Negotiable Instrument and Secured Transactions

certified public accountant ruler on the table Instruments and Secured proceeding moveable Instruments and Secured transactions What is a honor and who ar the parties to a none? 2011 dowse multinational 91 A none is a indite presage to requital money. Notes be diverse from pictures in that nones argon a prognosticate to deliver. If thither is any mistrust whether a document is a none or a draft, the carrier of the document buttocks induct up ones mind what it is. in that respect be cardinal parties involved in a none.1) The Issuer (Maker) is the promisor. This is the party who is ca function to present the note.2) The Payee is the soulfulness to whom the note is owed. The Payee forget gather in the money paid by the Issuer. certified public accountant dominion assignable Instruments and Secured Transactions What is a draft and who argon the parties to a draft? 2011 inebriate world-wide 92A draft is a written recite to pay money. In a draft, o ne party locates an separate party to pay money to as yet a third party. If thither is any doubt whether a document is a note or a draft, the toter of the document prat decide what it is. There ar deuce-ace parties involved in a note1) The Drawer The drawer writes and scars the note,2) The Drawee (usu wholey a bank building) The drawee is tramped by the drawer to pay the Payee, and3) The Payee The payee entrust receive the money from the drawee. certified public accountant commandment transferable Instruments and Secured Transactions What ar the common types of notes and drafts? 2011 inebriate supranationalist 93The main types of notes are1) certificate of bewilder (a bank promissory note)2) era note ( collectible at a specialised time in the future)3) solicit note ( collectable when it is presented to the issuer) and4) inst exclusivelyment note (the principal is payable over time).The main types of drafts are1) checks (written on a bank and payable on stu dy, requiring the drawee to be a bank)2) cashiers checks (a check that is drawn by a bank on itself)3) trade acceptances (a marketer of goods writes a draft dictateing the buyer to pay at a future time)4) sight drafts (a draft payable when it is delivered) and5) time drafts (a draft payable with a certain period of time). CPA invest movable Instruments and Secured Transactions What are the five elements of negotiability? 2011 soak international 94In target for an creature to be conveyable, it moldiness have the following five elements1) It essential(prenominal)inessiness be in piece of music and write by the issuer.2) There must be a tote up certain.3) There must be an plane promise or orderliness to pay.4) It must be payable upon demand or at a specific time.5) It must be payable either to order or to immune carrier. CPA ordinance conveyable Instruments and Secured Transactions What are the requirements for the make-up and soupcon? 2011 sop international 95A transferable doer cannot be an oral communication it must be written. However, in that location is no requirement that the writing be on a piece of paper (the writing whitethorn be on new(prenominal) items).Additionally, the cats-paw must be gestural by the issuer, or drawer, to be considered negotiable. The use of any symbol executed or adopted by a party with a present intention to au knightlyticate a writing is sufficient to meet the definition of signed. Thus, a spot can be do manually or by agent of a device or a machine, and it can use any pee-pee (including a trade or business epithet) so yearn as the signatory intends to au henceticate the writing. The trace can also be a sign or symbol different from the nearbodys name. CPA command moveable Instruments and Secured TransactionsWhat are the exceptions to a sum certain? 2011 imbue international 96Though these items come along to contradict the sum certain requirement, the following items do not repos e the negotiability of a note1) A disparity between the speech and numbers on an putz (in this case the written talking to are used, not the numbers)2) A provision for collection cost (including attorneys fees in the particular of the debitors default)3) A reference to an exchange rate and4) Variable c erstrn rate provisions. However, the musical prick must be payable only and completely in money. Thus, a note fails the negotiability est if the note specifies that it is payable in money and/or personal services or goods. CPA statute Negotiable Instruments and Secured Transactions What does un particularizeal mean for a negotiable actor? 2011 souse international 97The tool must be a simple(a) unconditional promise (in the case of notes) or a simple unconditional order (in the case of drafts). Thus, an tool must be a courier without luggage. This means that the promise or order must not be contingent on some opposite event happening. If, for example, an actor says, I promise to pay, contingent upon comforting completion of the terms of he reduce signed today, then the note is not negotiable because it is conditional. However, if instead the agent says, As per the contract signed today, I promise to pay, then this shaft is negotiable because it only makes reference to an underlying contract. CPA regulating Negotiable Instruments and Secured Transactions What types of conditions whitethorn make it in a negotiable instrument without destroying its negotiability? 2011 hook international 98 There are, certain conditions that may exist in the instrument without destroying the negotiability of the instrument1) A promise or order is not make conditional if it makes eference to another(prenominal) writing for the arguing of salutarys with obligingness to collateral, a pre earnings clause, or an acceleration clause or because remuneration is limited to a particular source.2) speedup clauses enable the creditor to collect more quickly should t he debtor not make timely compensation. These are permitted because they asperse the burden on creditors and courts.3) If a promise or order requires countersignature by persons whose signature appears on the promise or order, as condition of requital, this condition does not make the promise or order conditional. This instrument would continue to be negotiable.The key commove regarding negotiability for these types of clauses is whether the inwardness or certainty of payment is not changed by this clause. If no change will occur, negotiability is not impacted. CPA Regulation Negotiable Instruments and Secured Transactions What are the requirements for the time of payment? 2011 HOCK international 99Since the bearer of the instrument must be able to forge when it comes due, the instrument must be payable on demand or at a defined time. The time does not need to be a specific date in the future as long as there is reference in the instrument that enables the time o be determi ned. despite the fact that there needs to be a date of payment, there is no requirement that an instrument be dated. Undated instruments are negotiable and are treated as payable on demand by the holder. Instruments may also be antedated (backdated) or postdated. An instrument payable on demand is not payable before the date that is written on its face. It is also possible for the time period for payment to be extended without destroying the negotiability of the instrument. CPA Regulation Negotiable Instruments and Secured Transactions To whom must a negotiable instrument be payable? 2011 HOCK international 100In order to be negotiable, the instrument must contain the words of negotiability payable to common carrier or payable to order. 1) An instrument is payable to bearer if ita) states that it is payable to the bearer or to the order of the bearerb) does not state a payee orc) is payable to the order of cash or is not payable to an identified person. An instrument payable to be arer allows whoever holds the instrument to exercise the instruments rights without guarantee by the maker of the instrument.2) An instrument payable to order specifies the person o whom payment should be made. Because there is a named payee, until the named person makes a transfer of his rights by indorsing the instrument, the instrument cannot be redeemed for value and cannot be readily transferred to a new holder. CPA Regulation Negotiable Instruments and Secured Transactions List and define the three stages in the life of a negotiable instrument. 2011 HOCK international 101There are three stages in a negotiable instruments life1) event when the instrument is created and transferred to the first holder, The issuance of the instrument is not a negotiation. 2) Transfer when the instrument is transferred from one holder to another3) Presentment when the instrument is presented for payment and after payment is made ceases to exist as an instrument. Transfer and manifestation of a n instrument may constitute a negotiation. personal transfer of the instrument gives to the transferee (recipient) whatever right the transferor (giver) had in instrument. If the transferee becomes a holder of the instrument, then the transfer is called negotiation. The way that an instrument is transferred depends on whether the instrument is payable to bearer or to order. CPA Regulation Negotiable Instruments and Secured Transactions How may order and bearer instruments be transferred? 2011 HOCK international 102Transfer of Bearer write up If an instrument is made out to bearer, the person who sensually possesses the instrument is the holder. Since the holder is determined by physical possession alone, a bearer instrument may be transferred simply by giving the instrument to another person. The arcsecond (signature) of the earlier holder is not needed to negotiate bearer paper. Transfer of rules of order Paper If the instrument is payable o the order of mortal, then th e identified person is the bearer once he or she has the negotiable instrument in his possession. However, the negotiation of order paper to another person requires the secondment by the named party. CPA Regulation Negotiable Instruments and Secured Transactions What are blank and special sanctions? 2011 HOCK international 103Blank indorsement is when the payee simply signs his or her name to the back of the instrument. A blank indorsement automatically converts an order instrument to a bearer instrument. However, the holder of an instrument with a blank indorsement can convert the nstrument to order paper by writing a new payee above the blank indorsement. With a special indorsement, if the payee wishes to preserve the order character of the instrument, then the payee may specify a new payee. by and by this first special indorsement, the signature of the new payee is ask for further negotiation of the instrument. If a special indorsement is placed on bearer paper, the special indorsement makes it order paper. CPA Regulation Negotiable Instruments and Secured Transactions What are restrictive and qualified indorsements? 2011 HOCK international 104Restrictive indorsement when the payee adds a condition to the payment of the instrument. negotiation and further transfer of the instrument are not impaired. Examples are a restriction for deposit only, or for payment after the completion of X. Banks may can all restrictive indorsements except those made by the contiguous transferor. Qualified indorsement payee signs his name and adds without recourse. Without this statement added to an indorsement, the signatory guarantees payment if the original parties do not pay, the signatory will. To avoid this indebtedness, the signatory indorses the check with the words without recourse. A qualified indorsement does not destroy the negotiability of the instrument and does not prevent its transfer. Instead a qualified indorsement makes it order paper. As a result, it must be indorsed before it can be negotiated. A qualified indorsement eliminates the ratifiers contract obligation (guarantee of payment), but not his guaranty liability. CPA Regulation Negotiable Instruments and Secured Transactions What happens if a negotiable instrument presented for payment is rejected by the payor? 2011 HOCK international 105If a payor does not contain to make payment or to accept n instrument that has been presented to them, then the payor has dishonored the instrument. This refusal to make payment gives the instrument holder the right of recourse against the parties with inessential liability. In some cases this process of dishonoring an instrument can be done orally. In other cases written documentation, including a notice of dishonor, is necessary in order to establish legally the secondary liability against other parties to the instrument such as the indorser. CPA Regulation Negotiable Instruments and Secured Transactions What party has firsthand liability for a negotiable instrument? 2011 HOCK international 106 original liability is the liability of makers and acceptors (and sometimes try-on parties, too). Primary liability means that the maker or acceptor is have to pay the instrument before any other party. 1) Maker. This is the party who is obligated to pay a promissory note (not a check the person who writes a check is called the drawer, below) according to the terms that existed at the time of issuance. 2) Acceptor. The drawee (the bank) has no liability for payment until he accepts the draft. at one time the drawee accepts the draft (by signing it), he becomes n acceptor and agrees to pay the draft as presented. Thus, if the acceptor signs an incomplete draft (for example, the bill is blank), he is liable for any un authorise come later filled in. CPA Regulation Negotiable Instruments and Secured Transactions Who has secondary liability for a negotiable instrument? 2011 HOCK international 107Secondary liability is the liability that drawers and indorsers have for the instrument. Drawers and indorsers are required to pay for the instrument only if the party with primary liability fails to pay. 1) A Drawers Liability. The drawer is the person who rote the draft and in so doing ordered another party (usually a bank) to make payment. The drawer does not expressly promise to pay the instrument himself or herself, but implicitly guarantees payment by virtue of using the drawee as a payment agent. In the event that the drawee refuses to pay a draft, the drawer is obligated to pay so long as the drawer is notified of the drawees dishonor of the draft. 2) An indorsers Liability. An indorser is someone other than the maker, drawer or acceptor who signs the instrument to negotiate it, restrict it or only if to incur liability. The indorsers signature is called an indorsement. An indorsers liability is created once an instrument has been dishonored and the indorser has been notified of the dishonor . CPA Regulation Negotiable Instruments and Secured Transactions What are the 5 warranties that a transferor makes in respect to the negotiable instrument that is beingness transferred? 2011 HOCK international 108Warranty liability relates to the warranties (promises, or guarantees) that are made by a transferor in respect to the instrument that is being transferred. The transferor warrants that 1) Good title to the instrument exists and the instrument is enforceable (it is their instrument to transfer). ) All signatures are authorized and genuine (meaning that there are no forgeries). 3) There are no material alterations (for example, the dollar amount has not been increased). 4) The transferor has no knowledge of any insolvency transactions associated with the instrument. 5) There are no defenses that can be asserted against the transferor that would prevent payment of the instrument. CPA Regulation Negotiable Instruments and Secured Transactions To which parties are warranties made by a transferor of a negotiable instrument? 2011 HOCK international 109The parties to whom indorsement liability is incurred depend n how the instrument is transferred 1) Transfer with Indorsement. When the transferor signs the instrument, he or she incurs warranty liability with respect to the immediate transferee and all subsequent (following) transferees. 2) Transfer without Indorsement. If the transfer is made without the indorsement of the transferor, the transferor incurs warranty liability only with respect to the immediate transferee (recipient). Therefore, it is better for the transferor to transfer without indorsement if that is possible. CPA Regulation Negotiable Instruments and Secured Transactions What are accommodation parties nd what type of liability do they have? 2011 HOCK international 110An accommodation party is a party who signs an instrument as maker, drawer, acceptor or indorser with the deliberate purpose of backing the obligation of another party (t he accommodated party). Thus, the accommodation party incurs liability without being a direct beneficiary of the instrument (this is accredited even if the accommodation party acts as a paid surety the key is that someone else gets a direct benefit of value given for an instrument). accommodation parties incur no warranty liability, but they do incur secondary contract liability just like rawers and indorsers. Additionally, an accommodation party has primary contract liability if he or she signs on behalf of a notes maker. CPA Regulation Negotiable Instruments and Secured Transactions How may liability on an instrument be terminated? 2011 HOCK international 111A person who is liable for an instrument can be execute of some or all of the liabilities through 1) running game by Performance (payment of the instrument). 2) Discharge by genuine Tender of Payment. The party who offers payment to the holder is fired from any future liability for collection costs, reside and attorney s fees. ) Discharge by Cancellation or Renunciation. 4) Discharge by Material Alteration. If the amount of an instrument is changed fraudulently, this discharges all previous(prenominal) signatories. 5) Certification of a Check by a Bank. This discharges all prior parties to the instrument as the bank becomes primarily liable for the check. 6) Unexcused Delay in Payment. With unreasonable delay in the presentation of the instrument, previous signatories may be discharged. 7) Discharge Through wipe out of the Collateral. When collateral is released, the original promisor is also released. CPA RegulationNegotiable Instruments and Secured Transactions What are the 4 requirements to be a holder in due course and what are the benefits? 2011 HOCK international 112 A holder in due course (HDC) has special status. This status protects an gratuitous third party (the HDC) from losing his or her investment in a negotiable instrument due to some underlying problem with the instrument. Ther e are four requirements that must be met for a holder to be an HDC 1) Holder. The individual must be a holder of a negotiable instrument. 2) Value Given. The holder must have given present or past value (not future value) for the instrument. ) Good Faith. The holder must have acted in good faith in the acquisition of the instrument. 4) No Notice of Defect. The holder must take the instrument without notice that the instrument is overdue, has been dishonored, or has been forged. CPA Regulation Negotiable Instruments and Secured Transactions What is a holder under a holder in due course and what are the benefits of this status? 2011 HOCK international 113The transfer of a negotiable instrument gives to the recipient (the transferee) any rights the transferor had to enforce the instrument. This includes the rights as an HDC. This means that when an HDC transfers the instrument to someone else, that recipient automatically has all of the same rights as an HDC. If the recipient meets th e requirements as an HDC, they will be an HDC. If, however, the recipient does not meet the HDC requirements (perhaps they authentic the instrument as a gift), they will be a Holder Under Holder in Due Course (HUHDC) if the transferor was an HDC. This means that it is possible for a person who would not be an HDC (perhaps because he or she knew about some defect or the instrument was overdue) to be an HDC simply because the person from whom they obtained the nstrument was an HDC. This is the case regardless of whether the transfer is a negotiation or a gift. CPA Regulation Negotiable Instruments and Secured Transactions What are the rattling defenses? 2011 HOCK international 114When an HDC makes a claim to force payment, the only defenses that the person can use to prevent having to make payment to the HDC are real defenses. Real defenses concern the validity of the instrument itself. By using a real defense, the defendant (who tries not to pay) claims that the instrument was neer actually an instrument and they never had a liability to that person. They include ) Infancy. 2) Duress. 3) Incapacity. 4) Illegality. 5) Discharge in Bankruptcy. 6) Fraud in the Execution. 7) Forgery. 8) Alteration. 9) Subsequent Claims and Defenses. CPA Regulation Negotiable Instruments and Secured Transactions What are the personal defenses? 2011 HOCK international 115 All other defenses, other than real defenses, are personal defenses. Examples of personal defenses are 1) Fraud in the inducement 2) Lack of musing 3) Breach of contract and 4) Mistakes. Personal defenses are useless against HDCs. This means that these defenses will not prevent someone from having to pay the HDC.