Commercial Paper Flashcards
How to Obtain Holder in Due Course Status
Instrument is negotiated to a person who takes the instrument 1) for VALUE, 2) in GOOD-FAITH (subjective and objective), and 3) WITHOUT NOTICE of any defenses to or claims on the instrument
A purchaser cannot be an HDC if he has notice that the instrument is overdue or was previously dishonored.
Definition of Negotiated
A signed writing (by maker or drawer) for an unconditional promise or order to pay a fixed amount of money to bearer or order at a definite time or on demand.
Who is a forged instrument valid against?
Only the forger.
A co-maker’s liability on an instrument is…
Jointly and severally liable
Types of Indorser Liability
Transfer Warranty: entitled to enforce, genuiness of signature, no material alterations, no defenses against transferor, no knowledge of insolvency proceedings
Presentment Warranty: Entitled to enforce, instrument has not been altered, on knowledge of unauthorized signatures
An indorser may disclaim liability by including words that disclaim liability.
Finality of Payment
Generally, once drawee pays out an instrument, payment is final.
accord and satisfaction
A claim that is subject to dispute may be discharged if the person against whom the claim is asserted:
- tenders,
- in good faith,
- an instrument that contains
- a conspicuous statement acknowledging that the instrument was tendered as full satisfaction of the claim and that the claimant obtains payment of the instrument.
Exception to accord and satisfaction
claimant is an organization –> discharge must be tendered to designated person, place, or office
If no designation (or claimant is not an org), discharge not effective if claimant returns payment w/in 90 days.
Exceptions do not apply/claim is discharged when the claimant, or agent who has direct responsibility with respect to the disputed obligation, knew, within a reasonable time before collection was initiated, that the instrument was tendered in full satisfaction of the claim.
The burden to establish such knowledge is on party seeking discharge.
Negotiability
For an instrument to be negotiable, it must be (i) in writing, signed by the maker or drawer, (ii) containing an unconditional promise or order (iii) to pay a fixed amount of money (iv) to order or bearer (iv) payable on demand or at a definite time (v) and contain no additional conditions, undertakings, or agreements affecting the instrument.
Effect of Entrustment
The UCC provides that entrustment of goods by the owner to one who sells goods of that kind gives the transferee the power to convey good title to a buyer in the ordinary course. Entrusting includes any delivery and acquiescence in possession regardless of any condition expressed between the parties to the delivery of acquiescence, and regardless of whether the procurement of the entrusting or the possessor’s disposition of the goods have been larcenous.
Buyer in Ordinary course
A buyer in the ordinary course of business is one who in good faith, and without knowledge of a third party’s ownership rights or security interest, buys from someone selling goods of that kind.
Enforcement
(i) it is a person entitled to enforce the instrument, and (ii) the signatures are valid.
