business law final

Statue of Limitations

An action to enforce a liability imposed by Article 4 must be commenced within three

Effect of Imposter Rule

Any person may indorse payee's name. Indorsement is treated as genuine and cannot be attacked

Forgery and Alteration Reporting Time

Customers are precluded from asserting unauthorized signatures or alterations if they do not report them within one year from the time the bank statement is received.44 A forged indorsement must be reported within three years

Qualified Indorsement

Disclaims certain liability of the indorser to a maker or drawee without affecting the transfer or title or negotiable character of the instrument

Blank Indorsement

Does not indicate to whom the instrument is to be paid & turns an order instrument into a bearer instrument

Limitations on Imposter Rule

Doesn't apply when a valid check to an actual creditor is forged

Bearer instruments

Finder as possessor is the holder and entitled to enforce payment

fraud in the inducement

If a person is persuaded or induced to execute the instrument because of fraudulent statements, such fraud in the inducement cannot be raised against a party with holder- in-due-course status

The UCC establishes two presumptions as to what is a reasonable time for presentment of checks.

If the check is not certified and is both drawn and payable within the United States, it is presumed that 90 days after the date of the check or the date of its issuance, whichever is later, is the reasonable period in which to make presentment for payment in order to attach secondary liability to the drawer. • With respect to attachment of the liability of an indorser, 30 days after indorsement is the presumed reasonable time.

Miscellaneous defenses

Limited Defenses Not Available against a Holder in Due Course

Forged and Unauthorized Indorsements

Not a valid Indorsement

Incapacity of Maker or Drawer

Ordinarily, the maker's or drawer's lack of capacity (except minors) may not be raised as a defense to payment to a holder in due course. Such incapacity is a defense, however, if the incapacity is at a legal level that makes the instrument a nullity.

Special Indorsement

Specifics the person to whom the instrument is payable, the indorsee whose signature is required for further negotation

Restrictive Indorsement

Specifics the purpose of the instrument or its use but does not prevent further or negotitation once the initial restriction is honored

Holder in Due Course

The law gives certain holders of negotiable instruments special rights by protecting them from certain defenses. This protection makes negotiable instruments more attractive and allows greater ease of transfer. Unlike ordinary holders or assignees, holders in due course take free of contract assignment defenses that are good against ordinary holders or assignees.

holder through a holder in due course

This elevated or protected status is called Article 3's "shelter rule," and it allows a person who is not an HDC to hide under the "umbrella" with a holder in due course and be sheltered from claims and defenses as if actually being an HDC

Holder in due course

a holder who has given value, taken in good faith without notice of dishonor, defenses, or that instrument is overdue, and who is afforded special rights or status

good faith

absence of knowledge of any defects in or problems; "pure heart and an empty head.

Bad faith sometimes exists just

because the transferee takes the instrument under such odd circumstances.

time draft

bill of exchange payable at a stated time after sight or at a definite time

secondary parties

called secondary obligors under Revised Article 3; parties to an instrument to whom holders turn when the primary party, for whatever reason, fails to pay the instrument.

close connection doctrine

circumstantial evidence, such as an ongoing or a close relationship, that can serve as notice of a problem with an instrument

Limited Defenses

dont apply to hdc or holder through hdc

Teller's check

draft drawn by a bank on another bank in which it has an account

cashier's check

draft drawn by a bank on itself

Money order

draft issued by a bank or a nonbank.

demand draft

draft that is payable upon presentment

wrongfully dishonored

error by a bank in refusing to pay a check.

USA Patriot Act

federal law that, among other things, imposes reporting requirements on banks.

Order Instruments

finder does not become holder because instrument not indorsed and delivered

Universal Defenses

good against any party

Holder may also be a

holder in due course which gives immunity from certain defenses that might have been asserted against that might have been asserted against the transferor

holder

is an transferee in possession of an instrument that runs to that person.

bad check laws

laws making it a criminal offense to issue a bad check with intent to defraud

Notice of dishonor

notice that an instrument has been dishonored; such notice can be oral, written, or electronic but is subject to time limitations

check

order by a depositor on a bank to pay a sum of money to a payee; a bill of exchange drawn on a bank and payable on demand

Stop payment order

order by a depositor to the bank to refuse to make payment of a check when presented for payment.

Primary party

party to whom the holder or holder in due course must turn first to obtain payment

maker

party who writes or creates a promissory note.

drawee

person to whom the draft is addressed and who is ordered to pay the amount of money specified in the draft.

Drawer

person who writes out and creates a draft or bill of exchange, including a check.

Indorser

secondary party (or obligor) on a note.

Holder

someone in possession of an instrument that runs to that person.

dishonor

status when the primary party refuses to pay the instrument according to its terms

The element of good faith for becoming an HDC requires

that a holder of a negotiable instrument act honestly in acquiring the instrument. In addition, the taker must follow reasonable standards of fair dealing.

Assignee

third party to whom contract benefits are transferred

postdate

to insert or place on an instrument a later date than the actual date on which it was executed.

Alteration

unauthorized change or completion of a negotiable instrument designed to modify the obligation of a party to the instrument

ordinary contract defenses

▪ In general terms, , the defenses that could be raised in a breach of contract claim cannot be raised against an HDC.