Negotiability Flashcards
Negotiability
Refers to the form of the instrument
Determined at time of issuance
Opting out- if instrument says non-negotiable, its non-negotiable
Importance of Negotiability
In normal contract law, a transferee gets no better rights than the transferor. Thus, the obligor may raise all of the defenses (e.g., failure of consideration, fraud) it had against the transferor against the transferee.
If the paper is negotiable (form) and properly negotiated (transferred), it may reach the hands of a special good faith purchaser called a holder in due course (HDC).
HDC obtains better rights than transferor and thus can get paid from obligor even though the obligor (maker or drawer) has defenses (good reasons not to pay under normal contract law).
If instrument is not negotiable, it is not invalid or unenforceable; it is just a regular contract.
Elements of Negotiability
- In Writing
- Signed by Marker or Drawer
- Unconditional Promise or Order to Pay
- Fixed Amount
- In Money
- No Other Undertaking or Instruction
- Payable On Demand or Definite Time
- Contains Words of Negotiability
Elements of Negotiability
- In Writing
- Signed by Marker or Drawer
- Unconditional Promise or Order to Pay
- Fixed Amount
- In Money
- No Other Undertaking or Instruction
- Payable On Demand or Definite Time
- Contains Words of Negotiability
In Writing Requirement
No requirement what its it to be written with or written on
Signed by marker
Any symbol executed or adopted by a party with present intent to authenticate a writing
Unconditional Promise to Pay
More than a mere acknowledgement of debt such as an I.O.U.
Presumption of unconditional promise or order
Items that make promise or order conditional (non-negotiable)
Express condition to payment
Promise or ORder “subject to” or “governed by” another record
Incorporation by reference of rights or obligations
Items that do not make promise or order conditional
Statement of consideration
Reference to another record “as per” or “in accordance with”
Incorporation of reference items such as rights regarding collateral, prepayment, acceleration
Limitation of payment to particular fund or source
Countersignature
Required by law
Fixed Amount
Determine Principal Amount Due
Interest- Presumption of no interest
Failure to state interest rate = judgment rate
In Money
Medium of exchange adopted by domestic or foreign government as part of its currency
Cannot be payable by goods or services
Words prevail over figures
No Other Undertaking or Instruction
Instrument is not a full contract
Exceptions:
Promises concerning collateral
Confession of Judgment Clauses
Waiver of Law meant to benefit Obligor
Payable on Demand
Express Statement
Silent Instrument- if it does not state date it is due, it is a demand instrument
Payable at a Definite Time
Express Statements
Prepayment and Acceleration OK
Can have provisions extending due date
- By holder to any time
-By obligor to later definite time stated in instrument
-Automatically upon condition stated in instrument
Contains Words of Negotiablity
Bearer Language
Order Language- payable to the order of an identified person or an identifed person “or his/her order”
Bearer language controls if both
Exception for checks- if this is only element missing, language requirement is waived
