Sales Outline

Sales

Martin-Scott

Summer 2014

Article 3

Holder in Due Course

If have a holder + value, good faith and no-notice = holder in due course (HDC)

o 3-104 Negotiability (super 7)

§ Writing

§ Signed

· Present intent to authenticate

§ Unconditional promise (Note) OR Order (Check)

· 3-106 Unconditional unless

o Express condition to payment

o Promise/Order is subject to another writing

o Rights to the promise are stated in another writing

· Not a condition even if

· Rights to collateral, prepayment is referenced in another writing

· Payment is from another fund

o Co-signatures is not a condition

§ A fixed amount of money

· Can have interest

§ Carrier w/o luggage

· No added things

· If it is doubtful that the instrument is negotiable

o Presumed not the be negotiable

§ Payable on demand or at a definite time

§ Payable to bearer or to order

· 3-109 Must say either

o Bearer Paper

o Order Paper

o Negotiation- this is the transfer of the valid paper

§ Stages

· 3-105 Issuance

· 3-203 Transfer

o Every legal significant movement between issue and presentment

o Transfer vests in the transferee ALL the legal rights on the transferor

§ Presentment

o Endorsement

§ Order Paper

· A signature by a proper person (payee/transferee) AND delivery of the instrument to the transferee

· If the Payee wants to transfer

o Bank (Drawee) will require the payee’s signature

• Blank endorsement (Creates Bearer paper)

· Payee signs the back of the instrument

• Special endorsement (Keeps Order paper)

· Payee must specify a new payee by writing “Pay Name”

· Multiple endorsers requires AND Requires both signatures

o Or Requires either signature

o Must have multiple indorsers… to transfer it requires both signatures OR either signature

§ Bearer Paper

· Delivery of the instrument to the transferee

o Does not need an endorsement

§ Forgery

· Order paper

o Only the named payee can become a holder

o Payee must have possession and endorse the instrument

• For anyone to be considered a holder

o An unauthorized signature is not effective negotiation

• No later transferee can be a holder

o 3-302 Holder in Due Course (HDC)

§ Must have a holder (Negotiability and Negotiation)

· 3-303 Value

o Something given

• Performance on a promise

· Promise is not enough

• Cannot be court ordered

• Cannot be a gift

• Partial value = Partial HDC

o Moment that value is given

• Become a HDC (If other elements are met)

o Banks are typically not an HDC for checks deposited

• They don’t give value

· To the extent that they give you more than what you have value

• First in first out

· Money in the account first is taken out first

· Acted in Good faith

o Intertwined w/ no notice

o Subjective test

• Honesty in fact

o Objective test

• Observance of reasonable commercial standards of fair dealing

• Should have known

· No Notice

o Received the instrument w/o notice of

• Tampering

• Forgery

• Illegality

o Insolvency = notice

o Generally no duty to inquire about the note validity, unless something looks suspicious. If something looks suspicious, then inquiry may be needed.

• To be notice for this purpose the person must receive notice and a reasonable time to act

o 3-304 Notice of default

• Default on Interest payment

· No Notice

• Default on principle

· Notice

o For