Unit 6 Flashcards
_____________ encompasses substitutes in common usage today such as checks, promissory notes, and certificates of deposit
commercial paper 860
__________ is also basically a contract
commercial paper 860
The law of commercial paper is covered in _________ (Negotiable instruments) and ________ (Bank deposits and collections)
Article 3, Article 4 861
________ and certificate of deposits are promises to pay money where as ________ are checks and drafts that a person issues instructing a bank to pay money out of the issuers account to a third party.
promissory notes, orders to pay money 861
A ________ is a two-party instrument in which one person known as the ______, makes and unconditional promise in writing to pay another person known as the ______, a person specified by the person, or the bearer of the instrument, a fixed amount of money.
promissory note, maker, payee 862
Examples: car note
The most common example of a _______ is a check; however someone who is owed money by another may also use this instrument to request money from the other’s bank account. Commonly used by companies who ship products, car sales man, and purchasers of livestock.
draft 864
A note that provides, “I promise to pay to the order of Carl Adams $2500 if he replaces the roof on my garage,” is _________ because it is payable on a condition.
not negotiable 867
An instrument is not negotiable unless the promise or order is ___________
unconditional 867
A check that reference a specific account account __________ due to a revision in Article 3.
is negotiable 868
Except for checks, to be negotiable instrument must be “_______” or “_______.” This is the essence of negotiable.
Payable to order, to bearer 870
Typewritten terms prevail over ______
printed terms 874
__________ prevail over typewritten or printed terms.
handwritten terms 874
where words and number conflict, the ______ control the ______
written words, numbers 874
If an instrument is payable to the order of a specific payee, it is called ________ and it can be negotiated by transfer of possession of the instrument after ________ by the person specified
order paper, indorsement 877
A check made payable to a specific person is _______ not because the word “order” appears on it, but rather because it ……….
order paper, named a specific payee 877
If an instrument is made payable “to bearer” or “to cash,” it is called _________ and negotiating it is even simpler.
bearer paper 877
In instrument payable to bearer may be negotiated by _________ alone. No ______ in necessary; however, by indorsing the check, you agree to be ______ for its payment if it is not paid by the drawee bank.
transfer of possession, indorsement, liable 877
A promise or order is “payable on demand” if __________ or __________.
it states that it is payable on “demand”, does not state any time for payment 869
A ______ is a form of commercial paper that involves an order to pay money rather than a _______ to pay money
draft, promise 864
A promissory note must be signed by the _______.
maker
what are the 4 kinds of indorsements?
- special
- blank
- restrictive
- qualified 880
A _______ indorsement contains the signature of the indorser along with the words indicating to whom, or to who’s order, the instrument is payable.
special 880
If in indorser merrily signs his name and does not specify to whom the instrument is payable, he has indorsed the instrument in _______.
blank 880
When Natalie signs her name on the back of a check made “payable to the order of Natalie ,” she has made a _______ indorsement and the check is payable to the ______. The bearer negotiates it by ______ alone, and no further indorsements are necessary.
blank, bearer, transfer 880
A ______ indorsement is one that specifies the purpose of the indorsement or specifies the use to be made of the instrument.
restrictive 880
A ______ indorsement is one where the indorser disclaims her liability to make the instrument good if the maker or drawer defaults on it. Typically the indorser will write “_________” which is intended to eliminate __________.
qualified, without recourse, Contractual liability 882
If a person who takes a negotiable instrument does not meet these requirements (pg. 884), they are not a holder in due course. The person is in the same position as an ________.
assignee of a contract 884
To be a ______ of a negotiable instrument, a person must have possession of an instrument that is either payable to “_____” or that is payable to them.
holder, bearer 884
2 requirements to be a holder:
- must be in possession of the negotiable instrument
2. the instrument must be paid the order of you. 884
To qualify as a holder in due course of a negotiable instrument, a person must give _____ for it. Thus, a person who merely receives a check as a gift or makes an executory promise in return for a check _____ a holder.
value, is not 886
If; however, an executory promise is partially performed, the holder may……………
…..may assert rights as holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the partial performance divided by the value of promised performance. 886
Howard promises to paint house for a $100 check but only paints 1/4 of the house. Howard will be a holder in due course for the _____.
$25; 886
a check is overdue or stale _______.
90 days after its date. 886
If you negotiable instrument do on a certain date is not paid by that date, normally then it will be over do at the___________.
Beginning of the next day after the due date 886
A ___________ is a claim of the person obligated on the instrument against the original payee of the instrument.
Claim in recoupment 887
Under the _______ the transferee of an instrument, whether or not the transfer is a negotiation—-obtains those rights that the transferor has.
shelter rule 889
Article 3 establishes 4 categories of claims and defenses for negotiable instruments:
- Real defense- go to the validity of the check
- Personal defense- a rise out of the transaction they gave rise to the instrument.
- claims to an instrument- concerns property or possessory rights in an instrument or it’s proceeds.
- claims in recoupment- also rises out of the transaction that gave rise to the instrument. 891
Generally, a holder in due course takes a negotiable instrument free of any ________ or ______ .
personal defenses, claims to it 894
jeff writes a check to Bob’s Motors for a truck. Bob promises that the truck is in good working condition but in fact there is a crack in the engine. Bob’s Motors negotiated the check to First Bank. Can Jeff use his personal defense that the Bob breeched warranty? Does Jeff have to pay First Banke?
No, Yes 894
Holders of instruments with the legend “________” are not eligible to be holders in due course. Who does this protect?
consumer paper
it protects consumers who sign a promissory note for a product from a seller who then negotiates the promissory note to a bank. The bank would not be a holder in due course. 896
The maker of a promissory note is ________ liable for payment of it.
Primarily 903
A person who endorses a negotiable instrument usually is ______ liable ……….
Secondarily, upon dishonor by the maker. 905
An indorser’s liability is discharged if no one presents the check to a bank within ______.
30 days; 907
an ___________ is a person who signs a negotiable instrument for the purpose of lending their credit to another party to the instrument but is not a direct beneficiary of the value given for the instrument. They are _______ liable.
Accommodation party, primarily 907
If John writes a check to Betsy and Betsy attaempts to cash the check at Johns’s bank but the bank refuses. The bank ____ owe an obligation to Betsy. The bank ____ owe an obligation to John to pay checks when his account is in good standing.
doesn’t, does 910
If the drawer of a draft dishonors it when the drawee present it for payment, an indorser on a draft could be held liable only after _________.
notice of dishonor 911.
A person who transfers a negotiable instrument to someone else and for consideration makes 6 warrantees to his immediate transferee:
- the warrantor is entitled to enforce the instrument
- all signatures on the instruments are authentic or authorized
- the instrument has not been altered
- the instrument is not subject to a defense or a claim in recoupment that any party can assert against the warrantor
- the warrantor has no knowledge of any insolvency proceedings commenced with respect to the maker of the check or draft
- with respect to remotely created consumer items, that the person whose accounts the item is drawn authorized the issuance of the item in the amount for which the item is drawn
913
if an employee with authority to sign check for their employer’s business uses their employer checks to fictitiously write checks for the company, cashes them at a banks, but then pockets the money the ______ is liable. If the bank does not exercise ordinary care in inspecting the check ___________ guides the allocation of liability.
employer, comparative negligence 918
_______ of an instrument is an unauthorized assumption and exercise of ownership over it.
conversion 920
if a an indorser to a note makes a fraudulent alteration to it, the maker and another other previous indorsers are _________.
completely discharged 923
