1
Q
Types of Negotiable Instruments
A
Drafts and Notes
2
Q
an order by a drawer directing the drawee to pay the payee
A
Drafts
3
Q
a draft drawn on a bank
A
Checks
- Most checks are demand instruments
- Checking accounts are often called demand deposits
4
Q
The three parties that are involved in drafts
A
Drawer, Payee, Drawee
5
Q
Person who signs the order to pay
A
Drawer
6
Q
Person identified to get paid
A
Payee
7
Q
Person who is ordered to pay
A
Drawee
8
Q
a promise by one party to pay money to another party or bearer
A
Note
9
Q
a note made by bank, where the bank is the maker of the note
A
Certificate of Deposit
• Certificates of deposit are a type of note
10
Q
Parties involved in two-party instruments
A
Maker and payee
11
Q
The person who promises to pay
A
Maker
12
Q
The person to whom the promise is made
A
Payee
13
Q
5 Requirements for an Instrument to be Negotiable
A
- Be in writing
- Be signed by the maker or the drawer
- Be an unconditional promise or order to pay to order or bearer
- A sum certain in money
- Be payable on demand or at a definite time
14
Q
5 Types of Endorsements
A
- Blank Endorsement
- Restrictive (For Deposit Only)
- Special Endorsement
- Qualified Endorsement
- Combination Endorsement
15
Q
an instrument payable to order and indorsed in _______ becomes a bearer instrument and can be negotiated by delivery alone. Converts an order instrument into a bearer instrument
A
Blank Endorsement
16
Q
4 Rules and Requirements for HIDC Status
A
- Must be a holder
- Must take for value
- Must take in good faith
- Must take without notice
17
Q
The result of being a HIDC is that…
A
you eliminate personal defenses
(note: cannot get rid of real defenses, unless you are holding cash).
*See also Shelter Principle.
18
Q
5 Transfer Warranties
A
Real Defenses 1. No knowledge of bankruptcy 2. No material alterations 3. All signatures are authentic Personal Defenses 4. Transferor can enforce the instrument 5. There are no claims or defenses
19
Q
5 Real Defenses (aka Universal Defenses)
A
- Bankruptcy
- Forgery
- Material Alteration
- Extreme mental incapacity
- Fraud in the Execution
*CANNOT ELIMINATE
20
Q
You can eliminate Personal Defenses if…
A
holder in due corse (HIDC)
21
Q
5 Personal Defenses
A
- Breach of Contract
- Failed Consideration
- Fraud in the Inducement
- Wrongful Completion
- Duplicate payment
22
Q
Even if forgery, you have 30 days to notify the bank of forgeries from constructive notice
A
30 Day Rule
23
Q
If there is a forged drawer signature than the ___________________ is liable
A
Drawee Bank
24
Q
If there is a forged endorsement than the _________________ is liable
A
Depository Bank
25
3 Requirements to create a security interest (conjunctive - must have all 3)
1. Must be a written security agreement in most cases (exception: pawn).
2. Debtor must own the asset
3. Creditor must give value
26
a statutory right giving creditor right in the debtor’s property. Must be satisfied before the property (or its proceeds) is available to satisfy the claims of other creditors. Examples: Labor/Material
Lien
27
attach real property to a debt by using _______ instrument
Mortgage
28
Can be verbal and the creditor can sue the debtor directly
Surety
29
Must be in writing and suit must attempt to collect from the debtor prior to bringing action against the guarantor
Guarantor
30
Compare/Contrast Lien Holder vs. PMSI (Purchase Money Security Interest)
Lien Holder
1. By statute, get super priority
2. Non-consensual achieved by statute
PMSI
1. Finance the purchase and get a super priority
2. This is by consent and achieved by getting a security agreement in the asset that was financed by the creditor and filing the F/S within 20 days. Otherwise, you are just secured and perfected.
3. There is no special documentation required to get a PMSI
31
Two examples when a financing statement is not needed
Pawn and retail sale
32
2 examples of "Auto-perfected" situations...
1. when creditor takes possession (i.e., a pawn)
| 2. when a consumer good is secured by a valid security agreement.
33
Five Benefits of Bankruptcy
1. Centralized litigation
2. Stay on all pending litigation against debtor - automatic
3. Discharge debt
4. Exempt some assets
5. Uniform process
34
Some Assets That Can be Exempted in Bankruptcy (11)
1. Homestead
2. Vehicle
3. Household goods, clothes, and etc…
4. Jewelry
5. Personal Property
6. Tools of the trade
7. Unmatured life insurance (no cap)
8. Accrued dividends under life insurance contracts owned by debtor
9. Prescribed health aids (no cap)
10. Right to receive social security, welfare, alimony, and etc…
11. Right to receive certain personal injury awards
35
Some Debts That Cannot be Discharged (12)
1. Back taxes
2. Amounts borrowed to pay federal taxes
3. Claims against property or funds obtained by false representation
4. Claims of creditors not listed and notified of bankruptcy
5. Claims based on fraud or misuse of funds by debtor
6. Alimony, child support
7. Claims based on malicious conduct by the debtor
8. Certain government fines and penalties
9. Certain student loans
10. Debts on luxury goods purchased within so many days of filing
11. Certain Amount of Cash advances obtained within so many days of filing
12. DUI debts
36
5 Types of Bankruptcy
```
Chapter 7 – Liquidation
Chapter 9 – Municipalities
Chapter 11 – Reorganization
Chapter 12 – Farmers
Chapter 13 – Individual/Personal
```
37
Employer-Employee Relationship
| Respondeat Superior
Employer/Employee liability based on whether tort committed within the scope of employment.
38
Only party that is primarily liable
Maker
39
Order of precedence/priority of negotiable instruments
CASH > NI & HIDC > NI > NON-NI > VERBAL PROMISE
40
Two parties involved in notes
Maker and Payee
41
Go from S + UP to S + P when ...
creditor takes possession OR files financing statement
42
Five ways to pierce the corporate veil
1. Used for personal use
2. Thinly capitalized
3. Not actively managed
4. Books and records are not kept separate
5. To perpetuate fraud
43
The transfer of an instrument in such form that the transferee becomes a holder
Negotiation
44
Type of instrument that required BOTH endorsement and delivery.
Order Paper
45
Type of instrument that ONLY requires delivery. No endorsement required.
Bearer paper
46
validates forged payee’s endorsement, and an innocent holder can hold the maker or drawer liable on the instrument
Fictitious Payee Rule
47
A person who does not qualify as a HIDC but who derives his or her title through a HIDC can acquire the rights and privileges of an HIDC. Transferee cannot be engages in fraud or illegality.
Shelter Principle
48
transfer of property or payment that favors one creditor over another
Preferential transfer
49
trustee goes back 2 years (donations to charities)
Fraudulent transfers
50
If third party contract must be in writing, so does the authorization granting agent/manager authority to act on behalf of company.
Equal Dignity Doctrine
51
Governs IPO (Initial Public Offering) Purpose is to require disclosure. Section 5 requires securities to be registered before IPO unless exempt. Registrants must file a registration statement with the SEC and must provide investors with a prospectus. Do not have to prove scienter
1933 Act
52
Secondary Market. Foundation for Sarbanes Oxley. 10Q Quarterly and 10K Annually. Must prove scienter.
1934 Act
53
a fungible, negotiable financial instrument that represents some type of financial value
security
54
exempt securities
government issued
bank and financial institution securities
short term notes and drafts
securities of nonprofit organizations
securities issued by common careers
insurance, endowment or annuity contracts
corporate reorg securities
stock dividend and stock split securities
B Law
flashcards
Decks in class (4)
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