Term
| Elements of a Holder in Due Course |
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Definition
1. Negotiable Instrument
2. Negotiated
3. Holder in Due Course
4. Takes Free of Personal Defenses (only subject to REAL defenses) |
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Term
| If the instrument is non-negotiable, what happens? What can innocent party do? |
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Definition
Apply regular contract law
Innocent party can assert real and personal defenses |
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Term
| Requirements for a Negotiable Instrument |
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Definition
1. Writing
2. Signed by Maker (note) or Drawer (draft)
3. No Express Conditions (implied or constructive = ok)
4. Promise or Order
5. To pay Fixed Amount
6. Of Money
7. No other Unauthorized Promise
8. On Demand or at Definite Time
9. To Bearer or to Order at the Time of Issue |
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Term
| If a maker's signature is forged, is the maker bound or is the forger bound? |
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Definition
Maker is NOT bound
Forger IS bound |
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Term
| If an agent signs an instrument, is the principal bound? |
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Definition
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Term
| ________ conditions and _________ conditions do NOT destroy negotiability. |
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Definition
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Term
| For an instrument to be negotiable, it _______ be subject to another writing. |
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Definition
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Term
| A negotiable instrument that is "secured by" something is _______ because _______. |
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Definition
PERMISSIBLE
because it is not a condition |
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Term
| Express limitation of funds in negotiable instrument is _____. |
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Definition
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Term
| Promise to pay a fixed amount cannot be an _______. |
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Definition
| I.O.U. (acknowledgment of debt) |
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Term
| The fixed amount required for negotiability can be in ______ or _________ form. Additionally, ______ does not affect negotiability (it can be included). |
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Definition
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Term
| In a negotiable instrument, _______ money is OK. |
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Definition
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Term
| The promise for ___________ fees are permitted without destroying negotiability. |
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Definition
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Term
| If the note does not say anything, it's _________ paper. |
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Definition
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Term
| If note doesn't say anything (silence), it is _________ paper. |
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Definition
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Term
| Clauses that speed up payment |
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Definition
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Term
| Acceleration clauses are _______ in notes |
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Definition
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Term
| For notes to be negotiable, they must be payable _________ or at a ___________ time. |
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Definition
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Term
| It could be malpractice for an attorney to NOT include a ___________ in negotiable instrument. |
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Definition
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Term
| An instrument is payable on "the death of my Uncle." Negotiable? Why? |
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Definition
NO
Because not payable on demand or at a definite time.
Death is not a definite time. |
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Term
| An instrument is payable "when I turn 21." Negotiable? Why? |
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Definition
YES
Because date of 21st birthday is a definite time. |
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Term
| An instrument is payable on 1/1/3000, accelerated by the death of my uncle." Negotiable? |
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Definition
YES
Because instrument was due at definite time (date) and acceleration clauses are OK (even if indefinite). |
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Term
| Two types of negotiable instruments |
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Definition
Bearer paper (cash) and
Order paper (check) |
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Term
| Bearer paper and order paper are both ______. |
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Definition
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Term
| A negotiable instrument which is payable to whoever has possession at the time of issue. |
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Definition
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Term
| Person who has possession of the commercial paper. |
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Definition
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Term
| An instrument which is only payable to the person named on the instrument. |
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Definition
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Term
Rules for Negotiation:
Order Paper: _______ + _______
Bearer Paper: __________ |
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Definition
Order paper: Indorse (sign) + deliver
Bearer paper: Deliver |
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Term
| Bearer paper is usually payable to _____. |
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Definition
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Term
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Definition
In determining whether instrument was NEGOTIATED, look to whether the LAST indorsement was SPECIAL (described whom the paper was payable to) or BLANK (did not describe who it was payable to).
If SPECIAL = order paper; requires SIGN + DELIVERY
If BLANK = bearer paper; requires DELIVERY |
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Term
| Instrument is payable to the order of Sue Jones. Jones indorses it "Pay Bob, /s/ Sue Jones." In order for Bob to "negotiate it" to Martha, Bob must: |
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Definition
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Term
| Instrument is payable to the order of Sue Jones. Jones indorses it "/s/ Sue Jones." In order for Bob to "negotiate it" to Martha, Bob must: |
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Definition
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Term
| Blank indorsement = __________ = negotiated by ________ |
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Definition
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Term
| Special indorsement = ______________ = negotiated by ______ |
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Definition
order paper
sign + delivery |
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Term
| In order for someone to be a holder in due course, must: |
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Definition
1. For value (executed consideration)
2. In good faith
3. Without knowledge OR notice |
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Term
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Definition
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Term
| A lawyer receives a $1,000 negotiable instrument as an advance on fees. Is the lawyer a HDC? |
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Definition
NO
Advance on fees = executory (not fully executed); therefore NOT value |
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Term
| Value includes ______ debts |
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Definition
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Term
| A lawyer receives a $1,000 negotiable instrument as payment for work done three years ago. Is the lawyer a HDC? |
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Definition
YES
Old debts are value (executed consideration) |
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Term
| Time of __________ governs HDC status. |
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Definition
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Term
If payment, then notice =
If notice, then payment = |
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Definition
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Term
| Can someone be a part HDC? |
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Definition
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Term
| A swindles a $1,000 note from maker. A sells the note to B for $500. B is HDC for which amount? Why? |
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Definition
The full $1,000.
Because B did not have notice that A swindled the $1,000. |
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Term
| A swindles a $1,000 note from maker. A sells the note to B for $500 to be paid in two $250 payments, one today and one tomorrow. B pays the $250 today, but tonight finds out that A swindled the note. B is HDC for which amount? Why? |
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Definition
B is part HDC for $500.
B cannot be full HDC because had notice that the note was swindled.
Even if B quickly pays $250, still cannot be HDC for full $1,000. |
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Term
Depository bank is NOT an HDC if ___________.
Depository bank IS HDC if __________, which happens in either of two situations: |
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Definition
NOT = gave provisional credit
IS = gave value
Give value when:
1. bank buys commercial paper for cash or
2. bank uses some provisional credit to pay checks that cleared (FIFO must be used) |
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Term
| For depository bank who paid check for depositor to be HDC, bank must use ______. |
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Definition
| FIFO (first in, first out) |
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Term
| Good Faith requirement for HDC means: |
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Definition
1. Honesty in fact and
2. Observance of reasonable commercial standards of fair dealing |
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Term
| For someone to be HDC, must take without __________ or _________ of overdueness, dishonor, claim, defense, forgery, irregularity, or incompleteness (question of authenticity). |
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Definition
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Term
| What you know or what someone similarly situated to you would know |
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Definition
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Term
| Check is overdue when it is over ______ days old. |
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Definition
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Term
| Irregularity of a note includes |
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Definition
| paper that is torn, crumbled, etc. |
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Term
| Categories of people who are NOT HDC's (3): |
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Definition
1. Buyers in bulk (buy substantial amount of business or merchandise)
2. Buying from an estate (purchased from executor)
3. Buyers in judicial sale (purchased note from judicial/sherriff's sale) |
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Term
| Real Defenses (10 in 5 categories) |
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Definition
1. forgery; fraud
2. alteration; adjudicated insanity
3. infancy; illegality
4. duress; discharge in insolvency
5. suretyship defenses; statute of limitations |
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Term
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Definition
when someone has altered the commercial paper
only liable for initial amount |
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Term
| Exceptions to infancy defense (2) |
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Definition
1. contract for necessity (food, shelter, water, etc.)
2. marriage |
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Term
| Illegality is limited to illegal _________. Does not apply to illegal _________. |
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Definition
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Term
| For defense of fraud, the key is ___________. Must prove: |
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Definition
switch-document
Must prove:
didn't know what you were doing
were not negligent |
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Term
| For defense of duress, must be ______ duress, meaning ______. |
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Definition
void
threats made against you or your family |
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Term
| Discharge in insolvency requires |
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Definition
| Judgment of bankruptcy by court |
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Term
| Suretyship defenses only apply if ___________ of suretyship by _______. |
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Definition
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Term
Statue of limitations for draft: ______ years
Statute of limitations for notes: ______ years
Statute of limitation when no demand: ______ years |
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Definition
Drafts: 3
Notes: 6
No Demand: 10 |
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Term
| HDC Rule does NOT apply to ___________. |
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Definition
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Term
| Requirements for FTC Amelioration |
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Definition
1. Human buys
2. Consumer goods
3. Or services
4. On credit |
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Term
| Goods sold for family use are ___________ goods. |
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Definition
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Term
| To be sold on "credit" must have more than _____ installment payments. |
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Definition
| 4 (i.e. the minimum amount of payments is 5) |
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Term
| If a human buys consumer goods or services in credit, that person can assert _______ defenses. |
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Definition
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Term
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Definition
| Anyone who takes after HDC gets rights of HDC (except participant in the fraud). |
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Term
| As long as there was an earlier HDC (does not have to be the person who instrument was taken directly from), ______ rule applies. |
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Definition
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