Law of Comm Trans Exam 5 chap 17-17

Negotiation

is the transfer of an instrument where the transferee becomes a holder.

Transferor

is the person transferring an instrument.

Transferee

is the person to whom the instrument is transferred.

Receives the negotiable instrument

Holder

is any person in the possession of an instrument issued or indorsed to them; considered the legal owner of the check

Ex:

• A gives $110 check to B

• B also owes $100 to C

• Through negotiation B can give the same check that A gave him to pay off $100 to C

Order Instrument

contains the name of a payee capable of indorsing.

Orders the bank to pay someone

Payor

is the person using an instrument to make a payment.

The check writer

Payee

is a person to whom an instrument is made payable.

The person who the check is made out to

Indorsement

is a signature placed on an instrument for the purpose of transferring ownership rights in the instrument

Indorser

is a person who transfers an instrument by signing (indorsing) and delivering it to another person

Is the one that signs the check and hands it to the indorseee

Indorsee

is a person to whom a negotiable instrument is transferred by indorsement.

Bearer Instrument

is any instrument that is not payable to a specific person, including instruments payable to the bearer or to “cash.”

Example:

• A writes a check out to cash $2000

• Gives this check to B

• This is a bearer instrument

• B just has to deliver it to the bank to get money

Holder in Due Course

is a holder who acquires a negotiable instrument for value, in good faith, and without notice that the instrument is defective.

Performed a Promise

Example:

• C has the check B dropped

• C tells D he’ll give him that hcek if D paints C’s house

• If D painted the house, he performed a promise, which is providing a “value” to get that check

Took Instrument as a Payment for a Debt

Example:

• C owes D $2000

• C gives D the check B dropped

• D considers the debt taken care of now

• Since D considers this check to a payment of a debt, D gave value here, too

Defective Instrument

is an instrument obtained by unlawful means.

Example:

• Once D took check for value AND didn’t know it was defective, he becomes a holder in due course

Liable

means to be held legally responsible

Signature Liability

means that everyone who signs a negotiable instrument is either primarily or secondarily liable for payment of that instrument when it comes due. However, a person is not liable on an instrument unless he or she has signed it personally or through an authorized representative (agent).

Signature

according to the Uniform Commercial Code (UCC) includes any name, word, mark, or symbol that is adopted by the person.

Uniform Commercial Code (UCC):

• Uniform=Same

• Commercial=Business

• Code=Law

Primary Liability

occurs immediately when the negotiable instrument is signed, and a person who is primarily liable is absolutely required to pay the instrument, unless they have a valid defense to payment.

Maker

is one who promises to pay a certain sum to the holder of a negotiable instrument.

• Example:

• You write a check to your landlord for $900

• You MAKE out the check to your landlord

• You are the MAKER

• Maker=Checkwriter

• Promises to pay a certain sum= the amount listed on the check

• To the holder= the landlord; the person you write your check out to

Acceptor

is the person who accepts a draft and who agrees to be primarily responsible for its payment.

Example:

• You write a check to your landlord

• Landlord take the check to the bank

• Makers= You; check writer; you MAKE out the check to the landlord

• Holder= Landlord; he is holding your check

• Acceptor= Bank that ACCEPTS/takes the check from the landlord to cash it

Secondary Liability

is contingent liability, and a person who is secondarily liable will be held legally responsible only if the party that is primarily responsible for paying the instrument dishonors the instrument.

Is Contingent Liability

Not automatic or immediate

=Will only be liable if something else happens

An instrument is Dishonored

when presentment of an instrument is properly made and acceptance or payment is refused or cannot be obtained within a prescribed time.

Presentment

occurs when a person timely presents an instrument to the party primarily liable on the instrument for payment.

Example:

• A

• A’s Bank

• B

• B’s Bank

• A writes a check to B

• A gives check to B

• B takes check to B’s Bank

• B= Person presenting an instrument

• Presents= Gives

• Instrument=Check

Payment is Refused

Example:

• If A’s bank refused to transfer the money to B’s bank, A’s Bank has dishonored the check

• Meaning, since the primary liability party refused to pay, this now causes second liability to pop up

Forgery

Someone forged your name on a check, you don’t have to pay it

Fraud in the Execution

is when a person is deceived into signing a negotiable instrument by being told that it is something else.

Promissory Note

is a document promising to pay a stated sum to a specific person.

Example:

• Mexican Worker is told to sign an “employee contract”

• It wasn’t really a contract, but a promissory note to pay someone $50k

• Didn’t know they were signing a negotiable instrument

Material Alteration

is an unauthorized alteration to an instrument that adds or deletes information.

Example

• A writes a check to B

• Check says A will pay $50

• B takes check and changes $50 to $5,000

• B materially altered the check, so A wont be required to pay $5,000

Duress

occurs when someone signs a negotiable instrument as a result of violence or threat of violence.

You were forced to sign

Mental Incompetency

Not COMPENTENT MENTALLY to even sign a check

Example:

• Dementia