In General Flashcards
(25 cards)
Controlling Body of Law for Commercial Paper
UCC Article 3
2 Types of Commercial Paper
- Notes
2. Drafts
Notes
A written and signed promise by one party (the maker) to pay money to another party (the “payee” or bearer).
Drafts
A written and signed instruction by one person (drawer) to another person (drawee) demanding payment to a third party (payee).
Also known as “bill of exchange”
Certificates of Deposit
- Also included in the general definition of commercial paper.
- Acknowledgement by a bank that a sum of many has been received, and a promise by the bank to repay the sum of money
Negotiable Interest Must Contain
(MEMORIZE THIS)!
- Written and signed
- Unconditional Promise or order to pay A fixed amount of money
- Is payable to order or to bearer On demand or at a definite time; and
- Does not state any unauthorized undertaking or instruction
Writing Requirement for Negotiable Instrument
- No such thing as an oral negotiable instrument
- Must be something tangible
- Almost always on a piece of paper, bud does not have to be (ex. a t-shirt, a cow, a tamale, etc. - all OK
Signing Requirement for Negotiable Instrument
-Signed by maker if note
-Signed by drawer if a check
-Signed includes any symbol executed or adopted by a party with a present intention to authenticate a writing.
Key question: Whether the party intended for that symbol to operate as their signature
Unconditional Requirement for Negotiable Instrument
Conditional promises destroy negotiability - Must have definite time due
Promise or to Pay Requirement for Negotiable Instrument
- IOU is not a promise to pay
- “I wish you would pay” is not an order to pay`
Fixed Amount of Money Requirement for Negotiable Instrument
When the instrument is payable, the holder must be able to determine from the instrument itself the PRINCIPAL amount due (does not apply to interest)
-Has to be US dollars or a foreign currency recognized by the US
No other Undertaking or Instruction Requirement for Negotiable Instrument
- Must be a “courier without luggage”
- To be negotiable cannot contain any unauthorized undertaking or promises
- However UCC explicitly permits 3 undertaking or instructions that may be included:
1. An undertaking or power to give, maintain, or protect collateral
2. An authorization or power to the holder to confess judgment or realize on or dispose of collateral; and
3. A waiver of the benefit of any law intended for the advantage or protection of the obligor (e.g., waiver of a homestead exemption, or trial by jury, or right to notice dishonor.
4. OK to promise to pay costs of collection and attorneys fees
On Demand or at a Definite Time Requirement for Negotiable Instrument
- Holder must be able to tell when it comes due or the instrument is non-negotiable
- Though doesn’t have to have a date. An undated instrument which specifies no time for payment is treated as an instrument payable on demand by the holder.
Note containing an extension clause
-Ok if permits the instrument to be extended at the option of the maker so long as as the extension is to further a definite time stated in the instrument (“One month after original due date”)
- If it simply provides it can be extended at option of maker - not negotiable
- If it gives option for holder to extend - still negotiable. Holder always has the option of giving extra time for payment
To Order or To Bearer Requirement for Negotiable Instrument
NI must contain certain magic words either -Order Langauge or -Bearer Langauge `
Order Paper
Payable only to an identifies person:
-“Pay to order of John Smith” or
To an identified person or order
-“Pay John Smith or his order”
Bearer Paper
A promise or oder is payable to bearer if it
- States that is payable to bearer, to order of bearer, to order or bearer, to order and bearer, or otherwise indicates that the person in possession is entitled to payment
- Does not state a payee
- States that it is payable to cash or otherwise indicates that it is not payable to an identified person (“Pay to the order of Merry Christmas”)
Assignment of Instrument
- Assignable to 3rd Party by payee(assignor)
- 3rd party assignee has no greater rights than assignor does on instrument
- Any defenses that could be raised against the payee also could be raised against the assignee
Negotiation of Instrument
- If payee negotiates the instrument then becomes holder.
- If the holder give value, in good faith, with no notice, then the holder is a holder in due course, who takes free of most defenses that could have been raised against the payee
- This is the customary way of transferring an instrument
Holder in Due Course
A holder that:
- Gives value;
- In good faith;
- And without notice that the instrument:
- Is so irregular or incomplete as to call into question its authenticity
- is overdue or dishonored,
- contains an unauthorized signature,
- has a claim on it,
- is subject to another party’s claim in recoupment or defense
Negotiation
Bearer Paper - Only transfer necessary
Order Paper - Transfer AND indorsement necessary
Special Endorsement
One that names a particular person as “endorsee.” endorsee must then sign in order to negotiate the instrument.
- Words of negotiability not necessary (i.e., order/bearer)
- After special endorsement becomes order paper
Blank Endorsement
A signature that is not accompanied by the naming of a specific endorsee. They create bearer paper.
Transactions Precluding HDC Status
Holder does not become HDC of instrument taken by:
- Legal process or by purchase in an execution, bankruptcy or creditor’s sale or similar proceeding
- Purchasing instrument as part of bulk transaction not in the OCB of the transferor, or
- As the successor in interest to an estate or other organization
