Exam Review #SU 19 Flashcards
If an instrument is drafted and issued in a specified manner
it is negotiable even if it contains additional language or uses wording different from that in the UCC. Otherwise it is negotiable
A negotiable instrument is property, sellers and other transferors have
warranty liability. This liability is in addition to any contract liability based on a party’s signature
A bank draft uses what type of endorsement
Special endorsement: by a holder identifies the person to whom the instrument is payable to and identified person or to order is payable
A conditional endorsement
purports to make the rights of the endorsee subject to the happening or non-happening of a special event
To qualify as an HDC
A holder must take the instrument in good faith. The good-faith requirement applies only to the holder.
A person who does not qualify as an HDC but who derives his or her title through an HDC
can acquire the rights an privileges of an HDC.
The maker of a promissory note and the drawee are
primary liable
Real defenses can be asserted against
an HDC, however personal defenses cannot.
If a HDC knows a party has been discharged from the liability of paying a note
the HDC cannot collect from the discharged party
Reacquisition
is any transfer to a former holder who may then cancel any intervening endorsements
Negotiable Instruments
Article 3 of the UCC regulates negotiable instruments.
- Checks
- Drafts
- Promissory notes
- CD’s Certificate of deposits
Under the UCC a person may be discharged by
Agreement or by one of several acts or omissions. Unexcused failure to provide notice of dishonor results in discharge of endorsers or drawer
A provision in a negotiable instrument that makes it non-negotiable
It grants to the holder an option to purchase land. Negotiability requires that the instrument contain an unconditional promise or order to pay a fixed amount of money (UCC 3-104). An option is a promise to hold an offer to sell open for a specific period. An option does not meet the requirement of a fixed amount of money.
Notice that an instrument has been altered precludes a holder asserting HDC status. However,
A alteration includes an unauthorized completion. However, if the holder had no notice that completion was unauthorized may take for value in good faith and without notice of the alteration may enforce an instrument altered by an unauthorized according to its terms as completed
Special endorsement
identifies a person to whom the instrument will be payable
The holder
is someone who has legal possession of a check
The maker
is a person who identified in a promissory note as a person undertaking to pay
The drawee (Bank)
is the person ordered to make payment
The drawer
is the person ordering payment (person who writes the check)
What will render a negotiable promissory note non-negotiable
The maker is obligated to pay a fixed amount of money to the payee but may instead deliver to the payee goods of equal value
A Trade Acceptance
is a special form of time draft. It is used to extend credit to buyers of their goods.
The standard of liability that must be established to hold a warehouse liable for loss or damage to stored property is
Ordinary Negligence: with respect to goods, a warehouse must exercise the same care that an ordinary reasonable person would under like circumstances
A qualified endorsement disclaims or limits contractual liability on the instrument like this
“without recourse”
A negotiable instrument must be payable on demand or at a definite time specified on its face
No definite time can be determined because the time of sale is uncertain (must be payable 10 days after sale) is not a definite time
Under the negotiable instruments article of the UCC, an instrument will be precluded from being negotiable if the instrument
Is made subject to another agreement such as a mortgage that violates this requirement
What on the face of an instrument will render it non-negotiable
A statement that payment of the instrument is contingent upon a persons sale of his or her property
A negotiable instrument must provide for payment a
fixed amount of money.
To make an instrument negotiable it requires
payment only in an authorized medium of exchange
The requirements for a given instrument to qualify as negotiable under the UCC
The requirements do not preclude an instrument from qualifying as negotiable despite doubt as to whether it is a draft or a note.
To qualify as a holder in due course
a person must have taken the instrument by proper negotiation. Because the instrument was payable to the order of Gayle, Gayle’s endorsement was necessary to properly negotiate it. Thus Fitz will qualify as a holder in due course when Gayle endorses the instrument.
Holder in due course (HDC) is subject to real defenses.
- Infancy to the extend that it is a defense to a simple contract
- Incapacity, duress or illegality makes the obligation void and not merely voidable
- Fraud in the execution
- discharge in insolvency proceedings
- Alteration and unauthorized signature
A holder cannot qualify as an HDC if she has notice that the instrument is overdue
It is overdue if:
- On the day after demand is duly made
- 90 days after its date
- When it has been outstanding for a period of time after its date that is unreasonably long in circumstances
