Commercial Transactions Outline

 
                                                                        Prof. Lipson
 
 
COMMERCIAL LAW
 
 
 
1.     Negotiable Instruments
a.     Parties
                                                             i.      “drawer”
1.     directs payment
2.     3-103(a)(3)
3.     or “issuer” – 3-105(c)
                                                           ii.      “drawee”
1.     person directed to make payment
2.     3-103(a)(2)
                                                        iii.      “payee”
1.     person to be paid
                                                        iv.      “remitter”
1.     person who caused draft to be issued
2.     3-103(a)(11)
b.     Negotiability Requirements (3-104(a))
                                                             i.      Promise or Order Requirement
1.     3-104(a)
2.     3-103(a)(6) : defines order (instruction by drawer for drawee to pay)
a.     3-104(e) : writing is “draft” if is order
b.     types of drafts:
                                                                                                                                     i.      3-104(f) : check
                                                                                                                                   ii.      3-104(g) : cashier’s check
                                                                                                                                iii.      3-104(h) : teller’s check
3.     3-103(a)(9) : defines promise (direct commitment to pay)
a.     3-103(a)(5) : party that makes promise is “maker”
                                                           ii.      Unconditional Requirement
1.     3-104(a)
2.     3-106(a)(i) and (ii)
a.     document not negotiable if states “is subject to or governed by another writing” or “that rights and obligations with respect to [the document] are stated in another writing”
3.     Exceptions, 3-106(b)
a.      (i) : When collateral given, references to other writings ok like w/loan and security agreements
b.     (ii): non-recourse provision
                                                        iii.      Money Requirement
1.     3-104(a)
2.     excludes obligations to deliver commodities rather than money
                                                         iv.      Fixed Amount Requirement
1.     3-104(a)
2.     excludes promises to pay unspecified sums of $
3.     ok to list interest
4.     3-112(b) : interest can be fixed or variable
                                                            v.      Payable to Bearer or Order Requirement
1.     3-104(a)(1)
2.     3-109(a) : defined
3.     must contain the terms
4.     bearer types
a.     “payable to bearer” (or otherwise indicates person in possession is entitled to payment)
b.     no particular identifiable person
                                                                                                                                     i.      3-109(a)(2) : no stated payee, just left blank
                                                                                                                                   ii.      3-109(a)(3) : payable to cash
5.     order
a.     3-109(b)(i) : payable to order of identified person
b.     3-109(b)(ii) : payable to identified person or order
c.      3-109(a)(2) : if just says order w/o person’s name it is bearer paper
6.     Exception
a.     Checks
b.     3-104(c) : even if fail this requirement, still NI
                                                         vi.      Demand or Definite Time Requirement
1.     3-104(a)(2)
2.     3-108(a) : on demand definition also includes no specified time for payment
3.     3-108(b)(iii) : “definite time” includes obligation due on particular date and where holder can extend the date of payment
4.     3-108 allows for acceleration, prepayment, and extensions at option of maker
                                                       vii.      No Extraneous Undertakings Requirement
1.     3-104(a)(3)
2.     not negotiable if includes nonmonetary promises
3.     ex : “I promise to pay $100 and deliver goods”
4.     Excpetions
a.     3-104(a)(3)(i) : “undertaking to give, maintain, or protect collateral to secure payment”
b.     3-104(a)(3)(ii) : “an authorization or power to holer to confess judgment or realize on or dispose of collateral”
c.      3-104(a)(3)(iii) : permits conditions where borrower waives laws intended for benefit or protection of borrow or obligor
c.      Liability on the Instrument and the Underlying Obligation
                                                             i.      b/c NI is unconditional, when a party issues a NI, it incurs liability that is completely separate from its liability on any underlying obligation
                                                           ii.      3-412 : for note liability springs into existence immediately
                                                        iii.      3-414(b) : for draft liability is indirect and begins only if drawee refuses to pay as directed
                                                        iv.      3-310 : rules governing relation b/w liability for instrument and liability for obligation
1.     2 classes
a.     3-310(a) : near-cash instruments
                                                                                                                                     i.      all kinds of checks
                                                                                                                                   ii.      bank incurs liability
                                                                                                                                iii.      obligation discharged when obligee takes the check
b.     3-310(b) : ordinary instruments
                                                                                                                                     i.      notes and uncertified checks
                                                                                                                                   ii.      obligation suspended when obligee takes it, only discharged when paid
2.     Holders In Due Course
a.     Transferring NI
                                                             i.      Only need delivery and signature
                                                           ii.      3-201(a) : negotiation is any transfer of possession (even if involuntary) by a person other than the issuer that causes the transferee to become a holder
                                                        iii.      3-301(i) : has right to enforce
                                                        iv.      can’t be holder w/o possession
                                                           v.      1-201(20)
1.     for order paper, identified person is only one that can be holder
2.     for bearer paper, any person in possession
                                                        vi.      indorsement alters identity of identified person
1.     3-204(a) : any signature on instrument is indorsement unless circumstances unambiguously indicate the signature is there for another purpose
2.     special indorsement identifies person to whom instrument is paid, 3-205(a)
3.     blank indorsement does not indicate identified person, 3-109(c) and 3-205(b)
4.     restrictive indorsement : “deposit only” or “collection only”, 3-206(c)
5.     anomalous indorsement : someone who indorses is not the holder, 3-205(d)
b.     Rights of Transferee
                                                             i.      HDC
1.     status makes a transferee immune from certain defenses that the issuer of a NI could raise against the original payee
2.     Requirements for Status
a.     Obtain through negotiation (sale not enough)
b.     Take instrument for value
                                                                                                                                     i.      Appears in 3-302(a)(2)(i)
                                                                                                                                   ii.      Defined in 3-303(a)
                                                                                                                                iii.      No gifts
                                                                                                                                iv.      Can transfer for consideration and still fail value req
                                                                                                                                   v.      3-303(a)(1) : If the value is the promise of the future performance, is not value until the performance has occurred
c.      good faith
                                                                                                                                     i.      appears in 3-302(a)(2)(ii)
                                                                                                                                   ii.      3-103(a)(4) : “honesty in fact” and “observance of reasonable commercial standards of fair dealing”
d.     notice
                                                                                                                                     i.      appears in 3-302(a)(2)(iii) – (vi)