Commercial Paper

Question 1

Definition of a Negotiable Instrument

Answer 1

Article 3 governs Commercial Paper. A negotiable instrument is capable of transfer by endorsement or delivery.

Requirements
Under MI law, it is an unconditional promise or order to pay a fixed amount if:

1. At the time it’s issued or comes into possession of the holder, it is payable to bearer or to order
2. It’s payable on demand or at a definite time and
3. It does not state any other conditions by the person promising to pay in addition to paying the money.

Oral conditions are permitted if they’re not also written.
Ex: “Do not cash until you have been working for 6 months.”

Question 2

Instruments that have ‘Payment in Full’ on them

Answer 2

A negotiable instrument can fully satisfy the obligation if:

1. It clearly states it is a payment in full
2. Recipient of the check obtains payment (i.e., cashes it)
3. Debt is disputed or unliquidated and
4. The person who tenders the instrument was acting in good faith

This is generally when a debtor tries to pay less on a debt by writing ‘payment in full’ on a check.

Question 3

When can someone seek recourse against a bank for cashing a forged check?

Answer 3

The bank must use ordinary care in paying/accepting an instrument.

If the bank cashes a forged check, the payee (one charged) may be able to bring an action against the bank if he can prove:

1. He was in possession of it before it was stolen
2. The terms of the instrument and
3. That he was the named payee of the instrument

Payee: person to whom the check is payable