

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13
Q

checks

A

a check is a specialized form of draft drawn on a bank and payable on demand. that is, upon the payees or holders request for payment

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14
Q

a cashiers check

A

is a check drawn by a bank on itself to the order of the payee. in this case, the bank serves as both the drawer and the drawee

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15
Q

a check is always drawn

A

on a bank and has to be payable upon demand

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16
Q

notes

A

a promissory note involves two parties: the maker promises to pay to the order of a second party, the payee, a stated amount of money

a not payable at a certain definite time is referred to as a time notes( e.g. a note payable 30 days after date is a time note)

a note payable upon the request or demand of the payee or holder is a demand note

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17
Q

CDs

A

a certificate of deposit is a specialized form of a promissory note, given by a bank, to pay money

the bank (the maker) acknowledges the receipt of money from a payee, and promises to repay the payee on demand or at a stated date, with interest calculated at a stated rate

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18
Q

formal requirements of a negotiable instrument

A

because negotiability is a matter of form not all instruments will qualify for this special status.

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19
Q

four corners rule

A

requires that the instrument contain all the elements of negotiability within the document itself

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20
Q

if the instrument requires the holder

A

to look to other documents or sources to determine its terms, the instrument will be nonnegotiable

if the paper is nonnegotiable, the law of assignment applies to the transferee

21
Q

to be negotiable, an instrument must meet the following criteria

A

writing
signed by the maker of a note or a drawer of the draft
promise in the case of a note or an order to pay in the case of a draft
unconditional
fixed amount
payable on demand or at a definite time

22
Q

are there oral promissory notes?

A

no

23
Q

if drawer and payee are the same person

A

it is a trade acceptance

24
Q

writing

A

this requirement is given a broad interpretation

printing and typewriting are included, and the writing need not be on paper

since a negotiable instrument is meant to be a substitute for cash, the writing must be on something reasonably movable

an instrument written on a paper bag would qualify, however an instrument written on a building or huge billboard overlooking a freeway would not

25
Q

signed by the maker of a note or a drawer of the draft

A

may be any symbol executed or adopted by a party with the intention to validate a writing

may be any word or mark used in place of a written signature, such as initials, an X or a thumbprint

it can also consist of a trade name or an assumed name

location of the signature must be on the face of the document, but a particular location is unimportant

traditionally, however, the maker or drawer signs in the bottom right corner

26
Q

promise to pay in the case of a note or an order to pay in the case of draft

A

a negotiable instrument must contain either a promise to pay money (with a note or certificate of deposit) or an order to pay (with a draft or check)

27
Q

promise to pay

A

promises to pay must be more than mere acknowledgements that a debt exists

the so called IOU is merely an acknowledgement of a debt and not a promise to pay

thus, an IOU cannot be negotiable

28
Q

order to pay

A

this is a direction or command to pay

it must be more than an authorization or request to pay and it must identify with reasonable certainty the person to be paid

words of politeness such as “please pay” or “kindly pay” would still most likely qualify as an order, however, words such as “if you don’t mind” or “if it wouldn’t be too much trouble” would be ineffective as an order and thus render the instrument nonnegotiable

29
Q

unconditional

A

a promise or order to pay is unconditional if it is absolute and not subject to any contingencies or qualifications

thus, a makers promise to pay “if the maker is satisfied with the quality of the painting by the contractor” would be conditional and render the instrument nonnegotiable

30
Q

reference to other agreements

A

destroys negotiability if the instrument is made subject to or governed by the terms of another agreement

if another instrument is merely mentioned (such as the words in accordance with, as per, or in consideration of) does not destroy the negotiability of the instrument

31
Q

the particular fund doctrine

A

prior article 3 considered a promise to pay only out of a particular fund nonnegotiable, but revised article 3 reverses this, thus eliminating the particular fund doctrine

32
Q

fixed amount

A

you should be able to determine from the instrument itself the minimum specific amount the holder is entitled to receive

the fixed amount provision refers only to the principal and not the interest, thus allowing for variable interest instruments

also, the instruments provision may increase the amount of payment that can recovered under certain circumstances, such as the costs of collection and attorneys fees upon default in payment without impairing negotiability

33
Q

interest

A

may be stated in an instrument as a fixed or variable rate or amount of money

it may even require reference to an external source, such as the prime rate, without destroying the negotiability of the instrument

34
Q

money

A

the term money means legal tender

it must be a medium of exchange authorized or adopted by a sovereign government as part of its currency

money does not include commodities of which are not sanctioned as legal tender

thus, euros or yen would be money, but gold bullion would not

35
Q

no other undertaking or instrument

A

a negotiable instrument must contain a promise or order to pay money, but it may not contain an order to promise to do an act in addition to paying money, such as painting a car or delivering a bushel of wheat

the UCC does allow certain additional undertakings such as furnishing or preserving collateral, waiver of certain legal protections, confession of judgement provisions (cognitive notes)

36
Q

payable on demand or at a definite time

A

a negotiable instrument must be payable on demand or at a definite time

37
Q

instrument usually says its demand

A

payable on demand

38
Q

demand

A

demand paper includes instruments payable on sight or on presentation

also any instrument that does not state a time for payment, such as a check, is payable on demand

39
Q

definite time

A

time paper refers to all other instruments that are payable at a definite time but not on demand

40
Q

a definite payment date is established when the instrument is payable

A
  1. at a fixed date or dates
  2. at a definite period of time after sight or acceptance
  3. at a time readily ascertainable at the time the promise or order is issued
41
Q

be payable to order or to bearer

A

words of negotiability must be present on the face of the instrument (not in an endorsement) at the time it is first issued or when it comes into the possession of the bearer

the magic words of negotiability are to the order of or to bearer

42
Q

revised article 3 allows

A

checks that meet all requirements except the one requiring that the instrument be payable to the order of or to bearer to still be considered negotiable

revised article 3 further disallows use of the word assigns

43
Q

payable to order

A

negotiable instruments are payable to the order if it is payable to the order of an identified person or to an identified person or order

most checks, for example, read pay to the order of and the drawer fills in the named person

44
Q

payable to bearer

A

bearer paper, on the other hand, is a negotiable instrument that is payable to the bearer, or the holder of the instrument

an instrument is defined as bearer paper if by its terms 1. it is payable to the bearer or to the order of the bearer, 2. it does not designate a specific payee (such as pay one keg of nails or pay one podium) or 3. it is payable to cash or to the order of cash

45
Q

terms and omissions and their effect on negotiability

A

dating of the instrument
incomplete instruments
ambiguous instruments

46
Q

certain ommited provisions or ambiguous terms may

A

cause questions about an instruments negotiability or at least may cause problems with the interpretation of the instrument

accordingly, the UCC contains rules for the construction of negotiable instruments that apply to every type

47
Q

dating of the instrument

A

an instruments negotiability is not affected by the fact that it is antedated or postdated

if undated, the date of issuance is used; if unissued, the date of first possession is used

an undated instrument payable at a fixed time after date is not negotiable in that form, however

48
Q

incomplete instruments

A

occasionally, a party will sign a paper that is clearly intended to be an instrument, yet is incomplete because the party omitted a necessary element, such as the promise to order, the designation of the payee, the amount payable, or the time for payment

such an instrument is nonnegotiable until it is completed

49
Q

ambiguous instruments

A

if doubt exists as to whether an instrument is a draft or note, the holder may treat it as either one and present it for payment to the drawee or to the person signing it

if handwritten or typewritten language is inconsistent with the printed words: the handwritten words control the typewritten and the printed words; the typewritten words control the printed words. by printed, the code means terms that have been preprinted on the instrument, rather than handprinted

if the amount payable is set forth on the instruments face in both figures and words, and the amounts differ, the words control the figures. if the words are ambiguous, however, the figures control the payable amount

thus, an instrument containing a promise in words to at twenty four dollars would take precedence over the numerals 44 on the instrument. if the words were ambiguous, such as a promise to pay onety-one dollars, would be construed as instrument for 11 if the numerals so appeared on the instrument

MN 464 Exam 2 (3 decks)

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