Negotiable Instruments and Liability

Question 1

Negotiable Instrument

Answer 1

A signed writing that contains an unconditional promise or order to pay an exact amount

Question 2

Issue

Answer 2

The first transfer, or delivery, of a negotiable instrument to a holder

Question 3

Check

Answer 3

A special type of draft in which the drawee is always a bank and the instrument is payable on demand

A check drawn by a bank upon itself is a cashier’s check

A traveler’s check is likewise a check in which the financial institution is both drawer and drawee, but with the payee/holder required to sign a specimen signature on the instrument when it is issued and then sign it again when cashing it

Certified checks are checks that have been “accepted” by the drawee bank, that is, the bank certifies that there is money in the drawer’s account to cover the check

Question 4

Negotiable Instruments versus Contracts

Answer 4

Negotiable instruments are easier to enforce because: consideration is presumed, past consideration is sufficient, a HIDC usually need give no consideration, and a HIDC is generally not subject to personal defenses

In contracts, consideration must be proved

Rights, duties, and liabilities of the parties are generally cleaner under article 3 of the UCC

HIDC = Holder in Due Course

Question 5

Allonge

Answer 5

A paper physically attached to, and made a part of, the instrument

Question 6

Holder In Due Course

Answer 6

A special type of holder, one who takes possession and title free of most personal defenses that could be raised against the HIDC’s transferor