Glossary of Negotiable Instruments
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- What is a Note?
- A Written Promise by a Maker to Pay Money to Payee.
Note: "Promise" is an undertaking to pay and thus must be more than a mere acknowledgement of debt ("IOU")
- What is a Certificate of Deposit?
- A Note Signed by Bank Acknowledging Receipt coupled with a Duty to Repay Debt
- What is a Draft?
- I in which D'er (person who creates I) orders designated D'ee to pay $ to T (Payee)
- What is a Check?
- Draft that names Bank as D'ee (Payor) and is Payable on Demand.
- What is a requirement of an "Order" to pay?
- More than mere authorization or request to pay is nec.
D'er must Order D'ee to pay.
- How does H become HDC?
- If requirements for Negotiability and Negotiation are met
If Bona Fide Purchaser pays Value for the I w/o Notice of Claims or Defenses to it,
That person becomes HDC
- What is the special status of a HDC?
- HDC is immune from most defenses of prior parties who are liable on the I (i.e. parties must pay HDC. Non-HDCs take I subj to all valid claims and defenses.)
- If I is not negotiable, what is it?
- A mere K (subj to claims and defenses of prior parties)
- What are the requirements of negotiability?
- 1. Written I
2. Signed by M'er/D'er
3. Unconditional Promise/Order to Pay
4. Fixed Amt of $
5. Specified Time of Payment
6. Wds of Negotiability
7. No Other Promise
- NI must be in writing. Must writing be on paper?
- Signature of M'er/D'er: Any mark or symbol made by m'er/d'er w/ ____ is sufficient.
- Intent to authenticate
- Will a signature by an agent or w/ assumed or trade name bind m'er/d'er?
- Who will unauthorized or forged signature bind?
- Actual Signer
Will not bind purported m'er (absent ratification or estoppel)
- Who has burden of establishing signatures?
- In most cases, rebuttable presumption exists that the signature is valid.
D must specifically plead invalidity, whereupon P must prove validity. D must then produce E of forgery or P will recover.
- Location of signature
- Any place on the I (as long as intended to authenticate the writing)
- Prom note must contain ____ promise and draft must contain ___ order.
- How must purchaser be able to determine terms and conditions of I?
- From four corners of the I
- Are implied or constructive conditions permissible?
- Yes/No. Makes I nonnegotiable
- Does reference to separate agreement of parties impair negotiability?
- Does a desc of coll or of other trans's connected w/ I destroy negotiability?
- No. Such descriptions are not conditions
- Does incorporation of separate doc into the I destroy negotiability?
- Yes. Mere reference to or desc of separate docs is permissible but their incorporation destroys negotiability.
- Does desc of coll and sec agree affect negotiability?
- No, but incorporation does.
- What constitutes money?
- It is medium of exchange authorized or adopted by domestic or foreign gov as part of the currency.
- What constitutes a "fixed amt"?
- At any partic time, amt due must be ascertainable by mathematical computation.
Absolute certainty as to the sum due at all times not required.
Interest rates can be variable or based on an outside source, such as a partic bank's prime rate.
- What is a demand I?
- I is payable "on demand" if so expressed, or if no time for payment is stated.
- What is a Time I?
- I payable at definite time in the future
- What if date is left out on Time I?
- If maturity depends on date being stated, I is not enforceable until date filled in by someone w/ authority
- Can you have an acceleration clause in a Time I?
- Yes. Either m'er or H may be given unconditional right to accelerate maturity date.
But H must have good faith belief prospect of payment is impaired to accelerate at will.
- Are Extension Clauses on Time Is allowed?
- Yes. Extension of maturity date at option of H is allowed. But, extension at option of m'er or upon happening of an event is permiss only if new maturity date is stated in the I.
- I must be payable either to ___ or to ___.
- bearer (bearer I)/ order of specified payee (order I)
- Effect of omitting words of negotiability (not saying payable to order or bearer)
- It is nonnegotiable.
- Def of Negotiation
- Process by which an I is transferred by person other than issuer to another who qualifies as "H"
- Def of H
- Person in current poss is either orig payee or has taken I thereafter pursuant to valid negotiation.
- Def of "issue"
- First delivery of I by m'er or d'er to H as remitter.
- Def of "transfer"
- Delivery by person other than issuer for purpose of giving one the right to enforce the I
- Def of "Person Entitled to Enforce"
- Includes H and certain other persons.
Anyone in poss of bearer paper qualifies as its H.
Order paper must be indorsed and transferred before someone becomes H.
- How is a bearer I negotiated?
- Delivery alone, since poss qualifies transferee as H
- How is order I negotiated?
- Delivery to named payee.
Further negotiation requires Valid Indorsement and Delivery to Transferee.
Unauth'd indorsement of required signatures prevent negotiation and subsequent transferees don't become Hs.
- If I payable to multiple payees whose names are connected by "and", it is payable ___ and ___ payees must indorse.
- If I payable to multiple payees whose names connected by "or" or "and/or" the I is payable ____ and indorsement by ___ is a negotiation.
- alternately/one of the payees
- Effect of delivery w/o indorsement
- Transfer of I w/o nec indorsement doesn't constitute negotiation and the transferee doesn't become a H (except where bank takes check for collection)
- If I is delivered w/o indorsement but indorsement is later obtained does transferee become H?
- Must indorsement convey the entire I?
- Yes. If it attempts to convey less than the whole, it is not a negotiation.
- When is a special indorsement required?
- If payee or order paper means a new payee when indorsing.
Any further negotiation requires valid indorsemnet of the new payee.
- What happens if the special indorsee's name is forged?
- No one can be H following the forgery since indorsement was not valid.
- Are words of negotiability required in an indorsement?
- What is a blank indorsement?
- If payee of order I indorses and does name new payee, the I is converted to bearer paper.
But, it can be converted back into order paper by writing new payee above last indorsement.
- What is a "qualified indorsement"?
- Adding the words "w/o recourse" is a qualified indorsement that limits indorser liability.
- What is a "restrictive" indorsement?
- Any other language added to an indorsement creates a restrictive indorsement ("for deposit only")
- What is an "anomolous indorsement"?
- Indorsement by person who is not a H (e.g., surety)
- What happens if an I is payable to a H but H's name is not accurately reflected in the I (misspelling or nickname used)--how may H indorse?
- Payee may indorse in that name, payee's own name, or in both names.
But, payor may require that both names be signed.
- Any ambiguity concerning the capacity in which signature is made is usu resolved in favor of an ___.
Parole E to show otherwise is not admiss.
Note: Cts may note that a signature in lwr right hand corner of promissory note is m'er's signature
- What are the UCC requirements for HDC?
- 1. Holder
2. Takes for Vaue
3. In Good Faith
4. Without Notice that it is Overdue or has been Dishonored or of Claims or Defenses against it
- What must Transferee have in order to be a H?
- Possession pursuant to a Valid Negotiation, free of Forgeries of the Names of Payee(s) and any Special Indorsees
- When does a H take for "value"?
- When she takes in rtn for Consideration, a Lien, Security, or a Negotiable Instrument
- Is an Executory Promise considered "value"?
- Promise to give Value in future is not enough for HDC status.
Note: H can be partial HDC if only part of the Consideration is Executory.
- Does H take for Value when taking I as Security for or in payment of Antecedent (pre-existing) Debt?
- To qualify as value, what must lien on I be acquired by?
- Agreement (rather than by legal process)
- Is crediting a depositor's acct value?
- No. However, the bank becomes HDC of deposited I to extent that it permits withdrawls against that I.
A collecting bank gives value any time it has a sec interest in the collected item.
- In what situations will a H, even though having paid for an I, merely succeed to the transferor's rights?
- 1. Purchasing at judicial sale.
2. Acquiring in taking over estate.
3. Purchasing as part of bulk trans.
- What type of law gives H status to fed regulatory agencies (FDIC) who take poss of NIs when they take over a failed financial institution?
- What does it mean that a purchaser must purchase in good faith?
- 1. Must have demonstrated "honesty in fact" in her actions (subjective)
2. Must have observed reas commercial stnds of fair dealing (objective)
- What things must H not have knowledge of in regard to the I in order for H to be HDC?
- I is:
3. Defense against it
4. Claim against it
- What is the test for whether a H has notice that I is overdue, dishonored, or has defenses or claims against it?
- Reasonable person (obj) test
- Notice that an I is overdue exists if purchaser had knowledge (or reason to know) of ___ or ___, or took demand I ___ ___ was made or beyond a reas time after the I's issue.
- default/acceleration/after demand
- Is notice of a default in payment of interest notice for HDC purposes?
- As of what time are the purchaser's good faith and notice determined?
- As of the time purchaser acquires and gives value for the I as H.
- What is "imputed notice"?
- Notice is imputed to purchaser where I bears "apparent E of forgery or alteration or is otherwise so irregular or incomplete as to call into Q its authenticity"
- What is the "closed eyes" doctrine?
- Although good faith does not require due care, a purchaser cannot ignore obvious problems.
Limitation: Many cts impute notice if purchaser was closely connected to the trans creating the I (e.g., preparation of I, agency, continuous dealings w/ seller)
- What is notice of fiduciary duty?
- Transferee may not qualify as HDC if transferee takes I from fiduciary w/ knowledge the fiduciary has breached his fiduciary duty (e.g., used I as sec for pers loan or to pay pers debt)
- What must a transferee who has taken an I w/ notice of breach of fiduciary duty do?
- Surrender the I or its proceeds to person represented by the fiduciary.
- K-ual waiver of defenses are permiss but are limited by the ___ ___ and ___ ___ requirements, and also by consumer protection statutes.
- good faith/without notice
- What are the other factors affecting "good faith" and "notice"?
- 1. Purchase at discount
2. Constructive notice
3. "Forgotten" notice
- What is the time at which HDC status is determined?
- At the later of when the I is negotiated to H or when the H gives value.
- Although a p'ee can be a HDC, why is it unusual?
- Gen, a p'ee is so involved in the trans that the p'ee will have notice of claims or defenses against the I.
- In which provision does the UCC list seven situations where it may be poss for p'ee to qualify as HDC?
- What is the shelter rule?
- Basic rule of commerical law that trans'ee acquires whatever rights held by trans'or. Trans'ee takes "shelter" in the trans'or's status.
- What is the exception to the shelter rule?
- HDC rights are not transferred under the shelter rule where the H was a party to fraud or illegality affecting the I.
- All subsequent trans'ees fr an HDC acquire same HDC rights, unless what?
- Unless those rights are cut off by a trans'ee who is disqualified fr HDC status by the shelter rule exception.
- There exists a ___ that every H is entitled to recover once he establishes the validity of the signatures and can ___ ___ ___.
- presumption/produce the I
- When does an HDC need to prove HDC status?
- Only when a D est's a defense that would be negated by HDC status.
- After it is shown a defense exists, who has the burden of est'g due course holding?
- The H must prove HDC status by preponderance of the total E or defeat the defense on the merits.
- What is a "claim"
- An affirmative cause of action for recovery on the I based on superior ownership rights of the claimant.
- What is a "defense"?
- Ground for refusing to pay on the I.
The few defenses good against a HDC are real defenses; pers defenses cannot be asserted against an HDC.
- What is a claim in recoupment?
- Right of someone who owes a debt to subtract fr the amt due damages arising fr the same trans for which the I was given.
Claim in recoupment may be asserted against any non-HDC, but may be asserted against an HDC only if claim is against the HDC.
- What are the real defenses (those assertable against both HDCs and non-HDCs?)
- 1. Infancy
2. Incapacity to K
5. Fraud in the Factum (Real Fraud)
6. Discharge in Insolvency Proceedings
7. Discharge Known to HDC
8. Suretyship as a Real Defense
9. Alteration of I
- When is infancy a real defense rather than a pers defense?
- If it wd be a defense under state K law
- Incapacity to K that renders a K ___ (fr its inception) under state law constitutes a real defense. However, a personal defense arises if the K is only ___.
- Illegality in the underlying trans renders obligation ___ and is real defense; illegality is a pers defense if the oblig is merely ___.
- Duress (where one person acts involuntarily) can be either a real or pers defense, depending on ___.
- The degree of duress
- Real fraud is a defense against an HDC and occurs where fraud has induced obligor to sign I w/ neither ___ nor reas opp to learn of ___.
- knowledge/I's char or essential terms.
- Real fraud is not assertable if D failed to take ____ to ascertain the nature of the trans.
- reasonable steps
- Discharge (e.g. release) is a real defense only if HDC had ___ when becoming an HDC
- notice of discharge
Mere public filing or recording does not constitute notice.
- How may a H cancel out the liability of a prior party?
- By striking out that party's signature.
Consideration is not necessary
- If an HDC knew prior to acquiring an I that some of the prior parties were sureties (accomodation parties), the HDC takes subj to the ___ ___.
- suretyship defenses
- Is a change in the terms of an I (alteration) always a real defense?
- No, it may be a partial real defense.
- No subsequent taker can be an HDC if a ___ (i.e., p'ee or any spec indorsee) is forged.
- name nec to proper negotiation
Forgery of any other name (maker, d'er, etc.) does not affect HDC status, but the person whose name was forged has a real defense absent ratification or estoppel.
- What do person defenses include?
- All defenses, including K, other than real defenses.
- What are two common examples of pers defenses?
- 1. Absence of consideration in the negotiation (may be a partial or complete defense; D has burden of proof)
2. Claims or defenses of another ("jus tertii")
- What is the merger rule?
- Obligation which underlies the issuance of an I is merged into that I and is not avail as a c/a unless the parties have agreed otherwise.
- If NI is accepted as conditional payment for the underlying oblig, that oblig cannot support a c/a until the I is ___ ___ ___ and ___
- presented for payment/dishonored
(so, if tenant delivers rent check to LL, tenant's rent oblig is suspended until check is presented for payment to tenant's bank. only if bank refuses payment (bc tenant stopped payment, for instance) can LL sue on the check, the underlying lease agree, or both.)
- If I is only partial payment, the oblig is suspended ___ ___.
- pro tanto (by that much)
- Choices avail to H upon dishonor
- 1. Sue on the I
2. Sue on the underlying oblig
(Only one recovery permitted)
- If liability on the I is discharged in any way, ___ is also discharged.
- The obligation is cancelled when the party primarily liable on the I is a ___ (e.g., cashier's or certified check), as long as the person who owed the obligation is not liable ___ ___ ___.
- bank/on the instrument
- What is the oblig of a m'er upon signing a NI?
- A promise to pay the note according to its terms at the time of signature.
M'er gen has no procedural rights
- If m'er signs not w/ blanks or spaces is m'er bound by subsequently filled in terms?
- If two or more persons sign as co-makers are they jointly and severally liable?
A co-m'er who pays the full amt has a right of contribution fr the other co-m'er's
- What is the obligation of an indorser on a NI?
- Indorser becomes a type of surety for all prior parties, and promises to pay any later H.
- What is a condition of indorser obligation on a NI?
- The indorser being accorded the procedural rights of presentment and notice of dishonor.
- How may an indorser avoid its liability on a NI?
- By adding "without recourse" to its signature. Creates a qualified indorsement.
- How can a tr'ee acquire an indorser's liability on bearer paper?
- By insisting upon an unqualified indorsement, even though bearer paper doesn't require an indorsement.
- As btwn joint payees, two or more anomolous indorsers, and co-makers (multiple indorsers)--such parties ar liable to each other only for ___ ___ ___.
- their proportionate share
- In favor of whom are a surety's obligs construed?
- Surety's obligs are construed strictly in favor of the surety. In addition to UCC rights, suretly has addt'l state and common law rights.
- Under common law, what rights does a surety have?
- 1. Exoneration
- A surety is an ___ party; a principle is the ___ party.
- A surety who adds words of guarantee to the signature is a surety and a ___.
- Accom m'ers and accom indorsers have the same obligs as m'ers and indorsers plus ___ ___ ___.
- special surety rights
- If an indorsement appears outside the usu chain of title (anomolous indorsement), every subsequent taker is presumed to know it was a ___ ___.
- surety's signature
- Is a surety liable to the principle?
- No, regardless of the order of the signatures.
- If a ___ tenders payment at maturity and is still refused, the ___ is still liable for the full amt but is not liable for any subsequent amts (interest, etc.). If tender is made by the ___, the surety (or indorser) is ___ ___.
- surety/surety/princple/completely discharged
- What are the obligations of the d'er who signs an NI?
- A d'er's oblig is similar to that of an indorser. A d'er can eliminate liability by adding "w/o recourse" to her signature.
- What is "presentment"?
- A demand for payment or acceptance made by H of I to m'er (prom notes) or d'ee (drafts)
- When presentment is made, m'er/d'er may demand:
- 1. Exhibition of I
3. E of presenter's auth
4. Reas time and place
6. Surrender of the I
Failure to comply w/ these demands allows presentee to refuse to pay w/o dishonor.
- When does dishonor occur?
- When m'er or d'er rtns I, after presentment, w/o paying or accepting w/i time allowed.
- What is the time allowed for decision regarding checks and drafts.
- If check or draft presented across the counter, it must be paid or rtn'd that day.
If presented through bank collection channels, d'ee bank has until midnight of banking day following banking day of receipt.
- What is a "banking day"?
- That party of day in which bank is open to public for carrying on nearly all banking functions.
However, bank may est a cutoff hour and treat items rec'd after that time as rec'd on next banking day.
- To whom may notice of dishonor be given, and to whose benefit does it operate and against whom?
- It may be given to anyone liable on the I, and operates for benefit of all parties w/ rights to the I against the notified party.
Can be oral and given in any reas manner.
- ___ and notice of ___ are nec to bind indorsers.
- presentment/notice of dishonor
- Gen, is a d'er entitled to notice of dishonor?
But if presentment of a check occurs more than 30 days after date of check and d'ee becomes insolvent during the delay, d'er has no liability upon assignment of rights against d'er to the H.
- What is a stale check?
- A noncertified check presented more than 6 months after its date.
Payment is subj to good faith limitation.
- In what two situations are technical procedures for dishonor excused?
- 1. When delay is caused by circumstances beyond the party's (bank's and other's) ctrl, and reas diligence is used to comply after problem ceases (banks must use reas diligence to avoid problem)
2. By waiver (written or implied), unavail of a primary party, impossibility, or "futility" (anticipatory repudiation, prior dishonor, countermanded payment)
- What is the oblig of a d'ee or acceptor?
- No UCC contractual liability merely be being named as such by a d'er.
- No person is liable on an I unless his ___ appears thereon.
A d'ee's name on an I is not a signature.
- Does the issuance of a check or draft create an immediate assignment of the d'er's funds in the poss of the d'ee?
If the rule were otherwise, the H could sue d'ee under reg K rules.
- Even if the d'ee is not liable to p'ee under UCC, he may be liable in ___ or ___.
- Who is an acceptor?
- D'ee who by signing an I agrees to honor it.
- What is an acceptor's oblig on a NI?
- Acceptor has same liability as m'er--i.e., acceptor promises to pay I accd'g to its terms at time of acceptance.
When sued on the oblig, the acceptor may raise all avail defenses.
- Acceptance conditioned on alteration of the draft's terms can be treated as a ___.
- When a draft is dishonored because it was accepted conditioned upon the alteration of a term, and presenter agrees to the d'ee's conditional acceptance, all prior nonconsenting parties are ___.
- Is domiciling (naming a place for presentement for payment) an alteration?
- No, it is not a change in terms
- For a certified check, who is primarily liable as an acceptor?
And d'er may not stop payment.
Certification discharges d'er and indorsers, no matter who procures certification.
- NI may be signed by agent on behalf of princ. What determines the liability of an agent on a NI?
- Common law rules of agency (no formalities required)
- Who is bound by an unauth'd signature? The person whose name was signed or the actual signer?
- Actual signer
- An ambiguous signature binds the agent as ___.
- To escape liability against all persons, an agent must:
- 1. Name the princ
2. Indicate that the agent's signature is made only in a representative capacity.
- What if an agent fails to comply with one of the requirements of absolving himself of liability?
- No liability accrues as long as an HDC doesn't hold the I.
Further, no liability is imposed on an agent who signed a check w/o noting representative status if the princ's name is printed on the check.
- If an agent signs an I w/ auth fr and on behalf of a princ, is the princ liable on the I even if the princ is not named in the I?
- Separate warranties exist at diff stages in the life of an I: ___, ___, and ___.
- Are implied warranties created by the issuance of a NI?
- What is a transfer?
- Any movement of an I other than issuance or presentment.
- What are the transfer warranties?
- 1. Person entitled to enforce I (transferor has taken pursuant to valid negotiation)
2. Valid signatures (all signatures authentic and authorized)
3. No alterations
4. No defenses good against transferor
5. No knowledge of insolvency proceedings (not warr that no such proceedings exist)
- Are warranties made on presentment for acceptance or payment broader or narrower than transfer warranties, due to the Price v. Neal doctrine?
- What is the doctrine of Price v. Neal?
- As btwn an innocent H and d'ee, the d'ee must bear the loss.
- Once ___ ___ has occurred, the doctrine of Price v. Neal provides that the d'ee (or m'er of prom note) cannot undo the trans and recover money paid unless a presentment warranty was breached or p'ee was not acting in good faith.
- final payment
- What are the presentment warranties?
- 1. Person entitled to enforce the I
2. No alterations
3. No knowledge that d'er/m'er's signature is unauth'd
4. P'or can sue anyone in the chain
- What is conversion?
- At common law, it is the unauth'd assumption of ownership rights over the pers prop of another.
- Does the UCC preserve the common law right of converstion?
Any wrongful taking of a NI wd be conversion.
- How does UCC treat lawsuits that may be brought for viol of a restrictive indorsement?
- It severely restricts them
- Do restrictions on transfers prohibit future transfers?
- Do conditional indorsements bind later parties?
- No, original parties only
- What do "for deposit only" indorsements mean?
- (Restrictive indorsement). Meants that the depositary bank must be the next indorser; otherwise conversion has occurred.
- A transfer constitutes conversion whenever there is a forgery of a ___ ___ or one is missing.
- Necessary Indorsement
- A p'ee cannot sue in conversion unless the p'ee rec'd ___ of the I directly or through an agent or co-p'ee.
- In a suit for conversion against a d'ee, there is a non-conclusive presumption that the damages are limited to the ___'s interest.
- ___ ___ modifies Art 3 where NI (especially checks) enter the bank collection process.
- Art 4
- In cases of conflict, ___ ___ controls where NIs enter the bank collection process.
- Art 4
- When an item is properly payable fr the d'er's acct but the bank wrongfully refuses to honor it, only the ___ may sue.
- In order for d'er to sue when bank wrongfully dishonors item, damages must be ___ caused by the wrongful dishonor.
- Is collection or payment by a bank prior to knowledge of customer's death or incompetency valid?
Upon actual knowledge of the event, a bank may elect to pay or certify checks for 10 days following a death unless an interested party stops payment.
- If an item is not properly payable, what must the bank do if a timely complaint is made?
- Recredit the customer's acct
- If payment of an item wd overdraw a customer's acct, does the bank have to pay?
- Bank has the option
- May an altered item be charged to the customer's acct as to its altered or its original terms?
- Original terms.
- If the customer's negligence led to alteration of an item, does the bank pay as to the orig or the altered terms?
- Bank has the option
- Where a customer leaves blanks that are later completed, may the bank charge item as drawn?
- A K of deposit (btwn customer and bank) cannot waive ___ ___ for bad faith or failure to exercise ordin care, nor can it disclaim the provisions of Article 4.
- bank liability
- A bank may charge its customer's acct only if it pays a ___.
- H (person to whom the I has been negotiated)
- May the bank properly pay a postdated check?
- Yes, unless the customer gives notice of the postdating.
- Are items subj to a "stop payment" order properly payable?
Exceptions are bank obligations (cashier's or certified checks) which remain properly payable.
- If a bank pays an item not "properly payable," the bank is ___ to any person connected w/ the item to the extent nec to prevent unjust enrichment.
- Must a bank give notice in order to set a customer's debts to the bank against a general checking or savings account?
However, no setoff is permitted for credit card debts or after final payment has been made.
- A customer's failure to use reasonable and prompt care in examining ___ ___ can validate improper payment by his bank.
- Bank Statements
- Funds fr gov and bank checks, cashier's checks, certified checks, teller's checks, or similar bank-generated checks, and wire transfers must be made avail ___.
- On the next bus day
- For checks other than those from which funds must be made avail on the next bus day, the customer may w/draw ___ on the next bus day following the bus day of deposit.
- For local checks, funds must be avail for withdrawl by check no later than ___ after deposit.
- Two bus days
Customer can withdraw $100 after one bus day and $400 by 5 p.m. on the second bus day after deposit.
- For nonlocal checks, funds must be avail for withdrawl no later than ___ after deposit.
- Five bus days
On that same day, customer may withdraw $400 before 5 p.m. and the rest at opening of next bus day.
- If cash is deposited, customer may draw against it ____.
- On the next banking day
- If check d'er and p'ee have accts in same bank, p'ee may withdraw against check at opening of ___ banking day after day of deposit (unless check is dishonored).
- What is "final settlement"?
- At moment of final payment, bookkeeping entries (concerning the check) of all collecting banks firm up and become "final settlements."
Dishonor is no longer poss, and after a reas time, the item is considered paid and withdrawl allowed.
- Prior to final settlement, depositary bank (or any collecting bank) that learns of payment will not be made on a check may ___ ___ any provisional settlement given its customer on the item.
- charge back
- Is charge back permitted even if customer has been allowed to draw against the check?
- Yes. Customer must repay the money.
- Failure by collecting bank to use ordinary care makes that bank liable for the amt of the item, but the bank is not liable for ___ damages unless it acted in bad faith.
However, negligence does not destroy a bank's right of charge back.
- The right of depositary bank to charge back an uncollected check expires at the moment of ___ ___.
- final settlement
- Final payment occurs at the moment the p'or bank becomes ___ for the amt.
- How can you determine precise moment when p'or bank becomes accountable for the amt.
- 1. When p'or hands over cash
2. When bank settles item and has no right to revoke settlement.
3. If p'or bank doesn't revoke provisional settlement by its midnight deadline
- What is the legal effect of final payment?
- Bank is accountable for the item; bank cannot avoid payment by applying the "four legals."
Bank must pay unless there has been bad faith by the presenter or a breach of presentment warranties.
- Person whose signature is forged is estopped fr raising the forgery issue in what three circumstances?
- 1. Imposters
3. Bank Statement
- What is the imposter rule?
- Carelessness of a d'er or m'er in issuing an I may be effective to pass good title to later trans'ees.
- Issuance to an imposter will ___ a forgery.
- When I is issued to a fictitious p'ee or p'ee not intended to have an interest in the I, is a resulting forgery of the p'ee's name effective?
Validation also applies when an agent or employee furnishes the p'ee's name.
Employer is also liable for all employee forgeries if employee is entrusted w/ resp for the I.
- UCC uses ___ negligence to allocate loss where subsequent parties neglect to use ordin care in dealing w/ the forged I.
- If a person fails to exercise ordin care and that failure substantially contributes to an alteration or forgery, the person is precluded fr asserting the alteration or forgery against ___.
- a person who in good faith pays the I or takes it for value or for collection
- If more than one party was negligent, they must share liability according to their ___ negligence.
- What is the bank statement rule?
- A customer has a duty to examine bank statements and canceled items for forgery or alteration.
If the customer does not rpt a prob to the bank w/i a reas time, the customer is precluded fr claiming the item was not "properly payable" if such a delay caused the bank further loss.
- When a customer does not rpt a problem w/i ___, the customer is estopped fr demanding recredit on any other items forged or altered during the delay by the same wrongdoer and subsequently paid the check.
- 30 days
- If the bank is ___ in paying an item (e.g., obvious forgery) the bank statement rule does not apply.
UCC applies comparative negligence when both parties are negligent.
However, if bank did not pay in good faith, the customer wins even if the customer failed to rpt statement's inaccuracies.
- How much time does a customer have to complain after bank statement was made avail to her/him?
- 1 year
- If customer timely complains to bank about bank statement and bank fails to take appropriate action, the customer has how long to file suit?
- 3 years
- A bank must raise any applicable defense (under the bank statement rule or some other rule, like the imposter rule) against its customer or ___.
- lose its rights against prior parties (breach of warranty suits, etc.)
- What is an "alteration"?
- An alteration occurs where a change in the terms of a NI alters the I's K in any way.
- If a fraudulent alteration occurs, all nonnegligent parties are discharged fr liability on the I and on ___.
- the underlying obligation
- If alteration was caused by the negligence of a party, is that party discharged?
- No, but he or she is liable on the I as altered.
- Is discharge a personal or real defense?
- In the case of an alteration, are the discharged parties still liable as to the original or the altered terms if the I is transferred to an HDC?
- A d'ee bank may charge an altered item against the d'er's acct according to its original or altered terms?
- Where the alteration involves an unauth'd completion of an I, and HDC and d'ee/p'or bank may enforce the item as ____.
- Does the UCC make the acceptor of a certified check liable to an HDC for the original or altered amt unless the certification states the amt certified?
- When an I is lost, destroyed, or stolen, its true owner may still sue upon it but first must prove ___ and explain ___.
- ownership/nonproduction of it
- Most wire transfers are carried out through the ___ ___ ___.
- Federal Reserve Banks (Fedwire system)
- What is a "payment order"?
- A direct, unconditional instruction--orally, electronically, or in writing--by a "sender" to a rec'g bank to pay a fixed or determinable amt to a "beneficiary."
- What is the first sender of a payment order called?
- An originator
- What is final recipient of a payment order called?
- A beneficiary
- In a funds transfer involving banks, what is the first bank in the transfer process called?
- Originator's bank
- In a funds transfer involving banks, what is the last bank in the transfer process called?
- Beneficiary's bank
- In a funds transfer involving banks, what are the banks in-between the originator's and the beneficiary's banks in the transfer process called?
- Intermediary banks
- In a funds transfer involving banks, what is the bank receiving a payment order called?
- Receiving bank
- Once a bank has accepted a payment order, must it pay the funds to the recipient of the order?
- "Acceptance" of a payment order is defined according to whether the bank making the acceptance is the ___ bank.
- A receiving bank that is not the beneficiary's bank accepts a payment order when it ___ it
- executes (i.e., becomes a sender and passes it on to the next bank)
- A beneficiary's bank accepts a payment order when it does one of what four things?
- 1. pays the beneficiary or credits the beneficiary's acct
2. notifies the beneficiary that the funds are avail for withdrawl
3. receives full payment from the sender
4. fails to reject the payment order bf expiration or requisite time periods
- A receiving bank's announced intention not to accept a payment order must be contained w/i ___ to the sender.
- notice (oral, electronic, written)
- Can a bank reverse its decision to accept or reject?
- Is a rec'g bank required to accept a payment order?
If it proceeds to pay the funds bf rec'g them fr sender, the credit risk rests w/ the bank not the beneficiary
- Once a payment order is accepted, when must the beneficiary first be paid by the beneficiary's bank, unless a later payment date is stated in the order?
- Next business day
- Upon acceptance, when must the beneficiary's bank notify (by reas means) the beneficiary of the funds' availability?
- Bf midnight of the next funds-transfer bus day following the payment date.
- If a beneficiary's bank, after acceptance, fails to pay the beneficiary upon demand, what is it liable for?
- All damages of which it had notice at the time of refusal.
Liability for consequential damages is excused if the bank provies it had reasonable doubt of the beneficiary's right to payment.
- A sender has a legal duty to pay once a rec'g bank accepts. However, a sender may cancel or amend a payment order by reasonable notice given bf receiving bank ___.
- If the sender or rec'g bank becomes insolvent after acceptance, is the payment order still effective?
The loss falls upon the person who chose the insolvent bank.
- A beneficiary is usu described by what two things?
- 1. name
2. acct number
- Can a payment order be accepted when a misdescription of a beneficiary results in unidentifiability?
- Is a beneficiary's bank liable for putting money in a wrong acct if it rec'd a payment order w/ the wrong number?
Generally, whoever made the mistake (w/ some exceptions) bears the loss
- If a transmission error occurs (wrong amt), who bears the loss and the resonsibility of recovering the funds in a restitution action against the wrong holder?
- Whoever made the mistake
- If a bank's failure to follow its security procedures results in a loss, who bears the loss?
- The bank
- If a fraudulent transfer occurs despite security procedures, who bears the loss?
- The party whose security procedure was breached.
- Which federal statute gov's trans's involving consumer transfers of funds into or fr the consumer's bank acct?
- Electronic Fund Transfers Act (EFTA)
- What transactions are covered by EFTA
- 1. Debit card
3. Other electronic transfers
- Are banks allowed to mail unsolicited debit cards?
- Yes, as long as the customer must take some action bf the card becomes validated.
- May customers preauthorize a bank to automatic transfers into or out of an account?
- May consumers stop payment of preauthorized transfer by giving notice to the bank?
- Yes, up to three bus days bf the scheduled transfer date
- In order to stop payment of a preauthorized transfer, when must a constumer give bank oral or written notice of supposed errors?
- W/i 60 days after bank sent statement to the consumer.
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