Negotiable Instruments

Question 1

Negotiable instrument

Answer 1

Written substitute for money

Question 2

Motivations for negotiable instruments

Answer 2

Traceable; less vulnerable to theft

Question 3

Requirements of negotiable instrument

Answer 3

In writing, signed by maker, promise to pay, unconditional, payable in money, states fixed amount, payable on demand/at point in time, payable to order/bearer

Question 4

Draft

Answer 4

Order to pay

Question 5

Parties to draft

Answer 5

Drawer, drawee, payee

Question 6

Common form of draft

Answer 6

Check

Question 7

Time draft

Answer 7

Payable at definite time

Question 8

Sight draft

Answer 8

Payable on presentation

Question 9

Promissory note

Answer 9

Promise to pay on demand

Question 10

Parties to promissory note

Answer 10

Maker/issuer, payee

Question 11

Negotiation of negotiable instruments

Answer 11

Transfer of rights to instrument

Question 12

Indorsement

Answer 12

Transfer of rights to instrument requiring signature

Question 13

Parties to indorsement

Answer 13

Indorser, indorsee

Question 14

Types of indorsement

Answer 14

Blank, special, restrictive

Question 15

Blank indorsement

Answer 15

Any bearer can cash

Question 16

Special indorsement

Answer 16

Contains signature and identifies indorsee

Question 17

Restrictive indorsement

Answer 17

Requires indorsee to comply with instructions, e.g. for deposit only

Question 18

Presentment of draft

Answer 18

Holder presents to drawee

Question 19

Presentment of note

Answer 19

Present to maker

Question 20

Requirements of presentation

Answer 20

Present instrument, identify self, surrender instrument

Question 21

Holder vs. bearer

Answer 21

Holder is designated payee; bearer is possessor

Question 22

HIDC

Answer 22

Holder in due course; immune to defenses against payment

Question 23

HIDC criteria

Answer 23

Accepted in exchange for value, in good faith, without knowledge of defense to payment or reason to suspect defect

Question 24

Shelter rule

Answer 24

Rights of transferee come from transferor; thus HIDC transfers

Question 25

Intent of shelter rule

Answer 25

Provide same confidence as money

Question 26

Caveats to HIDC status

Answer 26

Stale check or received as gift, in executory promise, or in exchange for past consideration

Question 27

Primary liability

Answer 27

Acceptor of instrument – can be contacted to pay first

Question 28

Secondary liability

Answer 28

Indorser

Question 29

Real defenses to payment

Answer 29

Minor, under duress, incapacitated, illegal, real fraud/fraud in execution (misleading party to obtain signature), discharge of obligation in bankruptcy

Question 30

Personal defenses to payment

Answer 30

Breach of contract, lack of consideration, non-serious fraud, note already paid, offset by amount already paid