requisites for negotiability Flashcards
negotiability generally - what does it do
“negotiability” = refers to the form of the instrument at the time of issuance
if paper is negotiable, and properly negotiated, it may reach the hands of a holder in due course, and the HDC gets better rights than the transferor so has better defenses than under contract law
requirements for negotiability generally
To be negotiable, there must be a written instrument that is signed by the maker or drawer [any symbol or letter]
AND
U (1) UNCONDITIONAL
— NO conditions
— NO “subject to” or “governed by”
— NO “rights or obligations are contained in another record”
— YES states consideration required for payment
— YES simply refers to another record [“per” “in acc with”
—-YES incorporates by reference items that wouldn’t hurt the holder [rights abt collateral, early payment, acceleration clause]
—- YES limits payment to particular source
— YES requires countersignature of a specimen signature [traveller’s check]
— YES contains statement required by law that holder is subject to claims or defenses of the original payee
P (2) PROMISE (note) OR ORDER (draft) TO PAY [written and signed]
F (3) FIXED AMOUNT OF MONEY [with or without interest]
— “fixed” = look at instrument and be able to determine what is due
— interest rates need not be fixed and may refer to outside sources
—- Silent instrument = no interest
— “plus interest” = judgment rate
–interest payable from date of the instrument
—- Money = foreign money, US money … NO godos or services
— money words prevail over $#s
O B (4) IS PAYABLE TO ORDER OR BEARER [words of negotiability]
to bearer =
(a) instrument states that it is “payable to bearer” or “payable to the order of bearer” or otherwise indicates that the possessor is entitled to payment
or
(b) instrument does not name payee
or
(c) instrument is payable to “cash” or otherwise indicates that it isn’t payable to an identified person
or
(d) instrument contains order and bearer language - bearer language controls
to order =
– payable to the order of an identified person or an identified person or order
– typically preprinted on checks
*** exception = if “order or bearer” language is the only element of negotiability missing for a check, the language requirement is waived
O D (5) ON DEMAND OR AT A DEFINITE TIME
— fixed date, or
— fixed period after sight, or
— acceptance, or a time readily ascertainable when instrument is issued [“first day of Fall 2011”]
— some date changes are fine: prepayment, acceleration of due date by holder upon named events, provisions extending due date at option of the maker, and extensions that are automatic on the happening of an event [if extension is to a further definite time stated in the instrument]
– extension at the option of the holder is fine, unless maker objects and tenders payment
U (6) CONTAINS NO UNAUTHORIZED PROMSIE OR UNDERTAKING
– negotiable instruments can only be (a) promises to give, maintain, or protect collateral, (b) an authorization or power given to the holder to confess jdugment or realize on or dispose collateral, or (3) waiver of law meant to benefit the maker/drawer
