REG: U.C.C. - Negotiable Instruments

Question 1

What are the 2 types of negotiable instruments?

Answer 1

1) a draft (bill of exchange); 2) a note

Question 2

What are the 2 types of notes?

Answer 2

1) a promissory note; 2) certificates of deposit

Question 3

What is a negotiable instrument?

Answer 3

A document which promises the payment of a specific amount of money without condition, which may be paid either on demand or at a future date.

Question 4

What are the 6 requirements of negotiability?

Answer 4

1) Must be payable on demand or at a specified time; 2) Promise to pay must be unconditional; 3) Must be payable in money and must be fixed amount; 4) Must be signed by the drawer or maker; 5) Must be payable to order or bearer; 6) Must be a written document

Question 5

If the date is missing from a negotiable instrument, does it destroy negotiability?

Answer 5

No (generally) if it’s payable on demand. If the date is necessary to determine WHEN it is payable, then yes.

Question 6

If the interest rate is missing from a negotiable instrument, it the negotiability destroyed?

Answer 6

No, because the courts can settle this.

Question 7

If a negotiable instrument looks like a check and it has 2 dates, is it a check or a draft?

Answer 7

Draft

Question 8

Is a Trade Acceptance a negotiable instrument?

Answer 8

No

Question 9

What is a promissory note?

Answer 9

It is a negotiable instrument that is also a DEBT instrument. It is a PROMISE to REPAY (not an order to pay) someone a specific sum of money either on demand or at a specified date.

Question 10

Is a check an order to pay?

Answer 10

Yes

Question 11

What are the 2 methods of transferring commercial paper?

Answer 11

1) by assignment; 2) by negotiation (negotiable instruments)

Question 12

The need to transfer commercial paper by assignment (instead of by negotiation) happens when?

Answer 12

When the commercial paper is not a negotiable instrument (doesn’t meet all 6 requirements of negotiability).

Question 13

What is a holder in due course?

Answer 13

One who takes an instrument for value in good faith absent knowledge of any problems associated with it.

Question 14

What are the 2 requirements to transfer order paper?

Answer 14

1) physical delivery; 2) endorsement

Ex. You sign a check over to someone else (specifying name) and physically give it to them.

Question 15

What is the requirement to transfer bearer paper?

Answer 15

Physical delivery.

Once the person possesses the bearer paper, they become holder.

Question 16

What is a blank endorsement?

Answer 16

When someone signs and they don’t name a new payee (becomes bearer paper at this point).

Question 17

What is a special endorsement?

Answer 17

When someone signs and they name a new payee (becomes order paper at this point).

Question 18

What is a restrictive endorsement?

Answer 18

When someone signs and add words to restrict further negotiation. Ex. “for deposit only”

Question 19

What is a qualified endorsement?

Answer 19

When someone signs and they add words to restrict their liability. Ex. “without recourse” would restrict liability if instrument is dishonored.

Question 20

True or False. The defects of a negotiable instrument can be passed on to the Holder in Due Course.

Answer 20

False