Elements of Neg Flashcards
What is negotiability?
Refers to the form of the instrument.
When is negotiability determined?
At the time of issuance.
Can an instrument opt out of being negotiable?
Yes - if the instrument says its non-negotiable, then it is.
Can an instrument opt in to being negotiable?
No - cannot expressly opt in.
What does negotiability matter?
If a paper is negotiable and properly negotiated (transferred) it may reach the hands of special good faith purchaser called the Holder in Due Course.
HDC receives better rights than the transferor and can get paid from the obligor even though the obligor has defenses.
What happens if an instrument is not negotiable?
It is not invalid or unenforceable. It is just a regular contract.
What the elements of negotiability?
1) Writing
2) Signed by Maker or Drawer (any intent to authenticate will do)
3) Unconditional promise or order to pay.
4) Fixed Amount
5) Payable in Money
6) No other undertaking or instructions
7) Payable on demand or at a definite time
8) Contain words of negotiability
True or False? There is a presumption of an unconditional promise or order to pay?
True
True or False? A conditional order to promise to pay destroys negotiability?
True
Does an express condition to payment destroy negotiability?
Yes
Does a promise or order “subject to”or “governed by” another record destroy negotiability?
Yes
If rights or obligations with respect to promise or order are stated in another record, does it destroy negotiability?
Yes
Does a statement of consideration “I promise to pay to the order of VP $3K for a tv” destroy negotiability?
No
Does a reference to another record by stating “as per” or “in accordance with” destroy negotiability?
No - Mere reference is ok but going to another document for rights is problematic.
Does this statement destroy negotiability?
This Note is in accordance with a contract that the parties signed on July 1, 2020.
No - Payment is not conditioned on the terms of the contract
What are the 3 items that can be incorporated by reference that do not destroy negotiability?
1) Rights regarding Collateral
2) Payment - Right of Obligor to pay early
3) Acceleration - Right of Holder to get paid early upon some event happening
Does a limitation from a particular fund or source destroy negotiability?
No
Does a statement on the instrument required by law that the holder is subject to claims or defenses of original payee make the document conditional?
No
What is the rule regarding the fixed amount requirement?
The principal amount due on the instrument must be a fixed amount.
What is the presumption about interest if the document is silent?
No Interest
What are the ways that interest can be stated without violating negotiability of document?
Fixed amount or fixed or variable rate
Can an interest rate amount reference to an outside source without destroying negotiability?
Yes
What occurs if the document states interest will be paid but does not list an amount?
The judgement rate will be paid.
What are the requirements regarding the payment of money?
Can be paid in domestic or foreign currency.
Cannot be paid in goods or services
Words previal over figures
True or False? A negotiable instrument is just a promise or order to pay money. It is not a full contract.
True
What are permitted undertakings that don’t destroy negotiability?
1) Promises concerning collateral - a promise to provide additional collateral is permissible.
2) Confession of Judgment clauses
3) Waiver of Law meant to benefit obligor
If an instrument is silent as to the due date, when is payment due?
On Demand
When is an instrument payable if it states “at sight”
On Demand
Is “Payable 90 days after sight” a fixed period of time?
Yes
Is August 31, 2023 a fixed date?
Yes
Is “payable on the first day of spring 2023” a fixed date
Yes
Is “payable when X dies” a fixed date?
No - unpredictable and not a fixed or definite period of time.
What are permitted date changes that do not destroy negotiability or the requirement that payment be at a definite time?
1) Prepayment of Instrument
2) Accelerate of Due Date
3) Provision in instrument extending the due date
What kind of paper is: “Payable to Bearer”
“Payable to Order of Bearer”
Bearer paper
hat kind of paper is: “Indicated that possessor is entitled to payment”
Bearer paper
What kind of paper is: No payee stated
Bearer paper
What kind of paper is: To cash or order of cash
Bearer paper
What kind of paper is : “Good Luck on the Exam”
Bearer Paper
What kind of paper is” Pay to the order of X”
Order Paper
If there is a conflict between bearer paper and order paper, which previals?
Bearer Paper
What kind of paper is: Payable to the order of X or bearer?
Bearer Paper
What occurs if the only element of negotiability missing for a check is the order or bearer language?
The requirement is waived and the document is negotiable.
What occurs if the only element of negotiability missing for a note is the order or bearer language?
The instrument is not negotiable because it lacks bearer language and does not contain order language.
