UCC Negotiability and Contracts Review Flashcards

Chapter 1: Introduction to Negotiability

  • Negotiability in the Bar Exam:

    • UBE does not test negotiable instruments anymore. Florida and Utah still do.
    • Florida has historically tested negotiability until transitioning to the UBE.

  • Magnificent Seven:

    • There are seven requirements for negotiable instruments; all must be present to classify an instrument as negotiable.
    • Missing any one means it defaults to ordinary contract law.
The Seven Requirements for Negotiability:

  1. In Writing:

    • Must be written; no particular form required.
    • Signature under UCC can be broad as long as it indicates intent to authenticate.

  2. Unconditional Promise or Order:

    • Must contain an unconditional promise.
    • Express conditions destroy negotiability; implied conditions do not.

  3. Fixed Amount of Money:

    • Amount must be calculable from the instrument (currency must be in government-issued money).
    • Example: Must be able to deduce a clear payment (e.g., $50.20).

  4. No Additional Baggage:

    • Cannot include extra obligations; clean presentation required (e.g., checks should not have conditions).

  5. Payable on Demand or at Definite Time:

    • Should be clear when payment is to occur; lack of date indicates demand payment.

  6. Order or Bearer Paper:

    • Defined by how payment is made (e.g., "Pay to the order of…").
    • Holder in due course must have the instrument transferred correctly.
Negotiation of Instruments:

  • Stages of Negotiation:

    • Stage 1: Issuance (UCC 3105).
    • Stage 2: Transfer (UCC 3203): Movement of the check or note among parties.
    • Stage 3: Presentment (UCC 3501): Delivering a negotiable instrument to the drawee; banks can request identification.

  • Holder in Due Course (HDC):

    • Rights include obtaining value, acting in good faith, and having no notice of issues with the check.
    • The shelter rule allows HDCs to transfer rights to another party, preserving HDC privileges.

Chapter 2: Terms of the Holder in Due Course

  • Requirements under 3303:
    • Must give value and have a performed consideration.
    • Good Faith: honesty and adherence to reasonable commercial standards (UCC 3103).
    • Notice: Cannot have notice of any issues with the instrument to maintain good faith.
    • Shelter Rule applies to HDC to allow others to take on their rights.
  • Defenses against HDC (UCC 3305):
    • Real defenses: fraud, incapacity, illegality, duress, discharge, and forgery are valid against HDCs.
    • Personal defenses (e.g., breach of contract, failure of consideration) cannot be used against HDC.

Chapter 3: Check and Bank Transactions

  • Liability of Parties:
    • Maker: Primarily liable when they write a note.
    • Drawer: Secondarily liable, must exhaust all actions against drawee first.
    • Endorser: Secondary liability; must have presentment before liability.
Bank's Obligations
  • Properly Payable Rule (UCC 3408): Banks must pay checks unless instructed otherwise.
  • Validation Rules: Determine who should bear the loss in cases of fraud or forgery.
  • Types of validation rules:
    • Common law rule, impostor rule, employee endorsement rule, negligence rule, bank statement rule.

Chapter 4: Understanding the Bank

  • Warranties in Transactions:
    • Presentment and transfer warranties allow banks to return items that were fraudulently deposited.
  • Implication of Forgery: Forged checks create liability for the person whose signature was forged only.

Chapter 5: Create a Contract Under UCC

  • Mixed Contracts Test: Predominant Purpose Test & Gravamen Test help determine if UCC applies.
  • Formation under UCC:
    • Must comply with Statute of Frauds if goods are $500 or more (UCC 2201).
  • Parole Evidence Rule (UCC 2202): Focuses on course of dealings and performance.

Chapter 6: Implied Warranty of Merchantability

  • Warranties:
    • Two types: Express and Implied Warranties.
    • Implied Warranty of Merchantability: Goods must fit ordinary purposes (UCC 2314).
    • Implied Warranty of Fitness for Particular Purpose: Sellers must know the purpose and rely on the seller's judgment.
  • Disclaimer of Warranties: Sellers can disclaim warranties through general language ("as is") which can limit their liability.

Chapter 7: Buyer and Seller Contract Remedies

  • Risk of Loss:
    • Established in UCC; determines who bears loss during transit.
    • Shipment vs. destination contracts impact risk outcomes.
  • Remedies for Breach:
    • Includes damages calculations based on market vs. contract prices (UCC 2706-2716).

Chapter 8: Conclusion

  • Final advice and encouragement for students preparing for final exams.