Deck 29 Flashcards
A qualified endorsement must contain the words:
“without recourse”
Types of commercial paper
Note, CD, Draft, or check
Promise to pay
Two-party commercial paper (promise by the maker to pay money to the payee) ex: note and CD
Order to pay
Three-party commercial paper; Drawer orders the drawee to pay the payee; Ex: check and draft
Time instrument
Instrument payable at a future date
When are the words “To order” or “to bearer” not needed?
For a check
What never creates nor destroys negotiability?
Endorsements (On the back of the note)
Pay to John smith
Not negotiable
To become a holder, bearer paper/order paper requires:
Bearer paper: Delivery only; order paper: delivery and endorsement
Special endorsement
Considered order paper; names a specific party above where the person signed
Blank endorsement
Considered bearer paper; Blank box above where the person signed
What happens, to the individual in possession of a check, when there is a break in the chain of command?
The individual cannot qualify as a holder in due course
Qualified endorsement
Not a guarantor of payment; without recourse (no contract liability, but still have warranty liability)
Requirements to be a Holder in Due Course
1) give value, 2) in good faith, 3) without notice of any defenses to or claims of ownership, and 4) negotiable
An HDC is subject to only what kind of defenses?
Real defenses (HDC takes free of any personal defenses)
Real defenses “FAIDS”
F: fraud in the execution, forgery; A: alteration, adjudicated insanity; I: infancy, illegality; D: duress, discharge; S: suretyship, statute of limitations
Liability of Parties (Note/CD vs. Check/Draft)
Note/CD: primary liable - maker, secondary liable - endorsers……..check/draft: primary liable - drawee, secondary liable - drawer
Who is liable if forger is missing?
Forgery of drawer’s name or payee’s name - then drawee liable (bank); impostor rule and fictitious payee rule - maker/drawer liable
For a security interest to attach, three elements must coexist:
1) written security agreement or creditor has possession of the collateral; 2) creditor must give value to debtor; and 3) debtor has rights in the collateral
When does automatic perfection occur:
PMSI in consumer goods
