Negotiable Instruments Flashcards
What are the requirements for a NEGOTIABLE INSTRUMENT?
- UNCONDITIONAL
- PROMISE OR ORDER TO PAY
- a FIXED AMOUNT of money:
A. Payable to ORDER OR BEARER
B. Payable ON DEMAND or AT A DEFINITE TIME
C. States no UNAUTHORIZED UNDERTAKING OR INSTRUCTION
Does stopping payment on a check avoid an obligation?
No, it merely DELAYS PAYMENT
What is a HOLDER IN DUE COURSE of a check?
One who takes ITEM:
- for VALUE,
- in GOOD FAITH,
- W/O NOTICE
Can HDC status change by subsequent notice?
No. Status is defined when holder accepts the check in exchange for value/work.
What is the SHELTER doctrine?
States that a party that doesn’t qualify for HDC status can assert the rights of the HDC as long as the party is not personally engaged in wrongdoing affecting the instrument.
Does a promissory note secured by a stream of income cause the note to be treated as a secured transaction?
No –> the commercial paper provisions of the UCC apply to promissory notes over the secured transaction provisions
Can a promise to pay be contingent on the happening of another thing?
No, must be either ON DEMAND or at a SPECIFIC DATE IN THE FUTURE
Must the interest rate of a negotiable instrument be specified?
No, but PRINCIPAL AMOUNT MUST BE FIXED.
What happens when interest rate is not fixed?
If the amount of interest can’t be ascertained from the description, use J’MENT RATE in effect at time interest first accrues (6%).
Can the promise to pay be contingent on the happening of another event?
No, must be UNCONDITIONAL.
What is a HOLDER?
A person in possession of an instrument w/ the right to enforce the instrument.
Instrument must be payable to BEARER or to the person IN POSSESSION and FREE OF FORGERY.
When is a holder IN DUE COURSE?
Holder must have taken:
- for VALUE
- in GOOD FAITH
- WITHOUT NOTICE
What is an ACCOMMODATION PARTY? Is accommodation party entitled to the collateral upon paying the debt?
1 who signs a note for the PURPOSE OF INCURRING LIABILITY without being a DIRECT BENEFICIARY of the value given.
Yes, he is entitled to the collateral upon paying the debt.
Is an ACCOMMODATION PARTY obligated to pay the instrument?
Yes, even if he receives no CDN.
Is accommodation party obligated to pay even if the person enforcing the obligation knows of the accommodation?
Yes
What is the exception to the gen’l rule that accommodation party is obligated to pay even if person enforcing the obligation knows of the accommodation?
Accommodation party is DISCHARGED to the extent that the person entitled to enforce the obligation IMPAIRS THE COLLATERAL securing the obligation.
Ex: when Cr’or fails to perfect its security interest (that IMPAIRS THE COLLATERAL)
What’s gen’l rule re when HDC can enforce an instrument (real DEF vs. personal)?
HDC can enforce subject ONLY TO REAL DEFENSES.
HDC takes free of PERSONAL defenses and claims.
Who can real defenses be asserted against?
Against both HDC and non-HDC transferees of a questioned instrument
What are the REAL DEFENSES?
Forgery Fraud Alteration of Instrument Incapacity to K Infancy Illegality Duress Discharge in Insolvency Proceedings Statute of Limitations Accommodation Discharges Known to HDC
[FAIDS]
What’s the gen’l rule re who may be held liable b/c their name appears on an instrument? Must they have signed?
Generally, no one may be held liable unless her signature (or sig of auth’d rep) is on instrument.
If an instrument contains contradictory terms, what prevails between WORDS VS. NUMBERS?
Words
If an endorsement/signature limits payment to a particular person or prohibits further transfer, is that effective to limit transfer?
No. It’s still a negotiable instrument.
If an instrument does not provide for interest, will it include interest?
NO –> it must specify that interest is to be paid (though not necessarily the amount)
When a co-signor adds “guarantor OF COLLECTION” (as opposed to “all amounts due”), is he obligated to pay?
Only if 1. J’ment returned unsatisfied,
- other party is INSOLVENT,
- other party CAN’T BE SERVED W/ PROCESS,
- it’s OTHERWISE APPARENT payment can’t be obtained
