Essay Answers

Question 1

to be a NI

Answer 1

First, the instrument in question, the promissory note, must be a negotiable instrument. To be negotiable, an instrument must be a writing, signed by the maker or drawer, containing an unconditional promise to pay a fixed amount of money to order or bearer, payable on demand or at a definite time, without any additional undertaking.

Question 2

HDC

Answer 2

-To be an HDC of a negotiable instrument, the holder must take the instrument as a holder, for value, in good faith, and without notice of certain deficiencies in the instrument or in the transaction.

Question 3

HDC 2

Answer 3

• A person becomes a holder either through issuance or through negotiation.
• An instrument is issued when it is delivered.
• Delivery simply means the transfer of possession.
• Negotiation is the delivery from a person other than the maker or drawer to any person who becomes the holder of the instrument.
• If the instrument is bearer paper, negotiation occurs upon the transfer of possession.
• If the instrument is an order paper, in addition to the transfer of possession, the instrument must be indorsed by the holder in order to be negotiated.

Question 4

transferee for value

Answer 4

However, a transferee for value is entitled to specific performance to obtain the transferor’s indorsement.

-When an instrument is transferred for value and the transferor fails to provide a necessary indorsement, a transferee is entitled to specific performance to obtain the transferor’s indorsement.

Question 5

SOL

Answer 5

The statute of limitations serves as a defense against an action by any holder, including an HDC. Actions on notes payable at a definite time, which must be brought within six years of the due date, or “on demand,” must be brought within six years after the demand.

Question 6

time instrument

Answer 6

A time instrument payable in installments becomes overdue upon default, and it remains overdue until the default is cured. A time instrument does not become overdue if there is a default in payment of interest but no default in payment of principal

Question 7

FTC

Answer 7

In regulations adopted by the Federal Trade Commission, the ability of a purchaser of a consumer note to take free of the consumer’s defenses is curtailed by the mandated inclusion of language that subjects the holder or transferee of the instrument to the claims and defenses that the issuer could assert against the original payee of the note.

Question 8

transferee as HDC

Answer 8

a transferee must be an HDC in order to be fully protected under Article 3. A transferee is an HDC when she takes an instrument for value, in good faith, and without notice of infirmities with the instrument. In addition, a person cannot become an HDC if the instrument is purchased in a bulk transaction, not in the regular course of the transferor’s business.

Question 9

imposter rule

Answer 9

A forged or unauthorized indorsement is generally ineffective for negotiation.
However, if an imposter induces a person to issue an instrument to the imposter by impersonating the payee of the instrument or an agent of the payee, an indorsement of the instrument by any person in the payee’s name may be effective as the indorsement of the payee (look at imposter rule)

Question 10

claimant is an org

Answer 10

When a claimant is an organization, the discharge is not effective if the instrument is not tendered to a person, place, or office designated by the organization as the proper location for that type of payment. If the organization has not made such a designation or the claimant is not an organization, the discharge is not effective if the claimant returns the payment within 90 days.