Commercial Papef Flashcards
Negotiable Note(instrument) Requisite
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
Instrument payable to order
Instrument identifies a person or order
Ex. Pay to the order of Joe; or
pay Joe smith or his order
To Negotiate an Order Instrument, holder must
transfer possession of instrument and indorse it (sign)
Ex. Pay to Jake ONLY /s/ Sam
Special indorsement
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
Does an instrument automatically convey an interest payment?
NO.
An instrument does not automatically convey an interest payment
Establishing judgment rate: if instrument specifies only that interest will be paid, the rate is established by
The judgement rate in the JX of the place of payment of the instrument at the time interest first accrues
If note says interest will accrue
Note bears interest
When conflicting/contradictory terms exist in an instrument
Handwritten terms over type written terms
Type written terms over printed terms
Words over numbers
Holder In Due Course
One who takes item for value, in good faith and without notice that the item was overdue or dishonored
A HDC can endorse check notwithstanding a stop payment order unless
Real defense is invoked
Ex. Infancy, void k, bankruptcy, forgery, deception, discharge known to holder
Shelter doctrine
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
Stopping Payment Check
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
Signature: Liability on negotiable note
Usually party cannot be held liable on a negotiable instrument unless it bears her signature or signature or authorized rep
Exception: necessities
Principal Liability for instrument signed by agent turns on whether
1) authority
2) ratification
Authority
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
Ratification
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
Accommodation party
Type of surety who guarantees the debt of another
Requirements to be an Accomodation party
Person cannot have received a direct benefit from instrument
Liable on instrument in whatever capacity he has signed
Co-signer
Assumed to be an accomodation party
Accomdator’s defense
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
Impairing value of an interest in collateral includes
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
Accomodation party is only liable on the instrument if
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
A surety who makes payment on a loan on behalf of a principal is entitled to
All the rights and remedies of a creditor
Alteration
Unauthorized change that purports to modify the obligation of a party
