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Final Review

by: Sarah Sierra

Final Review BLAW 3311 - 001

Sarah Sierra

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Good luck !
John V Dowdy
Study Guide
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This 6 page Study Guide was uploaded by Sarah Sierra on Wednesday May 4, 2016. The Study Guide belongs to BLAW 3311 - 001 at University of Texas at Arlington taught by John V Dowdy in Spring 2016. Since its upload, it has received 34 views. For similar materials see LAW II in Business Law at University of Texas at Arlington.

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Date Created: 05/04/16
Final Review 1. What is an allonge? (First question on test) a. Piece of paper that attached to a negotiable instrument to continue endorsement. 2. What is the difference among the following: draft, check, promissory note and certificate of deposit? (Look back on notes) a. Draft (three party instruments) i. Drawer – orders the drawee to pay money to a payee ii. Drawee – may or may not be a bank. If it is bounces the bank wont accept it and wont become a primary liable. iii. Payee iv. Primary – drawee is primary liable, ONLY if the drawee orders to pay money to a payee. Is the drawee primary liable when the check is drawn? No, only when he accepts it. What if the draw fails to accepts the draft? That means primary liability never attaches to the drawee. v. Secondary – drawer is secondary liable. vi. Other kind of secondary liability - unqualified endorser 1. Two kinds of transfers where secondary liability where secondary liability would to attach: a. Where its by delivery only b. Endorser, the transferor, endorsed the endorsement secondary liability without recourse vii. Qualified endorser – there would no secondary liability b. Check (three party instrument / specialized form of a draft) i. Drawer ii. Drawee – is a bank iii. Payee iv. Primary – drawee is primary liable, ONLY if the drawee orders to pay money to a payee. Is the drawee primary liable when the check is drawn? No, only when he accepts it. What if the draw fails to accepts the draft? That means primary liability never attaches to the drawee. v. Secondary – drawer is secondary liable. vi. Other kind of secondary liability - unqualified endorser vii. Qualified endorser – there would no secondary liability c. Promissory note (promise to pay), which will be the maker to make the promise. i. Primary – the maker of the note d. Certificate of deposit (promises to pay) 3. What are the requirements for negotiability? a. In writing and signed i. No such thing as an oral instrument. b. Unconditional promise or order to pay i. If it is a CD or promissory note, that is a promise to pay. Checks and drafts are order to pay. Unconditional means that it is absolutely payable. The note should not say, pay to Billy Bubba Hawkins IF. c. Sum certain in money and no other requirement for discharge i. Has to be payable in money, if a note say I promise to pay Billy bubba $5000 or it equivalent in peace court. That would be no negotiable because the maker in the note would have the options of discharging the note in some other way than the payment of the money. Well the maker of the note or if the drawee with the check or draft has the option of doing that then the instrument is not negotiable. Now it goes without saying that the holder of the instrument always has the option of accepting something. Sum certain in money, meaning let’s say Billy bubba promise to pay a reasonable amount of money. What’s the reasonable amount? Well, that would be non negotiable. To have a sum certain, what that means is that you would have to be able to look at the face of the instrument and determine what amount is required to discharge at any given time. For example, lets say it’s a promissory note; maybe the maker of the note signed the note last year. Now, we are several months in the terms of the note. Can you look at the face of the note, presupposing that it is current, and be able to tell is when is the day to discharge it. d. Payable on demand or at a definite time i. What’s a demand instrument? An instrument is one that is payable anytime the holder demands payment. Like a check is a demand instrument. Payable at a definite time, what if the instrument does not state a time? Well by default, its going to be payable when on demand. What if its not a demand instrument, then that means it has to be payable at a definite time. So, if the note recites that the maker of the note will pay Billy Bubba when the maker of the note gets the money. That is not payable at a definite time. Payable at a definite time means its payable on a specific date or before a date. 1. Acceleration clause- giving the holder the right to call the note. If the note was due on April 14, 2016 but the maker of the note was over due by two weeks then the holder has the right to accelerate it. The most prevalent was missing the pay statement. e. Payable to order to bearer i. That means that there’s a name payee. What if there’s not a name payee, then it will have to payable to bearer (whoever has the note). f. Strictly a matter of form only, no fact issues on whether or not an instrument is negotiable. 4. What is a holder in due course and how does a holder qualify as such under UCC Section 3-302 (a) and 3-302(b)? a. Sec. 3-302 (a) – has to whether or not the transferee, on his own right, at the time, he or she whether or not that transferee pays value took it in good faith and without notice of any defense or that it was overdue of has been dishonored. b. Sec. 3-302 (b) – transferee qualifying as a holder in due course in his or under the shelter provision. c. Promissory note from a to b, chances are b will be a holder in due course because if there is any personal defense well b will be subject to it. B will have to hand it to C and C can be a holder in due course but will have to meet the requirements. 5. What is the significance of a negotiable instrument being held by a holder in due course? a. Immunity from personal defense 6. Bess received a check from Tom for a lawnmower Tom purchased from Bess, who is not a merchant. Bess knew the mower was defective and unusable. However, by the time Tom discovered this fact, Bess had negotiated Tom’s check to Bob for a retaining wall Bob was building for Bess. Bob was acting in good faith and was unaware that the lawnmower Tom purchased was defective and unusable. Is bob a holder in due course? Can Bob enforce the check or does Tom have a defense based on fraud in the inducement? a. Yes, paid value and build a retaining wall, took it in good faith and without notice of any defense. b. Bob being a holder in due course is entitle to enforce the check and he is not subject to the defense of misrepresentation, whether it fraudulent or innocence. c. Tom can go after Bess but Bob gets the check and able to enforce it. 7. What is a real (aka universal defense) defense? What is a personal defense? List example of each. a. Real defense i. Forgery – which goes to the instrument itself and not to the underlying contract. ii. Material alteration iii. Sec 3-305: Minority to a defense of a simple contract iv. Void underlying contract 1. Extreme duress 2. Illegal bargain 3. Fraud in the inception (execution) 4. Bankruptcies b. Personal defenses i. Failure to consents ii. Misrepresentation iii. Fraud in the inducement 1. Lets say, A was belly aching, he was defrauded. C has presented the note to A for payment, and A wants to assert one or more of these defenses. So, C attorney bring a lawsuit against A. The evidence that A and his attorney wants to introduce on any of these defense is inadmissible. The defenses do not apply. Why? Because C’s lawsuit is on the note. And those defenses all apply to the underlying contract. A could have asserted those defenses against B; because B was an underlying contract but was not an underlying to that contract. C lawsuit is based on the note, and not the underlying contract. However, if C was the assignee of an assignment contract then these defenses do apply. iv. Undue influence v. Most duress vi. Mistake 8. Is a check always a draft? Is a draft always a check? a. Yes b. No 9. The person who writes the order for a draft is the a. Drawer of a draft b. Drawee of a draft c. Payee of a draft 10. The party who receives money from a draft a. Drawee of draft b. Drawee of a draft c. Payee of a draft 11. Who is primarily liable on a draft? On a promissory note? What is the nature of a drawer’s liability, primary or secondary? Who else is secondarily liable on a negotiable instrument? What are the differences among the following types of endorsements: blank, special, restrictive, qualified, and unqualified? What is the significance of the difference between a qualified and unqualified endorsement? a. Drawee only upon acceptance. b. On a promissory note, is the party who is primary liable is the maker of the note. c. Secondary. d. Who else is secondary liable? Somebody who endorses an unqualified endorser. e. Blank – that’s where the endorser simply signs his or her name only i. A promissory note or check payable to B, B negotiates it to C with a blank endorsement. Now C wants to negotiate it to D, does C has to negotiate it in order for it to negotiate to D? No, because it’s a blank endorsement, if B put his blank endorsement on there he changed it from order paper to what? To bearer paper. f. Special – if when B negotiated with C, he had written above his signature to pay to C, that would not be a blank endorsement anymore. C would have to endorse the instrument when he transferred it to D. g. Restrictive – restricts or prohibits further negotiation of the instrument. Common example is: for deposit only. h. Qualified / unqualified – an unqualified endorsement results in what kind of liability of the endorser? B to C that unqualified, C to D that’s unqualified. B and C has a secondary liable but is A is primary liable because A is the maker of the note. 12. What is a three party instrument that consists of an unconditional written order by one party that orders a second party to pay money to a third party? a. A draft or a check 13. The financial institution where the drawer of a check has his/her account. a. Drawer b. Drawee c. Payee 14. The party to whom the check is written a. Drawer of check b. Drawee of check c. Payee of check 15. The person who writes a check a. Drawer b. Drawee c. Payee 16. The party who makes a promise to pay. a. Demand note. b. Maker of a note c. Payee of a note d. Time of note 17. The party to whom the promise to pay is made. a. Demand note. b. Maker of a note c. Payee of a note d. Time of note 18. A note payable on demand. a. Demand note. b. Maker of a note. c. Payee of a note. d. Time of note. 19. Orville writes a check “payable to cash” for $100. Is an endorsement a requirement for negotiation? How about a check payable to Ben Baker, who endorses it by signing his name only? a. A bearer paper b. Blank


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