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Commercial Law > Terminology > Flashcards

Terminology Flashcards

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1
Q

Note

A

A promise by one party to pay another party a sum of money

Usual purpose is to evidence a debt

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2
Q

Certificate of Deposit

A

A note issued by a bank to serve as an acknowledgement of the receipt of money together with an engagement by the bank to repay the money

Used by banks to raise money and assure customers of good return of their money

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3
Q

Draft

A

Aka a bill of exchange

a three-party instrument by which a person (drawer) orders a person (drawee) to pay a third party (payee)

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4
Q

Check

A

A draft drawn on a bank and payable on demand

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5
Q

Bank Checks

A

Includes cashier’s checks, teller checks, and certified checks

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6
Q

Traveler’s Check

A

A check that requires a countersignature that matches the specimen signature on the instrument

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7
Q

Negotiable Instrument

A

A signed writing of an unconditional promise or order to pay a fixed amount of money to an order or bearer that is payable on demand or at a definite time and contains no other undertaking or instruction

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8
Q

Unconditional Promise or Order

A

A promise or order that is subject only to an implied or constructive condition

May be conditional if:

  • merely refers to the existence of another writing
  • refers to another writing for rights as to collateral, acceleration, or prepayment

Not unconditional if:
-subject to or governed by another writing or if rights of parties are in another writing

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9
Q

Payable to Bearer

A
  • “To Bearer”
  • language indicating that person in possession is entitled to payment (“holder” “cash” “order of cash”)
  • does not name payee (“pay to the order of ___”)

Also

  • “Bearer or order”
  • “Order of bearer”
  • “John Doe or bearer”
  • “order of cash”
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10
Q

Payable to Order

A
  • “Order of [identified person]”

- “[Identified person] or order”

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11
Q

Payable on Demand

A
  • Payable on demand or presentation

- Payable at will of holder

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12
Q

Payable at Definite Time

A
  • At a fixed date
  • A definite period after stated date
  • “on elapse of a definite time period after sight or acceptance”
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13
Q

Holder

A

Person with possession of the instrument and the obligation evidenced by the instrument must run to him

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14
Q

Negotiation

A

Transfer of possession of an instrument, whether voluntary or involuntary, by a person other than the issuer to another person

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15
Q

Issuance

A

First delivery of instrument by maker or drawer to holder or non holder for purpose of giving rights on the instrument to any person

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16
Q

Indorsement

A

A signature sufficient to negotiate an instrument

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17
Q

Ways to Become a Holder

A

Issuance

Negotiation

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18
Q

Types of Indorsement

A

Special

Blank

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19
Q

Blank Indorsement

A

Indorsement that is not payable to an identified person

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20
Q

Special Indorsement

A

Indorsement that identifies the person to whom the instrument is payable

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21
Q

Types of Value

A
  • Promise of performance
  • Security interest or lien
  • For antecedent claim
  • Negotiable instrument or irrevocable commitment
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22
Q

Value: Promise of Performance

A

Any promise that would constitute consideration under contract law constitutes a “promise of performance” under Article 3.

When a holder has only partially performed the agreed-on consideration, the holder has the rights of a holder in due course to the extent of the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance.

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23
Q

Value: Security Interest or Lien

A

A holder takes for value to the extent that she acquires a security interest in, or other lien on, the instrument other than a lien obtained by judicial proceeding.

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24
Q

Value: Antecedent Claim

A

The instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due.

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25
Q

Good Faith

A

Honesty in fact (subjective) + commercially reasonable standards of fair dealing (objective)

26
Q

Notice of Infirmity

A

A holder cannot become a holder in due course if it has notice of any infirmity in the instrument or in the underlying transaction in which the instrument was issued or negotiated.

27
Q

Effect of Notice on HDC Status

A

A purchaser who has notice of a proscribed fact is completely denied holder-in-due-course status and therefore takes subject to all claims, defenses, and claims in recoupment whether or not related to the defense or claim of which he has notice.

28
Q

Effect of Subsequent Notice on HDC Status

A

Once a purchaser becomes a holder in due course, notice subsequently obtained does not destroy its holder-in-due-course status.

29
Q

Manners of Obtaining Notice

A
  • Actual knowledge
  • Notification
  • Reason to Know
30
Q

Notice: Notification

A

A person receives a notice or notification when it comes to her attention or when it is duly delivered at the place of business through which the contract was made or at any other place held out by her as the place for receipt of such communications

Notification is effective even if the holder did not actually read the notification and thereby acquire actual knowledge of the claim, defense, or claim in recoupment.

31
Q

Notice: Reason to Know

A

A purchaser may also have notice of an infirmity if, from all the facts and circumstances known to him at the time in question, he has reason to know that the infirmity exists.

32
Q

Facts Constituting Notice

A
  • Instrument is overdue
  • Unauthorized signature or alteration
  • Claims to instrument
  • Defenses or claims to recoupment
33
Q

When and How Notice Must Be Received

A

Such a time and manner as to give a reasonable opportunity to act on it

34
Q

When is a Check Overdue

A

A check is overdue the day after the day demand for payment is duly made or 90 days after its stated date, whichever is earlier.

35
Q

When is an Instrument (other than a check) Overdue

A

Any other instrument payable on demand becomes overdue at the earlier of either: (1) the day after the day demand for payment is duly made or (2) when the instrument has been outstanding for a period of time after its date that is unreasonably long.

36
Q

Categories of Holders that do not become HDC’s even after meeting all the requirements

A
  • Acquisition by taking over an estate
  • Purchase in execution, bankruptcy, or creditor’s sale
  • Purchase in bulk transaction not in transferor’s regular course of business
37
Q

Recovering from Obligor

A

Any holder or person with the rights of a holder (collectively called a “person entitled to enforce an instrument” ) may recover from the obligor in the absence of a claim to the instrument, defense, claim in recoupment, or discharge.

38
Q

Real Defenses

A

Apply to holders and HDC’s

Forgery of Names Necessary to Title
Infancy
Incapacity
Duress
llegality
Fraud in the factum
Alteration of Instrument
Discharge in Insolvency Proceedings
Statute of Limitations 
Accommodation
Discharges Known to HDC
39
Q

Personal Defenses

A

Consideration and Negotiable Instruments
Breach of Warranty
Fraud in the Inducement

40
Q

Holder in Due Course Requirements

A

Value,
In good faith, and
Without notice

41
Q

Shelter Provision

A

A transferee may acquire the rights of a holder in due course through the transfer even if the transferee does not himself qualify as a holder in due course

This includes the right to take free of all claims to the instrument, defenses, and claims in recoupment to the same extent as would his transferor/ holder in due course

The transferee also is entitled to any rights the transferor inherited from his own transferor.

42
Q

Liability of Issuer of Cashier’s Check or Maker of Note

A

By signing his name, the maker of the note makes a contract to pay the instrument according to its terms at the time it is issued

The promise is unconditional the proper defenses may be raised

43
Q

Liability of Drawer

A

Dishonor by the drawee must occur before the drawer is liable on a draft

When a draft is accepted by a nonbank, a drawer is treated as an indorser. When a draft is accepted by a bank, a drawer is completely discharged.

A drawer may disclaim liability on any draft (other than a check) by writing, on the draft, the words “without recourse.”

44
Q

Liability of Drawee

A

A check or other draft does not of itself operate as an assignment of any of the drawer’s funds held by the drawee. A drawee is not liable to the holder unless the drawee accepts the draft.

45
Q

Liability of Indorser

A

An indorser’s obligation pay is owed to the person who is entitled to enforce the instrument or to a subsequent indorser who pays the instrument.

An indorser may disclaim liability on his indorser’s contract by indorsing the instrument without recourse.

An indorser is not liable until the instrument has been dishonored and, unless excused, notice of dishonor is given.

46
Q

Liability of Acceptor

A

There are no conditions to an acceptor’s obligation to make payment. Once a draft is due, the acceptor is obligated to make payment.

An effective acceptance must be: (a) in writing; (b) on the instrument; (c) signed by the drawee; and (d) either delivered to the holder or the holder must be notified.

The acceptance may consist of the drawee’s signature alone.

47
Q

Dishonor

A

An instrument is dishonored when the drawee, acceptor, or maker refuses, or fails, to pay or accept the instrument on a proper presentment for payment or acceptance.

Dishonor of an instrument is a condition to the liability of both a drawer and an indorser.

48
Q

Presentment

A

Presentment is a demand for payment or acceptance made by, or on behalf of, the person entitled to enforce the instrument.

Presentment for payment must be made to the drawee or to a party obliged to pay the instrument (e.g., the maker of a note or the acceptor of an accepted draft).

Presentment for acceptance must be made to the drawee.

49
Q

Manner and Time of Presentment

A

Presentment may be made by any commercially reasonable means including orally, in writing, or by electronic communication.

50
Q

Rights of Party to whom Presentment is Made

A

Once a demand for payment or acceptance is made, the party to whom presentment is made has the right to demand, without thereby dishonoring the instrument, that the presenter exhibit the instrument, show reasonable identification, and give a signed receipt on the instrument or surrender the instrument on full payment.

51
Q

Dishonor of demand note

A

A note payable on demand is dishonored if the note is not paid on the day of presentment.

52
Q

Dishonor of note not payable on demand

A

A note that is not payable on demand is dishonored if it is not paid on the day it becomes payable.

53
Q

Two Ways for Dishonor of Check

A

Returns check: A properly presented check is dishonored if the payor bank properly returns the check or sends notice of dishonor or nonpayment

Fails to return check or settle: A payor bank that fails not only to promptly return the check (or send notice of nonpayment) but also to provisionally settle for the check, and, thus, becomes accountable for the check, dishonors the check.

54
Q

Dishonor of Demand Draft (other than check)

A

A draft payable on demand is dishonored if presentment for payment is duly made to the drawee and the draft is not paid on the day of presentment.

55
Q

Discharge of Draft Not Payable on Demand (other than check)

A

Not paid on presentment: If the draft is presented for payment and it is not paid on the day it is due or the day of presentment, whichever is later, it is dishonored
– However, payment or acceptance of an unaccepted documentary draft may be delayed without dishonor until no later than the close of the drawee’s third business day following the day on which payment or acceptance is required

Presented for acceptance: An unaccepted draft payable at a stated date, or a stated period after acceptance, is dishonored if the draft is presented for acceptance and acceptance is refused.

56
Q

Notice of Dishonor

A

Notice of dishonor may be given by any commercially reasonable means. It may be oral, electronic, by telephone, or in writing. Unless excused, a delay in giving notice of dishonor discharges an indorser on any type of instrument.

57
Q

Transfer Warranties Definition

A

Any person who transfers an instrument for consideration makes the transfer warranties. U.C.C. § 3-416( a). These warranties are made whether or not the transferor indorses the instrument and even when he indorses the instrument “without recourse.”

58
Q

Content of Transfer Warranties

A
  1. Transferor is a person entitled to enforce the instrument
  2. All signatures are authentic and authorized
  3. No alteration
  4. Transferor not subject to any defense or claim in recoupment
  5. No knowledge of insolvency proceedings
59
Q

To Whom are Transfer Warranties Made?

A

Immediate Transferee
Subsequent Transferees if Transferor indorsed

Note: Drawee and maker can never sue for breach of warranty

60
Q

Accommodation

A

If an instrument is issued for value given for the benefit of a party to the instrument (“ the accommodated party ”) and another party to the instrument (the “accommodation party”) signs the instrument for the purpose of incurring liability on the instrument without being a direct beneficiary of the value given for the instrument, the instrument is signed by the accommodation party “for accommodation.”

Commercial Law (1 decks)

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