Chapter 18 - Commercial paper/ negotiable instruments

Question 1

Notes

Answer 1

• 2 party - “promise to pay”
• maker/payee
• maker primarily liable
  
  • ex) promissory note, CD by bank

Question 2

Draft

Answer 2

• 3 party - order to pay
• drawer/drawee/payee
• orders another to pay money
• drawer secondarily liable
• drawee primariliy liable only after accepting the draft
• EX) check -
  
  • demand (sight) draft on bank
  • trade acceptance - draft drawn by seller (drawer) on the buyer (drawee) that is payabel to seler at some future date. Usually relates to the delivery of goods.

Question 3

Requirements of Negotiability

Answer 3

• COUPONS:
  
  • C ertain sum of money
  • O rder or bearer
    
    • bearer - doesnt need endorsement by payee to transfer
    • order - need endorsement and delivery to transfer
  • U nconditional promise to pay
  • P ayment in money
  • ON demand or a specific time
    
    • when doc. doesnt state date then on demand and is thus negotiable
  • S igned by creator

Question 4

Assignment

Answer 4

• transfer of non negotiable instrument
  
  • assignee only gets rights that the transferor previously had.

Question 5

Negotiation

Answer 5

• transfer of negotiable instrument
  
  • can be subject to different rights depending on holder or HDC.

Question 6

special endorsement

Answer 6

• names next payee, is now order paper and needs signature to negotiate further

Question 7

blank endorsement

Answer 7

• endorser signs and now bearer paper

Question 8

without recourse endorsement

Answer 8

• eliminates signature and contract liab.

Question 9

restrictive endorsement

Answer 9

• for deposity only, for collection only

Question 10

HDC (holder in due course)

Answer 10

• A person who properly receives a negotiable instrument for:
  
  • Value
    
    • payment, services or taking in payment for an antecedent debt
    • must actually give the value and not just promise
    • need not be of equal value
  • In good faith
  • without notice of defect. has notice if:
    
    • overdue,
    • dishonored
    • notice of a cliam or defense against it
    • altered or unauthorized signatures

Question 11

Holder through a HDC

Answer 11

• Holder who doesnt qualify from as a HDC but receives from HDC, then get protection of HDC.

Question 12

Real Defenses

Answer 12

• Something invalid about the paper itself, subject to everyone
• FABLE:
  
  • Forgery
  • Alteration
  • Bankruptcy
  • Lack of capacity
  • Execuation of fraud/extreme duress

Question 13

Personal defenses

Answer 13

• creator was wronged, good against assignees and holders, not HDC
• BUILD:
  
  • breach of contract
  • unauthorized completion
  • inducement of fraud
  • lack of consideration
  • duress

Question 14

Holder by due negotiation (documents of title UCC art. 7)

Answer 14

• give new value (diff from HDC)
• take instrument in good faith
• without notice of defense or claim
• in regular couse of business

Question 15

warehouse receipt (to be valid)

Answer 15

• location of warehouse
• date receipt was issued
• description of the goods
• signature of the warehouseman
• statement regarding to whom the goods will be delivered

Question 16

bill of lading

Answer 16

• represent goods that are being transported by a common carrier
• carrier has strict liab. (liable without fault)