UCC Art. 3 - NEGOTIABLE INSTRUMENTS

Question 1

2 Types of Negotiable Instruments

Answer 1

1. Order to pay - 3 parties involved
   - check or draft
   - drawer (writes check); bank (middle man); drawee (receives money)
2. Promise to pay - 2 parties involved
   - promissory note or certificate of deposit
   maker (promises to pay); payee (receives payment)

Question 2

Requirements for negotiable instrument to be considered negotiable

Answer 2

DOWWCS (always tried to reason with Dexter)
D - amount must be payable at definite time
O - must be unconditional order or promise to pay
W - must be in writing
W - words of negotiability (payable to order or payable to bearer)
C - must be a certain and definite amount
S - must be signed by MAKER or DRAWER

Question 3

Non-negotiable instruments

Answer 3

1. Letter of credit
2. Warehouse receipts
3. Bills of lading
4. Stocks and bonds

Question 4

When is a negotiable instrument no longer negotiable?

Answer 4

Made subject to another agreement

Question 5

4 types of indorsements

Answer 5

1. Blank - does not specify holder to receive the payment - just signed name = blank, nonrestrictive, unqualified
2. Special - specifies person to whom payment is to be made
3. Qualified - “without recourse” endorser disclaims liability
4. Restrictive - Conditional (pay to Bob upon delivery of computer)
   - Prohibitive - Pay to Bob only
   - For Deposit or Collection

Question 6

Holder in Due Course requirements

Answer 6

In POSSESSION of check - payable to holder or bearer

1. Must be a holder
2. Take the instrument for value
3. In good faith
4. Without notice that the instrument was overdue, previously dishonored or any claim of defense

Question 7

Letters of Credit

Answer 7

Sellers to provide themselves assurance that they will be paid for delivering goods
NOT transferable to third parties
Domestic = revocable
International = irrevocable

Question 8

What is secured interest?

Answer 8

gives creditor specific collateral the borrower owns that the creditor will get if the borrower defaults on debt

Question 9

What creates a security interest?

Answer 9

1. creditor must give value
2. the debtor must have rights in collateral
3. creditor must take possession or obtain agreement

Question 10

How do you perfect a security interest?

Answer 10

file a financing statement

if sale made to a consumer - do not have to file financing statement

Question 11

What makes a filing statement to perfect security interest valid?

Answer 11

1. Names of debtor
2. Names of secured parties
3. Description of collateral

Question 12

Demand vs Time Instrument

Answer 12

Demand - payable on demand - demand note or draft

Time note or draft - payable at a future date

Question 13

Real Defenses

Answer 13

maker/drawer can avoid paying out on instrument only if can raise one of these, even against a HDC - cannot raise personal against HDc

• Fraud in execution - forgery
• Adjudicated insanity
• Infancy - illegality
• Duress - discharge in bankruptcy
• Suretyship - statute of limitations