Details Title: BLS 442 - Contract Law Description: negotiable instruments Total Flash Cards: 127 Created: 10/21/2008 08:17:33		New Users: To study from this flashcard set, or to create your own your own study flash cards, REGISTER HERE. Existing Users: CLICK HERE. Additional Law Flashcards
Cards in this set: Term Assignment Definition transfer of rights Term delegation of duties Definition transfer of duties (what one must perform) opposite of assignment Term obligors cannot prevent assignments, except: Definition 1) contract states otherwise 2) personal contract between parties 3) substantial change in performance Term Contract Defenses (1-10) Definition 1. breach of contract 2. contract was illegal 3. contract with a minor (voidable) 4. statute of frauds 5. duress or threats 6. discharge 7. insanity 8. too intoxicated 9. lack of agreement 10. unconscionability Term Contract Defenses (11-20) Definition 11. mutual mistake of fact 12. misrepresentation - innocent 13. fraud - intentional, fraud in the inducement 14. statute of limitations 15. bankruptcy 16. concealment 17. undue influence 18. fraud in the execution 19. lack of consideration 20. unilateral mistake of fact Term voidable contract - definition Definition sitting on the fence. in order to get out of contract you have to disaffirm or avoid the contract. Term Voidable Contracts (1-12) Definition 1. minor (ages 7-17) 2. intoxication 3. insanity 4. fraud in the inducement 5. undue influence 6. mutual mistake of fact 7. duress - mild 8. misrepresentation (innocent) 9. illegality 10. unconscionability 11. concealment 12. unilateral mistake of fact Term Void Contract (1-6) Definition Contract doesn't exist 1. minors under 7 years of age 2. illegality 3. insanity - declared by courts 4. duress - extreme 5. unconscionability 6. fraud in the execution Term Uninforceable Contract Definition All void contracts Statute of limitations Statute of frauds Bankruptcy Term requirements for negotiability Definition two parties (maker/drawer, payee) sum certain in money maker is unconditionally promising to pay payable at a definite time Term time draft Definition payable at a specific time - only instrument that will be "accepted" Term demand instrument Definition any instrument without a specific date. can be presented "on demand" Term negotiating order paper Definition indorse it deliver it Term words of negotiability Definition "order" "bearer" "pay to the order of" must be on face of instrument Term negotiating bearer paper Definition voluntary delivery only Term special indorsement Definition ex. pay to Claire Term pay to the order of cash Definition bearer paper Term drafts Definition 3 parties: drawer, drawee, payee. all checks are drafts, but not all drafts are checks. Term check Definition draft where drawee is drawer's bank. Term transferee Definition 0 liability Term transferor Definition transfer warranties Term presentee Definition 0 liability Term presentor Definition presentment warranties Term maker Definition primary liability Term obligor Definition contractual liability Term issuer Definition 0 liability Term issuee Definition 0 liability Term obligee Definition contractual liability Term blank unqualified indorser Definition just indorsement secondary liability Term qualified indorsement Definition "without recourse" removes secondary liability Term instruments are dishonored when Definition there is a refusal to pay, or a refusal to accept. triggers secondary liability Term secondary liability Definition triggered on dishonor. unqualified indorsers, drawers Term acceptor Definition primary liability accepts a time draft Term primary liability Definition maker, acceptor, guarantor for payment Term drawee Definition 0 liability Term definition of a holder Definition 1) person 2) possession of a negotiable instrument 3) drawn, issued or indorsed to that person or to that person's order or to bearer or in blank. Term trade acceptance Definition time draft with only two parties. works for both buyer and seller, buyer gets money now, seller pays later. Term payable at sight Definition sight of a drawee Term acceleration by maker Definition ex. payable on or before 10/10/08 does not affect negotiability Term acceleration by the holder Definition on default, payment in full is due Term definition of HDC Definition innocent purchaser of a negotiable instrument 1. holder 2. gives value 3. without notice 4. in good faith does not have absolute immunity, but is immune from most 20 defenses Term value = Definition = consideration - executory promises Term executory promise Definition value that hasn't been performed yet. ex. promising to wash car on sunday. Term value defined Definition present but not future, agreed consideration performed, not executory promise, not a gift, not an inheritance, antecedent (prior) claim, give a negotiable instrument, making an irrevocable commitment to a third party Term good faith Definition "honesty in fact" at time you took instrument, you took it honestly. a) duty to inquire - cannot just take it b) all surrounding circumstances c) grossly inadequate consideration d) close-connectedness test - who are these people? Term without notice Definition knowing or having reason to know. 1) overdue 2) dishonored 3) defenses 4) claims if you take a negotiable instrument knowing one of the above, you will not be a HDC Term 30 day presumption Definition on a check, if it is older than 30 days, holder will not be a HDC Term shelter rule Definition holder through a HDC. if holder before you was a HDC, then you are protected, only when suing a maker/drawer. Term bearer Definition 0 liability. party in possession of a bearer instrument. Term accommodation party definition Definition someone who adds their name to the instrument and gives value. either accommodation maker or indorser Term co-signor (3 types) Definition 1. co-maker 2. surety 3. guarantor for collection Term co-maker Definition primary liability, joint and several liability if there's a fault. Term surety Definition if B is a surety, they are saying I will pay the debtor's debt if A defaults. can sue A for money sent. Term guarantor for collection Definition i will pay the debtors debt if the debtor faults and if the creditor is unable to collect from the debtor. Term guarantor for payment Definition "I hereby guarantee payment" signed by guarantor. Primary liability. Term 3 parties with primary liability Definition guarantor for payment, maker on a note, acceptor on time draft Term case analysis Definition identify the courts (state trial court), recreate the instrument, chain of possession, chain of title, identify the parties and liabilities, identify the issues, reasoning process Term mere holder Definition not a HDC, liability of assignee Term warranty liability Definition transfer, presentment Term contractual liabilities Definition obligor, obligee Term no liability (8) Definition issuer, payee, transferee, drawee, presentee, issuee, indorsee, bearer Term personal defenses Definition breach of contract, fraud in the inducement. Term mere holder v. maker/drawer with personal defense Definition mere holder loses Term HDC v. maker/drawer with personal defense Definition HDC wins Term real defenses Definition aka universal defenses, all holders (including HDCs) lose. Term types of indorsements Definition blank, special "pay to claire", qualified "without recourse" eliminates 2 liab., restrictive Term restrictive indorsements Definition a. pay to Joe, only = special restrictive (no legal meaning) b. For Deposit Only, Pay Any Bank or Banker, For Collection Only - only for depositary bank. c. conditional indorsement - ex. pay to Sam if Bengals win. Term Personal Defenses (9) Definition 1. Breach of contract 2. fraud in the inducement 3. illegality if contract is voidable 4. non-delivery of an instrument 5. unauthorized completion (blank amount) 6. prior payment 7. incapacity 8. Duress (mild) 9. all voidable defenses are personal defenses except minority. Term Real defenses (10) Definition 1. forgery (forged signature) 2. unauthorized signing 3. fraud in the execution 4. material alteration (partial real defense) 5. bankruptcy 6. illegality - when contract is void 7. extreme incapacity 8. minority 9. all void defenses are real 10. lack of title (forged indorsement of order paper) Term negligence with real defense Definition turns real defense into personal defense and can be beat by HDC Term transfer warranties Definition anyone who transfer and receives consideration warrants to his/her transferee and if the transfer is by indorsement makes warranties to any subsequent holder who takes the holder in good faith. 5 warranties. Term transfer warranty #1 Definition transferor has good title Term transfer warranty # 2 Definition all the signatures are genuine or authorized Term transfer warranty #3 Definition no material alteration Term transfer warranty #4 Definition no defense of any party is good against them Term transfer warranty #5 Definition no knowledge of insolvency proceedings (bankruptcy) Term presentment warranties Definition any person who obtains payment or acceptance or any prior transferor warrants to a person who in good faith pays or accepts Term presentment warranty #1 Definition the person has good title Term presentment warranty #2 Definition no knowledge of forged signautre Term presentment warranty #3 Definition no material alterations Term banks should recognize three things Definition forged signatured, forged indorsement, material alteration Term lack of title aka. Definition forged indorsement Term presentment warranties are made to: Definition drawee bank Term defense to presentment warranties Definition HDC aigf - innocent at all times Term HDC aigf does not work when: Definition plaintiff is a drawee bank or presentment warranty #1 Term thief of bearer paper's defense Definition nondelivery of a negotiable instrument Term drawee bank good condition if: Definition pay over a forged indorsement or material alteration Term drawee bank in bad condition if: Definition pay over a forged signature Term only person who can sue drawee bank Definition bank customer Term most powerful of transfer warranties Definition tw#4: saying that no defense is good against them = holder can sue all other parties and win Term combination of lawsuits Definition 1. holder vs. maker/drawer 2. transferee v. prior transferor 3. person in good faith who pays or accepts v. a person who botains payment and any prior transferor 4. holder v. drawee 5. drawer bank v. drawer Term holder v. maker/drawer Definition only time you use real/personal defenses. whether or not HDC is important. Term transferee v. prior transferor Definition use transfer warranties, secondary liability if dishonored, HDC means nothing Term person in good faith pays or accepts v. a person who obtains payment and any prior transferor Definition defendants: all holders, payee. plaintiffs: drawee bank, maker, surety, drawee, acceptor, guarantor for payment, guarantor for collection, drawer. use presentment warranties. HDC aigf is defense. Term holder v. drawee Definition never going to happen because drawee has no liability. Term 14 day rule Definition drawer must notify the drawee bank of forgeries within 14 days after receiving canceled checks. after 14 days drawer is liable for all subsequent forgeries. drawer has 1 year to report a forged drawer's signature. Term imposter rule/fictitious payee Definition exception to lack of title rule. if instrument is written/indorsed to a person to whom payment is not owed, the signature/indorsement is good and the business owner has to settle that with the forger. Term depositary bank Definition payee's bank. crediting account does not equal giving value. Term rescission of indorsement Definition voidable contracts can be rescinded. example a minor (thus contract is voidable) can rescind indorsement. Term transfer of unindorsed order paper Definition holder has a right to order the previous holder to indorse it. the depositary bank can supply your indorsement. Term to qualify as HDC: claims portion Definition without notice of overdue, dishonor, defenses or claims: incomplete instrument, irregular instrument. Term to qualify as HDC: overdue portion Definition without notice of dishonor, defenses, claims or overdue: time draft - one day after payable on date, demand instrument - reasonable time (check = 30 days) Term drawer v. drawee bank explained Definition 1. contractual agreement 2. principle/agent relationship - has a fiduciary duty not to pay over a forged signature, forged indorsement, material alteration. 3. creditor/debtor. Term death of a drawer (principle) Definition the relationship with bank is not cancelled, it can process checks up to 10 days after reasonable notice. estate must put stop payment on checks. Term certification of check = Definition acceptance of a time draft. two circumstances: if holder requests certification then drawer and all unqualified indorsers are discharged, if drawer requests certification, then no one is discharged. Term one a check is certified Definition cannot stop payment. Term revocation of certification by drawee bank Definition on basis of fraud or mistake unless: 1) holder is HDC, 3) mere holder has substantialy changed your position in reliance on certification. Term reacquired special indorsements Definition reacquirer can changed indorsement to whomever Term maker, acceptor, drawer warranties Definition 1. admits existence of payee 2. admits payee is capable to indorse Term indorsement with fraudulent intentions Definition forged indorsement Term UCCC Definition uniform consumer credit code. designed to protect consumer. only good on household products, not any service. only in a few states. Term bank disobeys stop payment Definition drawee bank is liable if drawer suffers a loss. Term misspelled name Definition can indorse correct name, incorrect name, or both. best to include both. Term 3 steps to dishonor Definition 1. proper presentment 2. dishonor 3. notification of dishonor Term proper presentment Definition on a note, present to maker on a draft, present to drawee Term late presentment Definition has effect on maker, acceptor, drawer, unqualified indorser. unless: it's beyond statute of limitations, or note is domiciled and bank fails. Term cognovit note Definition confession of judgment. if maker defaults, then payee just has to bring a lawyer to court to receive a judgment without the maker being there. Term late presentment for unqualified indorsers Definition must present within reasonable time or else indorsements are lost. Term stale check Definition a check that's more than six months old. the bank can honor it without notice to the customer. Term notice of dishonor Definition holder has to notify all parties that have 2 liability. banks must notify by midnight, people have 3 days. Term payee as HDC Definition is possible, but HDC is the best person to know of problems with the note/draft. Term restrictive indorsements Definition payee makes these to depositary bank. Term insufficient funds Definition bank can honor. has criminal charges if does with intent. less than $500 is a 1st degree misdemeanor. 500-5000 5th degree felony, 5000-100000 4th degree felony, 100000+ 3rd degree felony Term conditional acceptance Definition changing the terms of acceptance ex. pay 50% on 2/1 and 50% on 3/1. if holder goes along with it then he cannot go after people with secondary liability. Term allonge Definition so many indorsements that you have to add additional paper to fit them all. Term parol evidence rule Definition applies to written documents, you can change a contract after you enter into it. exceptions: contract is incomplete, if contract is ambiguous, surrounding instruments ex. fraud. Term discharge liability Definition payment in full: 1. by a primary party (guarantor for payment, maker, acceptor) everyone is discharged. 2. another other than a primary party, discharged that person and all subsequent parties.