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Negotiable Instruments
Commercial Paper
47
Law
Graduate
04/30/2012

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Cards

Term
What are the requirements to be a HIDC?
Definition
1. Good Faith Purchaser
2. For Value
3. WIthout Notice
Term
What 2 things are required to qualify as a Negotiable Instrument?
Definition
1. Meets the terms of Negotiability
2. It has to be properly Negotiated
Term
What are the elements of Negotiability?
Definition
1. Must be in writing
2. Must be Signed
3. Must contain Unconditional promise to pay
4. Must be for definite amount
5. Must NOT contain additional language (Courier W/O luggage)
6. Must be Payable on Demand/Definite Time
7. Must be Payable to Bearer or to Order
Term
What determines whether an instrument has been properly negotiated?
Definition
1. Proper Issuance
2. Proper Transfer
3. Presentment
Term
What is the difference btwn Negotiability and Negotiation?
Definition
Negotiability refers to the form of the instrument and Negotiation is the method by which the instrument is exchanged
Term
What defenses can NOT be asserted against a HIDC?
Definition
Personal Defenses and Claims in Recoupment
Term
What REAL defenses can be asserted against a HIDC?
Definition
1. Fraud in the Factum
2. Infancy
3. Duress
4. Discharge (Bankruptcy)
Term
Who are the parties to a Note?
Definition
1. Maker
2. Payee
Term
Who are the parties to a Draft?
Definition
1. Drawer
2. Drawee (usually the bank)
3. Payee
Term
What are 2 ways to transfer or negotiate a check?
Definition
1. Order paper
2. Bearer Paper
Term
Can a person be a HIDC of a NON-Negotiable Instrument?
Definition
Yes
Term
Does a Negotiable Instrument have to be on paper?
Definition
No, but it can't be oral
Term
Is an unauthorized signer personally liable as if it were his own name?
Definition
YES
Term
Does a promissory note that has an express condition destroy negotiability?
Definition
YES
Term
Does an implied or constructive condition on an instrument destroy negotiability?
Definition
NO
Term
If there has been a forgery of a payees name on an instrument can any later party qualify as a holder?
Definition
NO
Term
What test does TN use to determine the existence of good faith in the transaction in question?
Definition
Subjective Test (Honesty in fact)
Term
What are some of the tests courts look to in order to determine whether someone was too close to the transaction?
Definition
1. Is buyer/transferee the alter ego of the seller/transferor?
2. Do they have same officers, personnel, or location?
3. Who drafted orig note?
4. Is buyer/transferee mentioned in note?
5. Does seller/transferor sell paper to other buyers or is buyer/transferee the only market?
6. Did buyer get involved in transaction by which note was created?
7. Did buyer have some knowledge of the sellers poor past performance of similar contacts?
Term
What is the Shelter Rule?
Definition
The transferee of a HIDC takes shelter in the status of the transferor or someone in the chain.
The # of times an instrument has been negotiated is irrelevant in applying the Shelter Rule
One cant recover against the true HIDC which he is taking shelter under
Term
What are some examples of a Personal Defense?
Definition
1. Mistake
2. Non Performance
3. Estoppel
4. Inadequate Consideration
5. Fraud in the Inducment
Term
Who can enforce an instrument?
Definition
1. HIDC
2. Holder of instrument
3. Non holder in possession who has rights of holder
4. Person who is not in possession of instrument but entitled to enforce it
Term
What is Jus Tertii?
Definition
One party is allowed to avail himself of and proceed under the rights of another. Ex: The Shelter Rule
Term
What is the Maker's obligation on an instrument?
Definition
He is absolutely liable.
If there is more than one maker, they are jointly and severally liable
Term
What is the endorsers obligation?
Definition
They are secondarily liable but only if 3 conditions are met:
1. Dishonor
2. Presentment
3. Notice
Term
What is a Surety?
Definition
They may be an accomodation maker, accommodation endorser or guarantor.

There are 3 distinct agreements:
1. Obligation btwn orig creditor and debtor
2. Obligation that surety will pay creditor if debtor defaults
3. Obligation that debtor will reimburse the surety if he defaults and surety is required to pay for him
Term
What is a qualified endorsement?
Definition
It means without recourse. To avoid being considered or presumed a co-surety, one may endorse by writing "without recourse" with his signature. It relieves signer or PRIMARY liability.
Term
What is a guarantor?
Definition
A surety who adds words of guaranty to his signature, such as "I hereby guarantee this instrument". But the words add nothing to the obligation unless the surety has specifically guaranteed collection only. If that is the case, the guarantor must pay only if:
1. Execution of judgment against prinipal has been returned unsatisfied
2. Principal is insolvent or is bankrupt
3. Principal cannot be served with process
4. Apparent that payment cannot be obtained from him
Term
What is an Accommodation party?
Definition
One who voluntarily signs the instrument for the purpose of incurring liability on it wihtout being a direct beneficiary of the value given for the instrument.

Accommodation party can sign the instrument in any capacity and is obligated to pay the instrument only in the capacity in which he signs
Term
What are some remedial rights of a surety?
Definition
1. Exoneration: At maturity, can compel principal to perform instead of surety

2. Subrogation: If forced to pay off creditor, she is subrogated to whatever rights the creditor had

3. Contribution: Partial reimbursement against cosureties

4. Strictissimi Juris: receive whatever benefits principal is entitled to
Term
What is tender of payment?
Definition
An unconditional offer to pay the exact amount to satisfy a debt in lieu of actual payment. It may save the tendering party from the penalty of nonpayment if the other party refuses the tender without just cause.
Term
What does discharge of an endorser or accommodation party occur?
Definition
If the creditor:
1. Releases principal debtor from liability, or
2. Gives him a binding extension of time in which to pay or
3. Agrees to a material modification of the obligation other than an extension of due date, or
4. Impairs collateral given to secure the obligation
Term
What are 3 exceptions to the Courier without Luggage Rule? (The Not Containing additional language element of Negotiability)
Definition
1. Collateral
2. Authorization to holder to confess judgment or take collateral
3. Promise by maker not to avail himself of legal defenses to the note
Term
If there is language on a Negotiable Instrument that is "subject to" something or depends on something else is it still negotiable?
Definition
NO
Term
There is "as per" language on the negotiable instrument that presents no conditions but merely recognizes the obligation (surplusage)? Is it negotiable?
Definition
YES
Term
Do acceleration or prepayment destroy negotiability?
Definition
NO
Term
What needs to happen for bearer paper to be negotiated?
Definition
Delivery to the transferee
Term
What needs to happen for order paper to be negotiated?
Definition
The named payee must get possession of instrument and endorse it.
Term
What 2 ways are there for a payee to endorse order paper?
Definition
1. Blank Endorsement
2. Special endorsement
Term
What is a restrictive endorsement?
Definition
A type of special endorsement. Ex: Writing "For Deposit Only"
Term
If one party who is not a HIDC can parol evidence be introduced to show the intentions of the parties?
Definition
YES, the Special Purpose Doctrine allows this.
Term
What is the Merger Rule?
Definition
Once an instrument is offered and accepted in satisfaction of an underlying obligation, the obligation merges with the instrument, suspending the obligation until the instrument is dishonored or delinquent
Term
Can a surety waive an obligation on the part of the creditor?
Definition
Yes, including the obligation not to impair collateral. Where the collateral is in the possession of the debtor, inaction by the creditor, negligent or otherwise does not release a guarantor who has executed such a waiver.
Term
What is an endorser liable for?
Definition
1. The amount of the check, or
2. If he endorsed an incomplete instrument, the amount the check was eventually made out for
Term
When can an endorser escape liability?
Definition
1. If the endorsement was made WITHOUT RECOURSE
2. If the endorser did not receive notice of dishonor, if the check is not presented for payment within 30 days after the endorsement was made.
Term
What are the banks rights to subrogation on Improper payment?
Definition
1. Any rights a HIDC would hve on check against its drawer (banks customer)
2. Any rights payee or another holder might have against customer
3. Any rights drawer might have against payee on underlying transaction
Term
What are the 4 events known to bankers as the 4 legals that may have priority over payment of a check?
Definition
1. Notice
2. Stop payment orders
3. Service of Legal Process
4. The banks right to set-off
Term
If an instrument is made payable to order and to bearer, which controls?
Definition
Bearer Language
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