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Advanced BLaw
Exam 2
| Question | Answer |
|---|---|
| What kind of instrument is in play if the document meets the requirements established by Revised Article 3 of UCC? | Negotiable Instruments |
| What law governs negotiable instruments in addition to the UCC? | Common Law of Contracts -- considered ordinary contract |
| Who takes the instrument free of many defenses that can be asserted against the original payee? | Holder in due course |
| What are the 3 functions of Negotiable Instruments? | Substitute for money, Credit Device, Record Keeping Device |
| What are the types of orders to pay? | Draft or Check |
| What is an unconditional written order by drawer that orders drawee to pay money to payee? | Draft |
| What is a draft drawn on a financial institution and payable on demand? | Check |
| Who wrote/signed the check? | Drawer |
| Who is the Pay to the Order of Line? | Payee |
| Who is the bank on the check? | Drawee |
| What are the types of promises to pay? | Promissory Note and Certificate of Deposit |
| What is an unconditional written promise by maker to pay money to a payee? | Promissory Note |
| What is a promissory not in which the maker is a financial institution? | Certificate of Deposit (CD) |
| Who is the maker in a promissory note? | the person borrowing money |
| Who is the payee in a promissory note? | person who lends the money |
| Who is the maker of a CD? | Bank |
| What is a CD? | Payee deposits money at a financial institution that promises to pay back amount of deposit plus stated interest at a set time |
| Who is the payee in the CD? | individual who deposits money |
| What are characteristics of creating a negotiable instrument? | Must be in writing, signed by the maker or drawer, unconditional promise or order to pay, state a fixed amount of $, not require any undertaking in addition to the payment of $, payable on demand or at definite time, payable to order or to bearer |
| What is a requirement of negotiable instruments that says they must be in a permanent state such as written on ordinary paper? | Permanency Requirement |
| What is a requirement of negotiable instruments that says they must be able to be easily transported between areas? | Portability Requirement |
| What states that a negotiable instrument must be signed by the drawer or maker? | Signature requirement |
| Any sybmol adopted by a party with a present intent to authenticate a writing qualifies as? | Their signature |
| T/F The maker or drawer is not liable unless a signature appears on instrument. | True |
| T/F If an agent is appointed, the representative's signature does not bind the maker or drawer. | False - appointment binds them |
| What is a drawer's uncondition order to a drawee to pay the payee? (pay to the order of) | Order to Pay |
| What is a maker's unconditional and affirmative undertaking to repay a debt to a payee? (I ___ to pay) | Promise to pay |
| ____ and ____ must be unconditional in order to be negotiable? | Promises to pay and Orders to pay |
| Oral and implied instruments are ---? | Nonnegotiable |
| Requirement: Writing | Writing must be permanent and portable |
| Requirement: Signed by maker or drawer | Signature must appear on the face of the instrument. May be any marker intended by the signer to be his or her signature. Signature may be by an authorized representative |
| Requirement: Unconditional Promise or Order to Pay | Instrument must be an unconditional promise or order to pay. If payment is condition on the performance of another agreement then the instrument is nonnegotiable |
| What ensures the value of the instrument can be determined with certainty? | Fixed amount requirement |
| What are some conditions of the fixed amount requirement? | Must be payable in money, applies to variable interest loans, and must not require any undertaking in addition to the payment of money |
| What provides that variable interest rate notes are negotiable instruments? | Revised article 3 |
| Requirement: Fixed amount of money | Amount required to discharge the instrument must be on the face, may include interest, discount, and costs of collection // amount payable is US or foreign currency |
| Under the fixed amount of money requirement, what makes the instrument nonnegotiable? | If payment is made in goods, services, or non-monetary items |
| Requirement: Cannot require any undertaking in addition to the payment of money | A promise or order to pay cannot state any other undertaking to do an act in addition to payment // it may include authorization or power to protect collateral, dispose of collateral, waiver and the like |
| What is payable at sight, upon presentation, or when no time for payment is stated? | Payable on demand |
| What is payable at a definite date or before a stated date, a fixed period after a stated date, or at a fixed period after sight? | Payable at a definite time |
| An instrument payable only upon the occurrence of an uncertain act or event is _____? | Nonnegotiable |
| What is created by special language or by silence regarding payment due date? | Instruments payable on demand |
| What are some examples of instruments payable on demand? | Checks, CDs, and Drafts |
| What is payable at a definite time and date stated in the instrument? | Instruments payable at a definite time |
| What permits the maker to pay the amount due prior to the date of the instrument? | Prepayment clause |
| What allows the payee or holder to accelerate payment of the principal amount of the instrument, plus accrued interest, upon the occurrence of an event? | Acceleration Clause |
| What is a clause in an instrument that allows the date of maturity of the instrument to be extended to sometime in the future? | Extension Clause |
| What is an order instrument? | Is payable to "the order of Jane smith" or "to Jane smith or Order" |
| What is a bearer instrument? | is payable to person in physical possession of instrument who presents it for payment "Payable to bearer" or "payable to Jane Smith or Bearer" |
| T/F Order Instrument and Bearer Instrument are freely transferable. | True |
| What is a promise or order to pay that does not meet the requirements of a negotiable instrument? | Nonnegotiable Contract |
| What are nonnegotiable contracts enforced under? | Common law of contracts as they are not subject to Article 3 |
| How can negotiable instruments be transferred to subsequent parties? | Negotiation |
| How is negotiation for a instrument transfer accomplished? | By placing indorsement on instrument and/or delivering the instrument to a third party |
| What is the transfer of rights under a nonnegotiable contract? | Assignment |
| Who is the transferor | Assignor |
| Who is the transferee | assignee |
| What is a contract that lacks one or more requirements to be a negotiable instrument? | Nonnegotiable Contract |
| What is the transfer of a negotiable instrument by a person other than the issuer to a person who thereby becomes a holder? | Negotiation |
| What is an instrument that is payable to a specific payee or endorsed to a specific indorsee? | Order Paper |
| How are order papers negotiated? | Delivery and indorsement |
| What is an instrument that is not payable to a specific payee or indorsee? | Bearer Paper |
| How are bearer papers negotiated? | by delivery only as indorsement is not necessary |
| T/F Instruments can be converted between order and bearer paper repeatedly until paid. | True |
| What is the signature (and other directions) written by or on behalf of the holder somewhere on an instrument? | Indorsement |
| What are some characteristics of an indorsement signature? | may appear alone, name an individual to whom the instrument is to be paid, be accompanied by other words |
| What are the types of indorsements? | Blank, Special, Unqualified, Qualified, Non-restrictive, Restrictive |
| What type of indorsement doesn't specify a particular indorsee and creates a bearer paper? | Blank Indorsement |
| What type of indorsement specifies the person whom the indorser intends the instrument to be payable and creates order paper? | Special Indorsement |
| What type of indorsement doesn't disclaim or limit liability, the indorsee is liable on the instrument if it isn't paid by the maker, acceptor, or drawer? | Unqualified Indorsement |
| What type of indorsement disclaims or limits the liability of the indorsee? | Qualified Indorsement |
| What are the 2 types of qualified indorsements? | Special Qualified indorsement and Blank Qualified Indorsement |
| What type of indorsement has no instructions or conditions attached to payment? | Non Restrictive Indorsement |
| What type of indorsement conditions or instructions restrict the indorsee's rights? | Restrictive Indorsement |
| What are the 4 types of restrictive indorsements? | Conditional Indorsement, Indorsement prohibiting further indorsement, Indorsement for deposit or collection, Indorsement in trust |
| Can an indorsement have a mispelled or wrong name? | Yes the payee or indorsee can indorse the instrument in the misspelled name, correct name, or both |
| What are the rules if an indorsement has multiple payees or indorsees? | If payable jointly ("to mike and rene") then both must indorse // if payable in the alternative ("to Mike or Rene") - the only one indorsement is required |
| Who is the person in possession of a negotiable instrument that is drawn, issued, or indorsed to him or his order, or to bearer, or in blank? | Holder |
| Who is the person who takes a negotiable instrument for value, in good faith, and without notice that it is defective or is overdue? | Holder in Due Course |
| What the the requirements for Holder in Due Course status? | Negotiable instrument take : for value, in good faith, without notice that it is overdue, dishonored, or encumbered in any way, and bearing no apparent evidence of forgery, alterations, or irregularity |
| What are the requirements to be considered taking for value? | Holder must have given value for instrument, performs the agree promise, security interest in or lien on the instrument, takes instrument in payment of or as security for antecedent claim, negotiable instrument as payment, irrevocable obligation as paym |
| What is good faith? | Honesty in fact in the conduct or transaction concerned |
| Does the good faith test apply to the transferor of an instrument? | No |
| How is an instrument qualified as defective? | Overdue, Dishonored, Unauthorized or altered signature, claim to it by another person, defense against it |
| T/F A person cannot qualify as a HDC if he has notice that the instrument is defective. | True |
| T/F A holder in due course takes an instrument free from personal defenses. | True |
| What types of defenses can be asserted against a holder in due course? | Only Universal or real defenses |
| What is a principle that says a holder who does not qualify as a holder in due course in his or her own right becomes a holder in due course if he or she acquires an instrument through a HDC? | Shelter Principle |
| What are some characteristics of the shelter principle? | holder doesn't have to qualify as an HDC in his own right, holder acquired the instrument from a HDC or is able to trace title back to a HDC< must not have been a party to fraud or illegality affecting inst, can't have notice of a defense or claim ag inst |
| What is a liability in which a person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on the instrument? | Signature Liability - aka contract liability |
| What identifies who is obligated to pay on an instrument? | Signature |
| Who is the person signing an instrument? | Signer |
| What are some responsibilities of the signer? | Maker of notes or CDs, drawer of drafts or checks, drawee who certifies or accepts checks or drafts, indorser who indorses an instrument, agent who signs on behalf of others, or an accommodation party |
| What are characteristics of a signature? | Any word, mark, or name used in lieu of a written signature.. |
| Any symbol that is handwritten, typed, printed, stamped, or made in almost any other manner, and executed or adopted by a party with the intent to authenticate a writing is considered a ? | Signature |
| What is the absolute liability to pay a negotiable instrument, subject to certain universal defenses? | Primary Liability |
| What are the responsibilities of the Makers of promissory notes and CDs? | Primary liability for the instrument, unconditionally promise to pay amount stipulated in the note when due, and are absolutely liable to pay the instrument, subject only to certain universal defenses |
| Who is primarily liable when a check or draft is issued? | No party but the Drawer has secondary liability |
| Who is primarily liable on the instrument issuance of a cashier's check? | Issuer |
| Who is primarily liable if the drawee accepts a draft or check? | Drawee -- check accepted when certified by bank and certification discharges drawer and all prior indorsers |
| What is the liability on a negotiable instrument that is imposed on a party only when the party primarily liable on the instrument defaults and fails to pay the instrument when due? | Secondary Liability |
| What are those who are secondarily liable on negotiable instruments they endorse called? | Unqualified Indorsers |
| Who disclaim liability and are not secondarily liable on instruments they endorse? | Qualified Indorser |
| Give an example of someone who has secondary liability. | Drawer of a draft or check |
| What are the requirements for imposing secondary liability? | The instrument is properly presented for payment, instrument is dishonored, and the notice of the dishonor is timely given to the person to be held secondarily liable on the instrument |
| What is a demand for acceptance or payment of an instrument made upon the maker, acceptor, drawee, or other payer by or on behalf of the holder? | Presentment |
| What is the formal act of letting the party with secondary liability to pay a negotiable instrument know that the instrument has been dishonored? | Notice of Dishonor |
| Who is the party who signs an instrument and lends his name and credit to another party to the instrument? | Accommodation Party |
| What are the 2 liabilities of the accommodation party? | Guarantee of payment and Guarantee of collection |
| When is the accommodation party primarily liable on the instrument? | Guarantee of payment |
| When is the accommodation party secondarily liable on the instrument? | Guarantee of collection |
| What may the accommodation party who pays the instrument seek from the accommodated party? | Reimbursement |
| What are some characteristics of an agent's signature on a secondary liability? | Principal is bound if the agent signs either or both names, principal is not liable for unauthorized signature, agent is not liable if sig shows that the agent signed on behalf of the principal, agent is liable if signed his name and can't show bind |
| What is the forged or unauthorized signature of a pee or holder on a negotiable instrument? | Forged Indorsement |
| Who does the loss fall on in the case of a forged endorsement? | Party who first takes forged instruments after the forgery |
| Does a forged indorsement bind that person to the instrument? | No it is ineffective in binding the one whose signature was forged |
| What is the imposter rule? | If an imposter forges the indorsement of the named payee, the drawer or maker is liable on the instrument to any person who, in good faith, pays the instrument or takes it for value or for collection |
| What is the fictitious payee rule? | Rule that states a drawer or maker is liable on a forged or unauthorized indorsement if the person signing as or on behlaf of a drawer or maker intends the named payee to have no interest in the instrument or when the person identified as the payee is fak |
| What types of warranties are implied on tranferors of negotiable instruments? | Transfer Warranties and Presentment Warranties |
| What is imposed whether or not the transferor signed the instrument? | Warranty Liability |
| What is a transfer warranty? | transferor has good title to the instrument or is authorized to obtain payment or acceptance on behalf of one who does have good title, sigs are genuine or authorized, instrument not materially altered, no defenses againtst transfer, no know of insolvency |
| What is a presentment warranty? | presenter has good title to the instrument or is authorized to obtain payment or acceptance of the person who has good title, instrument has not been materially altered, presenter has no knowledge that the signature of the maker or drawer is unauthorized |
| What are some examples of universal (real) defenses? | Minority, Extreme Duress, Mental Incapacity, Illegality, Discharge in Bankruptcy, Fraud in the inception, Forgery, Material Alteration |
| Who are real defenses raised against? | Holder in Due Course |
| What are some examples of personal defenses? | Breach of contract, Fraud in the inducement, Mental illness that makes a contract voidable instead of void, illegality of a contract that makes the contract voidable instead of void, ordinaryduress r undue influence, discharge of instrument by payorcancel |
| Can personal defenses be raised against a holder in due course? | No |
| What are the actions or events that relive certain parties from liability on negotiable instruments? | Discharge |
| What are the methods of discharge? | Payment of the instrument, cancellation, impairment of the right of recourse |
| What is a situation in which certain parties are discharged from liability on an instrument if the holder: releases obligor from liability or surrenders collateral without consent of the parties who would benefit by it? | Impairment of the right of recourse |
Created by:
Heritage2016