UCC Negotiable Instruments Flashcards
To be negotiable under the UCC, an instrument must be…
(1) In writing;
(2) Signed by the maker/drawer;
(3) Contain an unconditional promise or order;
(4) To pay a fixed about of money;
(5) To an order or bearer;
(6) Payable on demand or at a definite time;
(7) without any additional conditions.
A check is an order instrument which, to be negotiable, requires for there to be…
(1) endorsement by the holder; and
(2) transfer to the subsequent party
A holder in due course is a party who…
took possession of an instrument for value, in good faith, and without notice that the instrument had any defect or dishonor.
In absense of value, good faith, or ignorance as to a defect or dishonor, a holder in due course would be…
simply a holder.
A holder can enforce payment on…
the original obligation.
HDC status will be protected in a subsequent transferee, unless….
there is fraud.
A holder enforcing payment of the original obligation is subject to…
contractual defenses by the maker/drawer.
A drawer has a defense if a negotiable instrument was issued without….
consideration.
If a transferee for value fails to become a holder because there was no endorsement, the transferee would have an….
enforceable right to achieve an unqualified endorsement from the transferor to become negotiable.
If the holder refuses to endorse a check that they transferred for value, the transferee can file….
an action at law seeking specific performance.
there will not be negotation until the check is endorsed
A drawer assumes the obligation to…
pay according to the terms of payment when the instrument was issued.
One should argue that an attempt to enforce an instrument with knowledge of its defect is….
fraudulent.
Stopping payment on a check does not….
avoid an obligation, it merely delays payment.
As a holder in due course, one can endorse a check notwithstanding a stop payment order unless….
a real defense is invoked.
The real defenses are….
- Infancy;
- Void contracts;
- Bankruptcy;
- Forgery;
- Deception;
- Discharge known to holder.
Will stop an HDC from endorsing a check with an SPO.
A holder in due course’s status is not changed by subsequent notice, because….
their status is defined when they accept the instrument in consideration for value.
When an HDC has the rights to collect an instrument, notwithstanding a stop payment order, they may collect the instrument from….
the drawer/maker or directly from the bank.
The shelter doctrine states that a person who does not qualify as an HDC can assert the rights of the transferor HDC as long as the party….
is not personally engaged in wrongdoing affecting the instrument.
A holder can enforce a dishonored instrument under a contract theory against….
the maker, the payee (bank), and the first holder.
When one transfers an instrument for consideration (i.e., selling a note) they make warranties to the transfereee that…
(1) They are entitled to enforce it;
(2) The signatures are authentic and authorized;
(3) The instrument has not been altered;
(4) It is not subject to a defense that could be asserted against him/her; and
(5) That they have no knowledge of insolvency proceedings against the maker.
A breach of the transferor’s warranties entitle the transferee to….
recover damages from the transferor as well as from the maker.
Is the fixed amount of money requirement defeated if a note includes reference to interest?
NO. Interest is authorized as described in the instrument in any manner.
A promissory note implicitly recognizing to “Pay John Doe” (is/is not) a negotiable instrument.
IS NOT.
It would be, however, if it was a check (exception).
An instrument may allow for payment upon the elapse of a definite period of time following another event, but only when….
the starting date is readily ascertainable when the promise is issued.
Under a purported partnership theory, a person who represents herself as being a partner or consents to such representation will be liable to….
third parties who extend credit to the apparent partnership in reliance on the representation.
An accomodation party is one who…
signs a note for the purpose of incurring liability, without being a direct beneficiary of the value given.
An accomodation party is obligated to pay the instrument in the capacity….
in which he signs, even if he receives no consideration.
An accomodation party is obligated to pay for the capacity in which they signed, even if….
the person enforcing the obligation knows of the accomodation.
As an exception, an accomodation party is discharged from the obligation when the party entitled to enforce the obligation….
impairs the collateral securing the obligation.
If a party fails to perfect its security interest, they will be considered to have….
for purposes of the accomodation statute.
impaired the collateral.
for purposes of the accomodation statute.
An accomodating party may waive being discharged from an impaired collateral either by…
consent or express agreement.
A bank may charge is customers accounts only for…
properly payable items.
If an accountholder recognizes an unathorized signature to its bank, they must…
notify the bank promptly.
If a bank charged a customer’s account for a item that was not properly payable, to remedy this, the bank should…
recredit the customer’s account.
If a payor has paid and later discovers the payor shouldn’t have paid because, for example, the check was forged, the payor will attempt to sue the indorser for….
breach of warranty.
A warranty as to the drawer’s signature is breached only if the warrantor has…
knowledge that the purported drawer is unauthorized.
Payment of a negotiable instrument is final, except that…
(1) the payor can pursue those who beach transfer warranties; and
(2) the rule of finality operates in favor of HDCs and those who rely in good faith on payment [if not, payor can pursue recovery of payment].
If an instrument contains contradictory amounts in words and numbers, which will prevail?
Words prevail over numbers.
If an instrument provides for interest, but the amount of the interest payable cannot be ascertained from the description, interest is payable at the rate….
effective at the place of payment and at the time interest first accrues.
If a promissory note lacks negotiability, it should be treated as…
a contract, for purposes of defenses that can be raised.
