Commercial Paper UCC Article 3

julianknox5's version from 2015-07-12 16:58

General provisions and definitions

Question Answer
What is a negotiable instrument/instrument?a negotiable instrument is a (1) written and signed (2) unconditional promise (note) or order (draft)(3) to pay a fixed amount of money to bearer or order,(4) on demand or at a definite time.
What is a note?A promise to pay.The maker of the note promises to pay the payee or bearer.
What is a holder?a person entitled to enforce the instrument.
Name the common types of orders?personal check; cashier's and certified checks; teller's check; traveler's check
What is a personal check?an order by the drawer (person writing the check) to the drawee (the person's bank) to pay the payee on demand. If payee indorses the check to another party, that third party then becomes a holder of the instrument.
When does the SOL expire on action to enforce the obligation of a party to a negotiable instrument?an action to enforce the obligation of a party to pay a note payable on demand must be commenced within 6 years after the date of demand.
An indorsement isthe act of writing a name on a negotiable instrument.
what is a draft?a three party instrument under which the drawer signing the draft orders the drawee to pay a fixed amount of money to the order of the payee or to bearer.
What is the most common form of draft?a check which is a draft drawn on a bank.
Does an implied condition make a promise conditional?no, the fact that the obligation of the maker of a note or the drawer of draft is subject to an implied condition does not make the promise or order conditional.
What is the difference between a promise and order?(1) A promise is a written UNDERTAKING to pay money signed by the person undertaking to pay and a (2) order is a written INSTRUCTION to pay money signed by the person giving the instruction.
When is a promise or order NOT unconditional?an express condition, or subject to another written document.
What are the rules of construction if an instrument contains contradictory terms?Typewritten terms control printed term; handwritten terms control both typewritten and printed terms, and words prevail over numbers.

Enforcement of instruments

Question Answer
To qualify as a holder the instrument must be..?a negotiable instrument such as a bearer or order.
With bearer paper when is delivery completed?The transfer of possession of the instrument completes delivery. The person in possession is a holder.
order paper isan instrument that is payable to the order of some party is negotiated by delivery plus proper indorsement.
What is a holder in due course?a person possessing an instrument is a holder in due course if he is: (1) a holder; 2) for value, (3) in good faith, and 4) without notice of defect. A holder in due course takes the instrument free from any defects in the underlying obligation that the instrument may represent.
What are the rights of a holder in due course?may enforce, transfer, negotiate, and obtain a judgment on negotiable instrument. Takes note free from all defenses except real defenses.


Question Answer
A holder in due course of a negotiable instrument from all "personal defenses" of the maker.
What is not a valid defenses against a holder in due course?failure or lack of consideration or personal defenses.
What defenses may holders in due course be subject to?Real defenses such as infancy of the obligor, duress, lack of capacity, fraud that induced the obligor to sign the instrument; and discharge of the obligor in insolvency proceedings.

Liability on instruments

Question Answer
When is a person liable on an instrument?if that person is obligated to pay the instrument to a "person entitled to enforce" the instrument.
Is a payor bank liable on the check?No, unless the it has a certified check.
Paying a check that is not properly payable; wrongful dishonor of a check; late return of a check presented for payment; conversion

Liabilities of parties that present, transfer, and collect instruments that are not dependent upon signing

Question Answer
A person who presents a check to a payor bank and obtains payment makes three basic warranties...what are they?1) the presenter is a person entitled to enforce the instrument; 2)the check has not been altered; and 3) the presenter has no knowledge that the drawer's signature is unauthorized.