Commercial Papef

Question 1

Negotiable Note(instrument) Requisite

Answer 1

Instrument must be in WRITING, SIGNED BY MAKER, containing an UNCONDITIONAL PROMISE or ORDER, to PAY fixed amount, to an order or bearer

Payable on demand or at definite time and without stating any additional undertaking or instruction

Question 2

Instrument payable to order

Answer 2

Instrument identifies a person or order

Ex. Pay to the order of Joe; or
pay Joe smith or his order

Question 3

To Negotiate an Order Instrument, holder must

Answer 3

transfer possession of instrument and indorse it (sign)

Ex. Pay to Jake ONLY /s/ Sam

Question 4

Special indorsement

Answer 4

Names an identified person as indorsee in addition to the indorsement

Ex. Pay to Nancy Next /s/ Peter

Indorsee must sign for instrument to be further negotiated

Question 5

Does an instrument automatically convey an interest payment?

Answer 5

NO.
An instrument does not automatically convey an interest payment

Question 6

Establishing judgment rate: if instrument specifies only that interest will be paid, the rate is established by

Answer 6

The judgement rate in the JX of the place of payment of the instrument at the time interest first accrues

Question 7

If note says interest will accrue

Answer 7

Note bears interest

Question 8

When conflicting/contradictory terms exist in an instrument

Answer 8

Handwritten terms over type written terms

Type written terms over printed terms

Words over numbers

Question 9

Holder In Due Course

Answer 9

One who takes item for value, in good faith and without notice that the item was overdue or dishonored

Question 10

A HDC can endorse check notwithstanding a stop payment order unless

Answer 10

Real defense is invoked

Ex. Infancy, void k, bankruptcy, forgery, deception, discharge known to holder

Question 11

Shelter doctrine

Answer 11

A party who does not qualify for HDC status can assert the rights of the HDC as long as party is not personally engaged in wrongdoing affecting the instrument

Question 12

Stopping Payment Check

Answer 12

Does not avoid an obligation; merely delays payment

D would need to establish a real defense against a HdC by preponderance of the evidence or real or personal defense against a non HdC

Question 13

Signature: Liability on negotiable note

Answer 13

Usually party cannot be held liable on a negotiable instrument unless it bears her signature or signature or authorized rep

Exception: necessities

Question 14

Principal Liability for instrument signed by agent turns on whether

Answer 14

1) authority

2) ratification

Question 15

Authority

Answer 15

P is liable for agent’s signature of agent had actual or apparent authority to sign instrument

Regardless of whether agent signed in his own name, principal’s name or both

If agent not authorized, principal not liable

Question 16

Ratification

Answer 16

Even if an agent acts w no power to bind the principal, the principal can RATIFY

Irrespective of whether person is actually an agent of P

Ratification occurs when P affirms act done or purported to be done oj their behalf

Can be express or implied and consideration is not required

Question 17

Accommodation party

Answer 17

Type of surety who guarantees the debt of another

Question 18

Requirements to be an Accomodation party

Answer 18

Person cannot have received a direct benefit from instrument

Liable on instrument in whatever capacity he has signed

Question 19

Co-signer

Answer 19

Assumed to be an accomodation party

Question 20

Accomdator’s defense

Answer 20

If patty’s obligation to pay an instrument is secured by an interest in collateral and person entitled to enforce the instrument impairs the value of the interest in collateral, the obligations of an an accommodation party are discharged

Question 21

Impairing value of an interest in collateral includes

Answer 21

I) failure to obtain or maintain perfection or recordation of interest in collateral

Ii) failure to release collateral w/o substitution of collateral of equal value

iii) failure to perform a duty to preserve value of collateral owed to a debtor or surety or other person secondarily liable

Iv) failure to comply w applicable law in disposing collateral

Question 22

Accomodation party is only liable on the instrument if

Answer 22

1) person entitled to enforce the instrument had reduced his claim to judgement against the other party and execution is returned unsatisfied

2) party has become insolvent

3) party can’t be served w process

4) it appears useless to proceed against the party

Question 23

A surety who makes payment on a loan on behalf of a principal is entitled to

Answer 23

All the rights and remedies of a creditor

Question 24

Alteration

Answer 24

Unauthorized change that purports to modify the obligation of a party

Question 25

If alteration is done fraudulently by holder, it would

Answer 25

Discharge the liability of the obligor

Question 26

If alteration is not done fraudulently, obligor

Answer 26

Would remain liable but only on the original terms of the obligation