Negotiable Instruments - UCC3

Question 1

Negotiable Instruments - Commercial Paper

Answer 1

Promises to Pay
- Notes
- CDs
Orders to Pay
- Checks (3 parties: drawer, drawee, payee)
- Drafts - 2 parties

Question 2

Negotiability Requirements

WSU TMW

Answer 2

WSU TMW
W. In Writing
S. Signed by maker or drawer
U. Unconditional promise to pay
T. Time - on demand or at definite time
M. Money
W. Words of Negotiability (Bearer or Order)
        - Bearer paper: deliver
        - Order Paper: Deliver + Endorsement

Question 3

Holder in Due Course

Answer 3

Required:

• You are the holder
• Must give value
• Good Faith
• No knowledge of problems

Question 4

HDC Defenses

Answer 4

Real/Universal:
- Incapacity
- Illegality
- Fraud in Factum
- Bankruptcy
- Lack of payment
- Forgery
Personal Defences (HDC still collects)
- Fraud in the inducement 
- Misrepresentation
- Lack of consideration
- Warranty Breach
- Breach of Contract

Question 5

Proper Presentment

Answer 5

Primary Parties: Maker (note) or Drawee/Bank (draft/check)
Secondary Parties: Payee, Endorsers, Drawer
Timing: Due Date (notes) or on demand
Checks: 30 days, if bank fails drawer is excused over FDIC limit

Question 6

Warranty Liability

Answer 6

Presenter's Warranties - last party before primary party must have:
- Good title
- No knowledge of unauth. signatures
- No material alteration
Transferor's Warranties (everyone else)
- Good title
- Good signatures
- No material alterations
- No knowledge of insolvency
- "without recourse" endorsement waives this warranty (no defenses)

Question 7

Endorsements

Answer 7

1. Blank - no particular holder to receive payment
   
   • Converts order paper to bearer paper
   • Transfers warranties to any subsequent holder
   • blank endorser has secondary liability to pay all subsequent holders
2. Special - specifies a person to pay
   
   • Requires signature & delivery
   • Converts bearer paper to order paper
   • Transfers warranties to any subsequent holder
   • Special endorser has secondary liability to pay all
3. Qualified Endorsement - “Without Recourse”
   
   • Disclaims secondary party liability
   • Transfers warranties to any subsequent holder
4. Restrictive - “For Deposit Only”
   
   • Conditional: payment is conditional upon event
   • Prohibitive: prohibits further transfer of the inst.
   • For deposit or collection: Makes the endorsee bank a collection agent of the endorser
   • DOES NOT prohibit further negotiation
   • Except for the conditional endorsement, liability to subsequent holders is subject to the restriction being met