Test 3 Flashcards
Draft
A three party instrument. A check is a type
of a draft which is always drawn on a bank and
payable on demand
Note
A two party instrument containing a
promise to pay a sum certain in money. A CD is
considered to be a type of a note.
Face of the instrument
Words of negotiability must be on the face of the
instrument
Exception: A check can say “Pay to” and still be
negotiable.
Order Paper
delivery (possession) plus
endorsement
Bearer Paper
mere delivery is enough
Restrictive endorsement
places
restrictions on the transfer of the paper.
For ex. “For deposit only”
Qualified endorsement
“Without
Recourse” – destroys any sort of
contractual liability.
“Endorsement in blank”
merely signing
your name creates bearer paper
Who may be a HDC?
Holder
Value
In good faith
Without notice of a defense (For instance, the holder was notified that
payment was refused.)
A HDC is not subject to personal defenses
Breach of contract
Lack of consideration
Unauthorized completion
Fraud in the inducement
Non-delivery
Ordinary duress or undue influence
Mental incapacity
Attachment
the requirements are: security
agreement, value, debtor must have rights in the
collateral. Note: If the creditor has possession of
the collateral, the security agreement may be oral.
Question: Is filing a financing statement a
requirement for attachment? NO
Perfection
of a security interest permits the
secured party to protect its interest by establishing
priority over the claims of most subsequent
creditors.
Perfection security interest may occur when
the creditor
has possession of the collateral (Ex. Pawnbroker). Note:
The best way to perfect a security interest in a negotiable
instrument is for the creditor to have possession
Perfected security interest may exist if….
a financing
statement is filed
Consumer goods
Automatic perfection when consumer
goods are initially sold to a consumer . This perfected
security interest may be lost if goods are sold to another
consumer.
Voluntary
the debtor need not be insolvent
You may not force a farmer, persons owing
less than —or a charitable organization
into bankruptcy
18,600
If there are 12 or more creditors, at least ??
must sign the petition.
3
T/F: Firm is allowed to reorganize its financial structure and
remain in business
True!
S & Ls, banks and insurance companies are not
allowed to file Ch. 11
Which of the following statements regarding negotiable instruments is not correct?
A certificate of deposit is issued by a bank
An instrument that is otherwise negotiable on its face states “Pay to Jenny Larson.” Which of the following statements is (are) correct?
It is negotiable if it is a check
Under the negotiable instruments article of the UCC, an endorsement of an instrument “for deposit only” is an example of what type of endorsement?
Restrictive
To the extent that a holder of a negotiable promissory note is a holder in due course, the holder takes the note free of which of the following defense?
Nonperformance of a condition precedent
Under the Revised Secured Transactions Article of the UCC, which of the following requirements is necessary to have a security interest attach?
Debtor had rights in the collateral - Yes!
Proper filling of a security agreement- No!
Value given by the creditor- Yes!
