Commercial Paper Flashcards
NEGOTIABLE INSTRUMENTS: Requirements for a Writing to Qualify
In order for a writing to qualify as as negotiable instrument remember WOSSUP
- *W: W**riting
- *O:** payable Order to bearer
- *S**: Signed by the maker or drawer
- *S: S**um certain
- *U:** Unconditional promise and no additional promises
- *P**: Payable on demand or at a definite time
- *P**: Payable in currency
WHEN IS A WRITING A NEGOTIABLE INSTRUMENT INSTEAD OF A MERE CONTRACT?
- Unconditional
2.
INDORSER
Indorser: Signs on the Back of Promissory Notes and Checks
PROMISSORY NOTE: Essential Characteristics
Promissory Note
- Promise Maker
- Affirmative Promise to Pay
- Has a 2 Parties: (1) Maker and (2) Payee
- Must be signed by Maker
DRAFT: Essential Characteristics
Draft
- Commander
- Contains an Order or Command
- Parties: (1) Drawer** **–> gives the Order; (2) Drawee–> paying; (3) Payee –> beneficiary of the Order
- Must be signed by the Drawer
NOTE AND ORDER: Qualifications
No Condition:
- Unconditional Promise -> Note
- Unconditional Order -> Draft
_CONTRAST to a K –> Conditional _
- You see “if” –> non-negotiatiable, just ak
- Governed or subject to –> just a k
- Promise/order
SUING A DEFENDANT: Two Theories
- Contract or Signature Liability OR
- Warranty or Transfer Liability
SUING A DEFENDANT: Signature Liability
- ∆ is Indorser –> Maker or Drawer
- BUT if you see “w/o recourse” –> passes title but assume no signature liability
HOLDER IN DUE COURSE: Shelter Rule
Transferee acquires whatever rights her Transferor had –> takes Shelter in Status.
Result: HDC holding engotiatiable instruments makes a gift of it to another person(donnee). That peson qualifies for HDC
SUING A DEFENDANT: Warranty or Transfer Liabilty
- ∆ is any Transferor who sells negotiatiable instrument. If not a donor –> suable
- Who is entitled to sue ∆ for breach of warranty?
- If ∆ indorsed –> any ∏** **in possesion of instrument can sue
- If no signature –> immediate transferee
-
Warranties:
- Signature –> Genuine and Atuhorized
- Instrument not defective
- Enforceable
- No Bankruptcy/Insolvency Action a/gst maker/drawer
DUE NEGOTIATION: Proper Transfer of Negotiable Instrument
Proper Transfer: Transferee may be elibile as HIDC
- Payable to Order –> Payee Indorses and Delivers to Transferee
- Payable to Bearer –> No indorsement is required
-
Types of Indorsements:
- Special Names particular person –> indorsee MUST SIGN
- Blank: No named –> negotiated by delivery alone
- Restrictive –> has restriction
HOLDER IN DUE COURSE: Transferee Qualify
Holder in Due Course
HDC takes instrument:
- for Value: not mere promise and old value is good value
- in Good Faith
- without Notice** that it is **Overdue or has been Dishonored or subject t_o any _Defense or _Claim_
- OBJECTIVE TEST
- Overdue: Payable @ time, Principal/Interest in Arrears
- Defense/Claim: Stamp showing PAID or VOID; notice that obligation of any party is voidable
- Claim: know of theft/loss or fiduciary(person) breching duty
HOLDER IN DUE COURSE: Benefits and Real Defenses
Rule: HDC (and subsequent transferee w/ shelter) take instrument free from claims, personal defenses and subject only to real defenses.
Benefit:
- Superior Ownership
- Personal Defenses: All ordinary K-claims (lack of consider, unconscionability, waiver,e stoppel, fraud in the inducement)
Real Defenses: MAD FIFI4
- Material
- Alteration
- Duress
- Fraud
- In
- Factum
- Infancy
- Insolvency
Or: MDFII
Note: FIF means lie a/b the instrument
DUTIES AND LIABILITIES OF PARTIES
Duties
-
Drawee Bank: sufficient funds, permit recovery fo dmgs for worngful dishonor, no revocation of pay oblg. on death of cusotmer until know of death and reasonable time to act
- Honor checks as drawn and cannot charge customr acct where (1) D’s signature forged or (2) for more than the original order or (3) if bank pays wrong perosn and (4) if check is post date.
- Stop Payment orders are binding.
-
Remedies for Bank: Thief and Negligent Drawee are liable
- Drawee Liability: Blanks/space; fail to follow internal procedures, or keep signature stamp hanging around, forgeries of agents (entrustment)