Commerical paper Flashcards
What are the 5 requirements of a valid negotiable instrument?
- negotiable words in writing
- unconditional promise to pay
- time certain (on demand or specified time)
- sum certain
- signed by drawer/ maker
What 3 things does UCC3 not apply yo?
- money/ cash
- documents of title
- investment securities (silas)
What is the significance of a note/draft made payable to order?
in connection with payment to a specified payee (ex pay to order of John)
What is the significance of a note/ draft made payable to bearer?
payable to whoever holds instrument (ex payable to bearer or pay to cash_
What are 7 examples of matters not affecting the negotiability of instruments?
- omission of C
- statement that collateral given
- promise to maintain collateral
- confession of judgement if instrument not paid
- waiver of low favoring obligor
- term provifing that payee acknowledge full satisfaction upon endorsement/ cashing
- statement that order effective only if no toher part honored
How is an instrument payable to order negotiated?
by delivery to payee
-any further negotiation requries payee to endorse and deliver to transferee
What is a special endorsee?
specific person IDed on instrument who must endorse/ sign instrument for it to be further negotiated
What is a restrictive endorsement?
limits endorsement (ex deposit only)
When will a subsequent possessor of a note not get a good title?
when signature on note forged (does not become holder/ HDC)
When is endorsement not required?
when instrument payable to bearer (instrument becaomes bearer paper and possessor becomes holder w/ ability to negotiate instrument)
What 5 things qualify a holder as a HDC?
- a holder (posession, clear title)
- took for value
- in good faith
- w/o notice of defects/ claims
- and instrument properly negotiated OR holder covered by shelter rule
What is a shelter rule?
transferee gets beenfits of all rights of the transferor when transferor was HDC
What are the rights of an HDC in terms of defenses?
HDC takes instrument free of all claims and personal Ds but is still subject to real Ds
What is fraud in factum?
when maker did not know she was making a negotiable instrument at all
When will suretyship defense be valid against HDC?
when HDC knew prior to acquiring instrument that prior parties were sureties
When will discharge by cancellation of liability be a valid defense against a HDC?
when prior parties name has been stricken from the instrument
What are the 10 real defenses?
Material alteration
- duress
- fraud in factum
- incapacity
- infancy
- illegality
- insolvency
- discharge (cancel liability/agreement no to sue)
- suretyship
- forgery
- persons HDC has dealt w/ (unless took rights under shelter rule)
When is the unauthorized signing of an instrument not deemed ineffective?
when instrument is later ratified by person who in good faith takes instrument for value
Who is liable if a check bounces?
- drawer/ writer of check
- endorser if endorser had notice
- not liable=bank didnt sign, signer if they disclaim liability
Typically, when is a drawer discharged of liability of a draft?
when bank accepts draft
What is the drawers obligation when the acceptor is not a bank?
like an endorser, drawer will be liable for payment if they had notice of dishonor (bounced check)
IF an incomplete instrument is dishonored, when is an endorser obligated to pay?
when instrument is completed (pays according to terms of instrument)_
When is the signature of an instrument not presuemd valid?
when action is to enforce liability of signer, then signer has burden of establishing validity of signature
Who has the burden to establish defenses?
defendent
Who has burden to establish status as HDC?
party claiming HDC status (ususally P)
IS a HDCs rights affected by other writings?
NO unless HDC had notice of limitation when taking instrument
When does the cause of action on a time instrument accrue?
on day after maturity
When does c/a accrue on a demand instrument?
on date on instrument or date of issue
When does a c/a against a drawer accrue?
upon demand followed by dishonor
When can material alteration of an instrument not be asserted as defense against HDC?
when party asserting negligently contributed to alteration
When an instrument is ambigous what factors control construction?
- handwriting controls over printed text
- when multiple parties sign all are considered jointly and severally liable
What is teh significance of an instrument naming “parties in alternative”?
payable to any of named parties and negotiable by any one of them
What is the significance of an instrument naming parties “not in alternative”?
payable to all parties named & may be negotiated, discahrged, or enforced only by all of them
What 3 factors could keep a holder that takes for value, in good faith, w/o notice from gaining HDC status?
If holder:
- purchased instrument at judicial sale or via legal process
- acquires instrument while taking over an estate
- purchases instrument as a part of a bulk transaction not in regular course of business of the transferor
