Negotiable Instruments Flashcards
UCC Art. 3A
A bank may charge its customer’s account only for ____
properly payable items; a forged check is not properly payable.
If the account holder reports the forgery promptly and did not substantially contribute to the forgery, the bank must re-credit the account. [J16]
An accommodation party is…
one who (i) signed the note for the purpose of incurring liability (ii) without being a direct beneficiary of the value given.
obliged to pay the instrument in the capacity in which he signs, even if he receives no consideration. E.g., “Guarantor of all amounts due” makes the party fully liable.
discharged to the extent that the person entitled to enforce the obligation impairs the collateral (failure to perfect) securing the obligation. The creditor must have notice of the accommodation for a discharge. [F19]
When a promissory note is secured with a deed of trust for land and the note is in default, the holder of the note may…
…have the land sold. The purchaser at the foreclosure sale will acquire title in fee simple absolute.
Debtor has a right to pay off the security interest before foreclosure.
Seller has the right to satisfy the security interest at closing with the sale proceeds. [F19]
Negotiability requirements:
(1) a signed writing, (2) payable to order or bearer, (3) with no additions or conditions, and (4) payable on demand or on a date certain (5) for a sum certain (fixed amount of money).
Payment upon elapse of a definite period of time following another event is acceptable, but only when the starting date is readily ascertainable when the promise is issued. [F20]
A note ___ satisfy the fixed amount of money requirement where it doesn’t state an explicit dollar amount of interest.
Can.
can state or describe an interest rate in the instrument in any manner, including a reference to information not contained in the instrument (ex. Bank of Virginia’s prime rate). [F20]
Is an instrument that is “payable to John Doe” (as opposed to “payable to John Doe or order/bearer”) negotiable?
Only if it is a check. [F20]
To escape liability for a check, the writer must establish…
…a real defense against a holder in due course or a real or personal defense against a non-holder or holder not in due course. [J21]
A holder in due course…
takes the instrument for value, in good faith, and without notice that the item is overdue or dishonored.
This does not change when a HDC gets notice after becoming a HDC. [J21]
A transferee from a HDC who is not a HDC themself gains the rights of the HDC…
…under the shelter rule if the party is not personally engaged in wrongdoing affecting the instrument. [J21]
Real defenses include…
infancy, void contract, bankruptcy, forgery, deception, discharge known to holder. [J21]
Usually a party cannot be held liable on a negotiable instrument unless it bears…
her signature / the signature of an authorized representative. [F21]