Term
| What are the requirements to be a HIDC? |
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Definition
1. Good Faith Purchaser
2. For Value
3. WIthout Notice |
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Term
| What 2 things are required to qualify as a Negotiable Instrument? |
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Definition
1. Meets the terms of Negotiability
2. It has to be properly Negotiated |
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Term
| What are the elements of Negotiability? |
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Definition
1. Must be in writing
2. Must be Signed
3. Must contain Unconditional promise to pay
4. Must be for definite amount
5. Must NOT contain additional language (Courier W/O luggage)
6. Must be Payable on Demand/Definite Time
7. Must be Payable to Bearer or to Order |
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Term
| What determines whether an instrument has been properly negotiated? |
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Definition
1. Proper Issuance
2. Proper Transfer
3. Presentment |
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Term
| What is the difference btwn Negotiability and Negotiation? |
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Definition
| Negotiability refers to the form of the instrument and Negotiation is the method by which the instrument is exchanged |
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Term
| What defenses can NOT be asserted against a HIDC? |
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Definition
| Personal Defenses and Claims in Recoupment |
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Term
| What REAL defenses can be asserted against a HIDC? |
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Definition
1. Fraud in the Factum
2. Infancy
3. Duress
4. Discharge (Bankruptcy) |
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Term
| Who are the parties to a Note? |
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Definition
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Term
| Who are the parties to a Draft? |
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Definition
1. Drawer
2. Drawee (usually the bank)
3. Payee |
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Term
| What are 2 ways to transfer or negotiate a check? |
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Definition
1. Order paper
2. Bearer Paper |
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Term
| Can a person be a HIDC of a NON-Negotiable Instrument? |
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Definition
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Term
| Does a Negotiable Instrument have to be on paper? |
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Definition
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Term
| Is an unauthorized signer personally liable as if it were his own name? |
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Definition
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Term
| Does a promissory note that has an express condition destroy negotiability? |
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Definition
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Term
| Does an implied or constructive condition on an instrument destroy negotiability? |
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Definition
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Term
| If there has been a forgery of a payees name on an instrument can any later party qualify as a holder? |
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Definition
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Term
| What test does TN use to determine the existence of good faith in the transaction in question? |
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Definition
| Subjective Test (Honesty in fact) |
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Term
| What are some of the tests courts look to in order to determine whether someone was too close to the transaction? |
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Definition
1. Is buyer/transferee the alter ego of the seller/transferor?
2. Do they have same officers, personnel, or location?
3. Who drafted orig note?
4. Is buyer/transferee mentioned in note?
5. Does seller/transferor sell paper to other buyers or is buyer/transferee the only market?
6. Did buyer get involved in transaction by which note was created?
7. Did buyer have some knowledge of the sellers poor past performance of similar contacts? |
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Term
| What is the Shelter Rule? |
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Definition
The transferee of a HIDC takes shelter in the status of the transferor or someone in the chain.
The # of times an instrument has been negotiated is irrelevant in applying the Shelter Rule
One cant recover against the true HIDC which he is taking shelter under |
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Term
| What are some examples of a Personal Defense? |
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Definition
1. Mistake
2. Non Performance
3. Estoppel
4. Inadequate Consideration
5. Fraud in the Inducment |
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Term
| Who can enforce an instrument? |
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Definition
1. HIDC
2. Holder of instrument
3. Non holder in possession who has rights of holder
4. Person who is not in possession of instrument but entitled to enforce it |
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Term
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Definition
| One party is allowed to avail himself of and proceed under the rights of another. Ex: The Shelter Rule |
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Term
| What is the Maker's obligation on an instrument? |
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Definition
He is absolutely liable.
If there is more than one maker, they are jointly and severally liable |
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Term
| What is the endorsers obligation? |
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Definition
They are secondarily liable but only if 3 conditions are met:
1. Dishonor
2. Presentment
3. Notice |
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Term
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Definition
They may be an accomodation maker, accommodation endorser or guarantor.
There are 3 distinct agreements:
1. Obligation btwn orig creditor and debtor
2. Obligation that surety will pay creditor if debtor defaults
3. Obligation that debtor will reimburse the surety if he defaults and surety is required to pay for him |
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Term
| What is a qualified endorsement? |
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Definition
| It means without recourse. To avoid being considered or presumed a co-surety, one may endorse by writing "without recourse" with his signature. It relieves signer or PRIMARY liability. |
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Term
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Definition
A surety who adds words of guaranty to his signature, such as "I hereby guarantee this instrument". But the words add nothing to the obligation unless the surety has specifically guaranteed collection only. If that is the case, the guarantor must pay only if:
1. Execution of judgment against prinipal has been returned unsatisfied
2. Principal is insolvent or is bankrupt
3. Principal cannot be served with process
4. Apparent that payment cannot be obtained from him |
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Term
| What is an Accommodation party? |
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Definition
One who voluntarily signs the instrument for the purpose of incurring liability on it wihtout being a direct beneficiary of the value given for the instrument.
Accommodation party can sign the instrument in any capacity and is obligated to pay the instrument only in the capacity in which he signs |
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Term
| What are some remedial rights of a surety? |
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Definition
1. Exoneration: At maturity, can compel principal to perform instead of surety
2. Subrogation: If forced to pay off creditor, she is subrogated to whatever rights the creditor had
3. Contribution: Partial reimbursement against cosureties
4. Strictissimi Juris: receive whatever benefits principal is entitled to |
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Term
| What is tender of payment? |
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Definition
| An unconditional offer to pay the exact amount to satisfy a debt in lieu of actual payment. It may save the tendering party from the penalty of nonpayment if the other party refuses the tender without just cause. |
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Term
| What does discharge of an endorser or accommodation party occur? |
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Definition
If the creditor:
1. Releases principal debtor from liability, or
2. Gives him a binding extension of time in which to pay or
3. Agrees to a material modification of the obligation other than an extension of due date, or
4. Impairs collateral given to secure the obligation |
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Term
| What are 3 exceptions to the Courier without Luggage Rule? (The Not Containing additional language element of Negotiability) |
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Definition
1. Collateral
2. Authorization to holder to confess judgment or take collateral
3. Promise by maker not to avail himself of legal defenses to the note |
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Term
| If there is language on a Negotiable Instrument that is "subject to" something or depends on something else is it still negotiable? |
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Definition
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Term
| There is "as per" language on the negotiable instrument that presents no conditions but merely recognizes the obligation (surplusage)? Is it negotiable? |
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Definition
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Term
| Do acceleration or prepayment destroy negotiability? |
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Definition
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Term
| What needs to happen for bearer paper to be negotiated? |
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Definition
| Delivery to the transferee |
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Term
| What needs to happen for order paper to be negotiated? |
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Definition
| The named payee must get possession of instrument and endorse it. |
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Term
| What 2 ways are there for a payee to endorse order paper? |
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Definition
1. Blank Endorsement
2. Special endorsement |
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Term
| What is a restrictive endorsement? |
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Definition
| A type of special endorsement. Ex: Writing "For Deposit Only" |
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Term
| If one party who is not a HIDC can parol evidence be introduced to show the intentions of the parties? |
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Definition
| YES, the Special Purpose Doctrine allows this. |
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Term
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Definition
| Once an instrument is offered and accepted in satisfaction of an underlying obligation, the obligation merges with the instrument, suspending the obligation until the instrument is dishonored or delinquent |
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Term
| Can a surety waive an obligation on the part of the creditor? |
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Definition
| Yes, including the obligation not to impair collateral. Where the collateral is in the possession of the debtor, inaction by the creditor, negligent or otherwise does not release a guarantor who has executed such a waiver. |
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Term
| What is an endorser liable for? |
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Definition
1. The amount of the check, or
2. If he endorsed an incomplete instrument, the amount the check was eventually made out for |
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Term
| When can an endorser escape liability? |
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Definition
1. If the endorsement was made WITHOUT RECOURSE
2. If the endorser did not receive notice of dishonor, if the check is not presented for payment within 30 days after the endorsement was made. |
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Term
| What are the banks rights to subrogation on Improper payment? |
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Definition
1. Any rights a HIDC would hve on check against its drawer (banks customer)
2. Any rights payee or another holder might have against customer
3. Any rights drawer might have against payee on underlying transaction |
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Term
| What are the 4 events known to bankers as the 4 legals that may have priority over payment of a check? |
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Definition
1. Notice
2. Stop payment orders
3. Service of Legal Process
4. The banks right to set-off |
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Term
| If an instrument is made payable to order and to bearer, which controls? |
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Definition
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