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UCC 3- Comm. Paper

Barbri Review

QuestionAnswer
In General- Introduction Convenient, safe, freely transferable substitute for cash in commercial situations; Article 3: If an instrument is in special form and transferred in special way, in good faith, w/o notice of defenses to claimed holder in due course able to enforce
In General- Exam process; Fact pattern Likely to involve situation someone has refused to pay on item that may be negotiable instrument, or Issues concerning ownership of instrument and whether claims valid against person trying to get paid
In General- Exam process; Approach: Determine if instrument negotiable Memorize elements of negotiability; If not negotiable then law of Ks applies
In General- Exam process; Approach: Determine whether instrument has actually been negotiated Memorize elements of negotiation; If instrument's transfer doesn't amount to negotiation, holder in due course (HDC) will not benefit party trying to get paid
In General- Exam process; Approach: Determine whether person presenting instrument for payment qualifies as HDC Memorize requirements for HDC status; Key to answer exam question
In General- Exam process; Approach: Determine why instrument not paid, and whether reasons constitutes defense Memorize and recognize "real" defenses (all others "personal" and not good against HDC); If presenting party not HDC, no special protection against even personal defenses, so analyze under K law
In General- Exam process; Answer question specifically Do not recite rules; Answer directly with analysis
Formal Requisites of Negotiability- Negotiability Whether an instrument is negotiable depends on its form; Must meet the very technical formal requisite of negotiability listed in UCC
Formal Requisites of Negotiability- Negotiability; Defined Written and signed- 1. Unconditional, 2. Promise or order to pay, 3. A fixed amount of money- a. Payable to order or bearer at time issued, b. Payable on demand or definite time, and c. Does not state any unauthorized undertaking or instruction
Formal Requisites of Negotiability- Negotiability; When promise or order conditional Instrument condition and not negotiable if it- 1. Expressly state condition, or 2. State promise/order subject to or governed by another writing
Formal Requisites of Negotiability- Promise or order to pay; Note must contain promise to pay Promise is written undertaking to pay money signed by person undertaking pay; Draft must contain order to pay; An order is written instruction to pay money signed by person giving order
Formal Requisites of Negotiability- Promise or order to pay; Note must contain promise to pay: Writing required UCC is very liberal as to what constitutes writing; It may be printing, typing, or "any other intentional reduction to tangible form"
Formal Requisites of Negotiability- Promise or order to pay; Note must contain promise to pay: Signature required UCC very liberal; Signature may be handwritten, typed, printed, or made in any other manner; Made in any name adopted for purpose of signature; Signature need not be at end of instrument, may be in body
Formal Requisites of Negotiability- Fixed amount of money; What is money? Any medium of exchange authorized or adopted by gov't; Currency and current funds: money; Instrument may still be negotiable if it is payable in currency
Formal Requisites of Negotiability- Fixed amount of money; What is money?: Foreign currency proper Negotiable even if foreign money, unless instrument otherwise provides, it is payable in specified foreign money or its equivalent in US dollars at current bank exchange rate at time and place instrument paid
Formal Requisites of Negotiability- Fixed amount of money; What is money?: Other consideration improper Not negotiable if calls for payment with something other than money (gold) or allows payments in alternative
Formal Requisites of Negotiability- Fixed amount of money; What is fixed? 1. Principal must be fixed, 2. Interest need not be fixed, a. Specified interest rate, b. Unspecified interest rate
Formal Requisites of Negotiability- Fixed amount of money; What is fixed?: Interest need not be fixed, Specified interest rate Amt of interest need not be fixed; Variable interest rate or indexed rate may be used; Interest rate need not be determinable form face of instrument; Rate may require reference to info. not contained in instrument
Formal Requisites of Negotiability- Fixed amount of money; What is fixed?: Interest need not be fixed, Unspecified interest rate If instrument says it is payable with interest but does not state how much interest, judgment rate implied
Formal Requisites of Negotiability- Payable to order or to bearer To be negotiable instrument must be payable to order or to bearer; Order paper is payable only to person named; Bearer paper is payable to anyone legitimately possession instrument
Formal Requisites of Negotiability- Payable to order or to bearer; To order Promise or order payable to order if it is payable to order of an identified person or to an identified person or order
Formal Requisites of Negotiability- Payable to order or to bearer; To bearer Promise or order to payable bearer if- 1. States that it is payable bearer, to order of bearer, to order or bearer, to order and bearer, or otherwise indicated person in possession of promise or order entitled to payment, 2. Does not state payee
Formal Requisites of Negotiability- Payable to order or to bearer; Identification of payee Person to whom an instrument is payable is governed by intent of person signing as or on behalf of issuer; If more than one person issues instrument, any person intended by any signer may properly be paid
Formal Requisites of Negotiability- On demand or at a definite time To be negotiable, instrument must be payable on demand or definite time
Formal Requisites of Negotiability- On demand or at a definite time; Demand Instrument payable on demand if it states- 1. Payable "on demand" or "at time for payment"
Formal Requisites of Negotiability- On demand or at a definite time; Definite time Instrument payable at a definite time if it is payable- 1. On fixed date, 2. On elapse of specified period of time after signt or acceptance, or 3. At some time readily ascertainable at time instrument is issued
Formal Requisites of Negotiability- No unauthorized undertaking or instructions To be negotiable, an instrument generally cannot contain any unauthorized undertaking or promises
Formal Requisites of Negotiability- Miscellaneous provisions; Rules of construction If an instrument contains contradictory terms, typewritten terms control printed terms and handwritten terms control both; Words control figures unless words are ambiguous or uncertain, in which case figures control
Formal Requisites of Negotiability- Miscellaneous provisions; Opting out Promise or order that otherwise meets requirements of negotiable instrument will not be negotiable if it contains conspicuous statement that it is not negotiable instrument or Article 3 not applicable
Formal Requisites of Negotiability- Miscellaneous provisions; Two or more signers in single capacity If two people sign as makers of a note, either one can be held liable for full value of note
Negotiation- Becoming a holder (holder person in possession of instrument with right to enforce it) Key to protection of Art 3 is HDC status; To become HDC, one must first become holder of negotiable instrument requiring proper negotiation; Negotiation nothing more than process specified by Art. 3 for transferring negotiable instrument
Negotiation- Becoming a holder; Bearer instruments Negotiable instrument that is issued as bearer paper or subsequently converted into bearer is negotiated simply by transferring possession of instrument
Negotiation- Becoming a holder; Order instruments: Negotiation to specific payee Instrument payable to an identified person is negotiated by transferring possession of instrument along with indorsement of identified person
Negotiation- Becoming a holder; Order instruments: Payee's indorsement must be valid Generally, right to enforce an order instrument wil not pass unless payee's indorsemetn is authorized and valid; Possibly agency issue
Holders In Due Course Determining whether person is an HDC is two-step process- 1. Determine whether person is "holder", and 2. Determine whether person holds in "due course"
Holders In Due Course- Holder Transferee must have possession, and instrument must be payable either to bearer or person in possession; Instrument must be free of forgeries of those names necessary to chain of title
Holders In Due Course- Due course Holder who takes instrument- 1. For value, 2. In good faith, and 3. Without notice that- a. Overdue or has been dishonored, b. Contains unauthorized signature, c. There is claim, or d. Any party has defense or claim in recoupment
Holders In Due Course- Due course; Forgery, alteration, & authenticity Instrument must not bear apparent evidence of forgery, alternation, or be so irregular as to call into questions its authenticity
Holders In Due Course- Due course; Types of value 1. Performance agreed consideration, 2. Acquisition by holder of lien/security interest in instrmt, 3. Take instrmt payment of antecedent debt, 4. Trading negotiable instrmt, or 5. Instrmt exchange for irrevocable obligation to 3rd person by person ta
Holders In Due Course- Due course; Good faith Good faith means honesty in fact and observance of reasonable commercial standard of fair dealing
Holders In Due Course- Due course; Good faith: Honest in fact Subjective; Referred to as "pure hear, empty hand" test; Not reasonable person standard
Holders In Due Course- Due course; Good faith: Reasonable commercial standards of fair dealing Objective; Actor must proceed fairly in light of facts and commercial standards; Standard different from ordinary care
Holders In Due Course- Due course; Good faith: Notice to purchaser Holder must purchase instrument w/o notice of number of things
Holders In Due Course- Due course; Good faith: Notice to purchaser, What constitutes notice? Actual knowledge and reason to know Notice includes both actual knowledge (subjective) and reason to know from facts surrounding transaction (objective)
Holders In Due Course- Due course; Good faith: Notice to purchaser, What constitutes notice? Facts constituting notice- Instrument overdue Purchaser has notice instrument is overdue if reason to know any of following- 1. Any part of principal overdue, 2. Acceleration made, 3. Demand made or more than reasonable time elapsed after issue (check overdue 90 days after date and stale)
Holders In Due Course- Due course; Good faith: Notice to purchaser, What constitutes notice? Facts constituting notice- Notice of unauthorized signatures or alteration ...
Holders In Due Course- Due course; Good faith: Notice to purchaser, What constitutes notice? Facts constituting notice- Claims to instrument Claim is defense to obligation of payment; Holder cannot have notice another has property or possessory right in instrument or proceeds or negotiation is rescindable
Holders In Due Course- Due course; Good faith: Notice to purchaser, What constitutes notice? Facts constituting notice- Claims to instrument Knowledge of breach of fiduciary duty
Holders In Due Course- Due course; Good faith: Notice to purchaser, What constitutes notice? Facts constituting notice- Defenses or claim in recoupment ...
Holders In Due Course- Due course; Good faith: Notice to purchaser, What constitutes notice? When and how notice must be received To be effective, notice must be received at such time and in such manner as to give a reasonable opportunity to act on it
Holders In Due Course- Due course; Good faith: Transactions precluding HDC status Holder not HDC of instrustment taken by- 1. Legal process or purchase at creditor's sale, 2. Acquiring it as successor in interest to an estate or other org., 3. Purchasing as part of bulk transaction no in regular course of business of transferor
Holders In Due Course- Due course; Good faith: Time at which HDC status determined Issue determined at moment the instrument negotiated to hold and gives value; If transferee of negotiable instrument acquires notice of claim/defense to instrument prior to negotiation or giving value, transferee not qualify as HDC
Holders In Due Course- Due course; Good faith: Successors to HDC, Shelter rule- Transferee acquires transferor's rights Transferee acquires transferor rights; Transferee takes "shelter" in status of transferor; Subject to fraud/illegality exception allows transferee become HDC if transferor formerly held isntrmt & obtain rights, even if fail requirement of due course hol
Holders In Due Course- Due course; Good faith: Successors to HDC, Shelter rule- Protects free negotiability of commercial paper Once instrmt in hands of HDC, defenses could not be asserted against transferee; Otherwise, obloigor could restricts HDC's market interfering with free passage of commercial paper
Holders In Due Course- Due course; Good faith: Exceptions to Shelter rule Never grants HDC rights to person who were parties to fraud or illegality affecting instrument
Holders In Due Course- Due course; Good faith: HDC rights and remote transferees Once person qualified as HDC, all subsequent transferees will acquire same HDC rights no matter how far down chain of transferees they may be unless transferees after holder failed to obtain HDC rights b/c party to fraud or illegality affecting instrument
Claims and Defenses on Negotiable Instruments- Real Defenses May be asserted against both HDC and non-HDC transferees of instrument in question; Other defenses cannot be asserted against HDC
Claims and Defenses on Negotiable Instruments- Real Defenses; Forgery Name of payee or special indorsee unauthorized, no subsequent take can be an HDC b/c no one can obtain right to enforce necessary to qualify as holder
Claims and Defenses on Negotiable Instruments- Real Defenses; Fraud in the factum (Real fraud) Assertable against HDc and is "fraud that induced obligor to sign instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms"
Claims and Defenses on Negotiable Instruments- Real Defenses; Alteration of instrument .
Claims and Defenses on Negotiable Instruments- Real Defenses; Incapacity to K Before incapacity will constituted real defense, state law must render K void from its inception, rather than merely voidable
Claims and Defenses on Negotiable Instruments- Real Defenses; Infancy Real defense if would be a defense under state law in simple K action
Claims and Defenses on Negotiable Instruments- Real Defenses; Illegality If some illegality in underlying transaction render obligation void, real defense even if HDC had nothing to do with illegality
Claims and Defenses on Negotiable Instruments- Real Defenses; Duress Duress occurs in K situation where one party acts involuntarily; Sometimes real and personal; Article 3 provides duress is matter of degree; Real defense if state law would render K void, but not if merely voidable
Claims and Defenses on Negotiable Instruments- Real Defenses; Discharge in insolvency proceedings Include an assignment for benefit of creditor, and any other proceeding intending to liquidate or rehabilitate estate of person involved
Claims and Defenses on Negotiable Instruments- Real Defenses; Statute of limitations If SOL has run on instrument, even an HDC cannot enforce instrument
Claims and Defenses on Negotiable Instruments- Real Defenses; Statute of limitations: 3 years Actions- 1. Unaccepted drafts must be brought after date of dishonor or w/in 10 days after date of draft (earlier); 2. Against acceptor of certified check brought after demand for payment; 3. Breach, conversion, enforce obligations brought after accrua
Claims and Defenses on Negotiable Instruments- Real Defenses; Statute of limitations: 6 years Actions- 1. Notes payable at definite time/demand after due date/demand, 2. Certificates of deposit after demand for payment made, but limitation period not commence before any stated due date
Claims and Defenses on Negotiable Instruments- Real Defenses; Accommodation (suretyship) defenses One who signs instrmt for incurring liability on instrmt w/o being direct beneficiary; If HDC knowledge of accommodation, take subject to defense caused by- 1. Extension of due date, 2. Material modification of obligation, 3. Impairment of collateral
Claims and Defenses on Negotiable Instruments- Real Defenses; Discharges known to HDC HDC has notice of discharge when takes HDC status; Discharge: discharging event including in Article 3 and any other act would discharge an obligation to pay money under simple K
Claims and Defenses on Negotiable Instruments- Personal defenses Cannot be asserted against one having rights of HDC, any may be viewed as all defenses other than real defenses; Include ever defense available in simple K actions
Claims and Defenses on Negotiable Instruments- Personal defenses; Consideration and negotiable instruments Negotiable instrument must be supported by sufficient consideration; Existence of consideration not technically prerequisite to negotiability; Rather, its absence is valid defense to an instrument in hands of anyone other than HDc
Claims and Defenses on Negotiable Instruments- Personal defenses; Claims or defenses of another Must rely on one's own defense
Liability of Parties- Parties who may be liable on an instrument; Maker of note, issuer of cashier's check Merely by signing name obligated to pay instrument according to terms at time it was issued; Or if not issued, at time it first came into possession of holder
Liability of Parties- Parties who may be liable on an instrument; Indorser: Secondary liability, Indorser Indorser: Person who signs name other than as maker, drawer, or acceptor, usually on back of instrument, for purpose either of negotiating instrument, restricting payment, or incurring indorser's liability on instrument
Liability of Parties- Parties who may be liable on an instrument; Indorser: Secondary liability, Indorser secondarily liable Person entitled to enforce instrument looks to maker or drawee first for payment, and look to indorser for payment only if maker or drawee does not pay
Liability of Parties- Parties who may be liable on an instrument; Indorser: Secondary liability, Indorse liable for basic obligation- Indorser's K Oblgation sign name- 1. Presentment, 2. Dishonor, 3. Notice of dishonor, 4. Multiple indorser (all severally liable full amt, order names appear)
Liability of Parties- Parties who may be liable on an instrument; Indorser: Secondary liability, Indorse liable for basic obligation- Warranty liability of indorser Indorser transfers instrument for consideration, the indorser becomes trnasferor and can be liable for transfer warranties
Liability of Parties- Parties who may be liable on an instrument; Transferor: Five transfer warranties When person transfer instrmt or customer/bank transfers item, for consideration transferor makes warranties- 1. Entitle to enforce, 2. Signature are authentic & authorized, 3. No alteration, 4. No defenses, 5. No knoweldge of insolvency proceeding
Liability of Parties- Parties who may be liable on an instrument; Transferor: Made to immediate transferee If transfer not by indorsement, warranties run only to immediate transferee; But if, transferor indorses, warranties run to all subsequent transferees
Liability of Parties- Parties who may be liable on an instrument; Transferor: Presentment and notice of dishonor not needed Presentment, notice of dishonor, etc. are irrelavnt to warranty liability
Liability of Parties- Parties who may be liable on an instrument; Drawer If draft dishonored, drawer of draft obligated to pay draft according to its terms when drawer signed instrmt; Secondarily liable
Liability of Parties- Parties who may be liable on an instrument; Drawer: Drafts accepted by bank-drawer discharge If draft been accepted by bank, the drawer is discharged from obligation on draft regardless of when draw accepted or by whom acceptance obtained
Liability of Parties- Parties who may be liable on an instrument; Drawee: In general When drawee does sign, it becomes acceptor
Liability of Parties- Parties who may be liable on an instrument; Drawee: Rights and duties of parties When bank is drawee, bank may well be liable to customers for failure to accept draft; B/c contractual relationship b/w bank and customer
Liability of Parties- Parties who may be liable on an instrument; Subrogation Bank pays check then subrogated to rights of person its pays against customer
Liability of Parties- Parties who may be liable on an instrument; Subrogation:b Requirement of reasonable notice for stop payment order Written stop payment order binding on bank 6 mos, but oral stop payment order lapse after 14 days if not confirmed in writing; If bank pays over valid stop payment, not honored orders of customer & cannot charge acct; Bank given reasoanble time to act
Liability of Parties- Parties who may be liable on an instrument; Acceptor Acceptance is process whereby acceptor signs a draft and thereby becomes primarily bound to pay instrument
Liability of Parties- Parties who may be liable on an instrument; Acceptor: Certification of check Certification of check is equivalent of acceptance
Liability of Parties- Parties who may be liable on an instrument; Accommodation parties One who signs instrument for purpose of lending name and credit to another party to instrument and who does not directly benefit from value give; In essence of surety
Liability of Parties- Parties who may be liable on an instrument; Accommodation parties: Liability Liable on instrument in capacity in which she signed, even where taker is aware of accommodation
Liability of Parties- Parties who may be liable on an instrument; Accommodation parties: Liability, Recovery from party accommodated Accommodation party who pays instrument will have an action instrument against party accommodated, irrespective of formal positions on instrument
Liability of Parties- Parties who may be liable on an instrument; Accommodation parties: Liability, Subrogation An accommodation party who pays instrument is subrogated to rights of party paid, including any right to collateral
Liability of Parties- Effect of persons signing jointly If parties to instrmt sign jointly, have joint and several liability, so either/both can be sued for entire amt; Right to contribution; Release of one party by third party does not affect right to contribution
Liability of Parties- Effect of persons signing jointly; Liability of represented person (principal) Agency law applies
Liability of Parties- Effect of persons signing jointly; Liability of represented person (priability of Parties- Effect of persons signing jointly; Liability of represented person (principal): When principal liable despite agent's authority, incipal Principal liable if agent authorized
Liability of Parties- Effect of persons signing jointly; Liability of represented person (principal): When principal liable despite agent's authority, Ratification Occurs when principal knowingly adopts signature of his own, or when with full knowledge of circumstances, appropriates the benefit of unauthorized signing or fails to deny validity of signature, knowing silence may mislead others
Liability of Parties- Effect of persons signing jointly; Liability of represented person (principal): When principal liable despite agent's authority, Estoppel Principal can be precluded from denying authority if by his negligence he contributed to making of unauthorized signature
Liability of Parties- Effect of unauthorized signatures; G/R Unauthorized signature is wholly ineffective as signature of person whose name is signed but is effect as signature of signer; Unauthorized signer assume obligations on isntrmt to those who in good faith gave value
Liability of Parties- Effect of unauthorized signatures; 5 circumstances forgery/unauthorized signature validated: Person whose name is used has done something to preclude her from raising issue- 1. Fictituous payee, 2. Fraudulent indorsements by employees, 3. Failure to exercise ordinary care (Negligency rule: Failure= substantially contributes so precluded), 4. Bank statement rule, 5. Estoppel by certification
Liability of Parties- Effect of alteration and incomplete instruments Alteration is unauthorized change in instrument that purports to modify obligation of any party in any respect; Effect of alteration depends on whether alterer's intent was fraudulent or non-fraudulent
Liability of Parties- Effect of alteration and incomplete instruments; Non-fraudulent alternation Do not discharge any party, and instrument may be enforced according to original terms
Liability of Parties- Effect of alteration and incomplete instruments; Fraudulent alteration Effect of discharging every party obligated on instrmt unless party assents to or is precluded from asserting alteration
Payment- G/R; Payment is final Payment of negotiable instrmt to HDC or one who in good fath changed position in relaince on payment is final
Payment- G/R; Payment is final: Exceptions Payor can recover from party paid if- 1. Party neither took for value nor in good faith, nor detrimentally relied on payment, or 2. Party paid breached transfer warranty or presentment warranty
Payment- Presentment warranties; Presentment warranties on unaccepted drafts 1. Entitled to enforce, 2. Instrument not altered, 3. No knowledge that drawer's signature is authorized
Payment- Presentment warranties; Presentment warranties on other instruments If any instrmt other than unaccepted draft presented to any party obligated to pay and instrmt is paid, party receiving payment and prior transferors warrant that they were parties entitled to enforce it or were representative of one so entitled
Payment- Presentment warranties; Presentment warranties on other instruments: Other transfer warranties Inapplicable since obligated party, should know whether signature forged or whether instrument altered
Payment- Presentment warranties; Who makes warranties? Made by- 1. Any person who obtains payment or acceptance, and 2. Any prior transferor; Similar but not identical to transfer warranties made by indorser
Payment- Presentment warranties; To whom are they made? Presentment warranties are made to any person who in good faith pays or accepts
Discharge- Tenders "in full satisfaction"; Accord and satisfaction If claim unliquidated or subject to dispute, claim discharged in full if person in good faith tenders instrmt that conspicuously states tendered in full satisfaction of claim and claimant obtains payment of instrmt;
Discharge- Tenders "in full satisfaction"; Accord and satisfaction: Claimant organization It can, by notice sent before instrmt tendered, require such instrmts be tendered to designate person, office, or place to be effective
Created by: dmoore147