UCC-Article 3: Negotiable Instruments Flashcards
Define a “demand instrument.”
Those that are payable immediately upon issue, such as “payable at sight” or “payable upon presentation,” or those for which no time period is specified.
List the parties who draft negotiable instruments.
Drawers - for checks or drafts;
Makers - for notes and Certificates of Deposits.
Give an example of language on an instrument that would affect negotiability.
Language that makes the date of payment uncertain (Payable when I pass the CPA Exam).
Language that affects the certainty of the sum due (Payable at a rate to be determined later).
List the two types of negotiable instruments.
Orders to Pay (checks and drafts);
Promises to Pay (notes and CDs).
List the requirements of a negotiable instrument.
In writing;
Signed by Maker or Drawer;
Contain an unconditional promise or order to pay;
State a sum Certain in Money;
Be payable on demand or at a definite time;
Be payable to order or bearer (words of negotiability).
Give an example of language that results in bearer paper.
“Pay to cash” or “Pay to the order of cash” or “Pay to Jane Downs or bearer.”
Define “indorsement.”
Signature by payee for purposes of negotiation
Describe the writing requirement of a negotiable instrument.
Must have be on something with a degree of permanence and be readily transferable.
List some examples of nonnegotiable instruments
Letters of Credit; Warehouse Receipts; Bills of Lading; Stocks and Bonds; Contracts.
Define “accommodation party.”
A “person” who signs an instrument in any capacity for the purpose of lending his or her name as credit to another party on the instrument.
Define “negotiation.”
The transfer of possession of a negotiable instrument to a party who becomes a holder.
Define “bearer of paper.”
Instrument made payable in blank, to bearer, or to cash; transferred by delivery only.
Describe the various types of checks that can be used to pay money.
Cashier’s check (bank is drawer and drawee);
Teller’s check (draft drawn by one bank on another bank);
Traveler’s check (draft payable on a bank that requires a counter signature);
Certified check (check accepted by a drawee bank; obliges drawee bank to pay);
Money order (is a check if drawn on a bank and payable on demand).
Give an example of language that results in order paper.
“Pay to the order of Jane Downs.”
List the types of drafts that can be used to pay money.
Sight Draft (on demand);
Time draft;
Trade acceptance.
Define “order payer.”
Instrument made payable to individual or entity; transferred by indorsement and delivery.
List the parties to a draft or a check.
Drawer;
Drawee;
Payee.
List the parties to a note or certificate of deposit (CD)
Maker;
Payee.
(Note: there is no maker of a check, only notes and CDs; liability of these parties is different so use terms carefully.)
List the criteria for becoming a holder in due course (HDC) of a negotiable instrument.
Must be a holder;
Must take instrument for value;
Must take in good faith; and
Must take without notice that the instrument is overdue, has previously been dishonored, or of any claim or defense on the part of any person.
Define “holder in due course”
A holder who takes possession of a negotiable instrument for present value, in good faith and without notice of any defense or claims to ownership of the instrument.
When does a demand instrument become over-due?
After an unreasonable amount of time has lapsed or on the day after the day a demand for payment is made.
Describe the shelter rule.
Any holder who cannot qualify as an holder in due course (HDC) but took the instrument through a HDC, has the same rights as if a HDC.
