Commercial Paper

Question 1

What is required for a holder to become a HDC?

Answer 1

To become a HDC of a negotiable instrument one must:
* Take the instrument as a holder;
* For value;
* In good faith; AND
* Without notice of certain infirmities of the instrument or the transaction out of which the instrument arose.

Question 2

```

An authorized agent who signs his own name but does not unambiguously indicate that the signature is made in a representative capacity, or who does not identify the principal in the instrument, is

Answer 2

personally liable to a HDC who takes without notice that the original parties never intended for the agent to be personally liable

Question 3

What is the statute of limitations for a holder/HDC to bring an action on an unaccepted draft?

Answer 3

Actions on unaccepted drafts must be brought within three years of the date of dishonor or within** ten years of the date of the draft**, whichever is earlier.

Question 4

What are the formal requirements for an instrument to be negotiable?

Answer 4

A negotiable instrument must be:
* Written & signed by the maker or drawer
* An unconditional promise or order to pay a fixed amount
* Payable “to the order of” a payee or “to bearer”
* Payable ““on demand”” or at a definite time AND
* Without stating any additional undertaking or instruction

Question 5

Even if the transfer of possession is involuntary, the finder of a bearer instrument becomes what?

Answer 5

A holder

Question 6

When is presentment excused?

Answer 6

1. It cannot be made by exercise of reasonable diligence;
2. Maker/acceptor repudiated the obligation to pay, died, or is in insolvency proceedings;
3. Terms of the instrument make it unnecessary;
4. Drawer or indorser has waived it (as with a note) or is estopped from requiring it; and
5. Drawer has instructed drawee not to pay instrument

Question 7

Fill in the blanks. A written stop payment order is binding on the bank for —— An oral stop payment order is valid for —– unless confirmed in writing during that period.

Answer 7

6 months; 14 days

Question 8

Can an order instrument be converted into a bearer instrument?

Answer 8

Yes if the specific person who was to the order of indorses the note in blank –> becomes bearer paper that can be transfered simply by possesion

Question 9

The alteration of a negotiable instrument (e.g., the unauthorized addition of words and numbers to the instrument) discharges the obligation of a party whose obligation is affected by the alteration. However, a party whose negligence ————– to the alteration cannot assert the alteration as a defense against a holder in due course.

Answer 9

substantially contributes

Question 10

If an employee is entrusted with responsibility with respect to a check, then a fraudulent indorsement of that check by the employee is treated

Answer 10

as an effective indorsement –> employer will have no recourse bc they were in the best position to prevent this

Question 11

A transferor makes several warranties upon transfer of an instrument, including that the signatures are authorized and authentic and that the transferor is entitled to enforce the instrument. If the transferor breaches this warranty, even if they are a HDC, the transfereee HDC can

Answer 11

recover from the transferor

Question 12

When is an indorser’s liability as an indorser of the check is discharged?

Answer 12

when more than 30 days have passed since the indorsement

Question 13

An indorser is liable when they receive notice of the dishonor (unless waived) within how many days?

Answer 13

within 30 days after the person seeking to hold the indorser liable himself received notice of the dishonor

Question 14

Is there a requirement that the holder of an instrument first demand payment from the drawer of a check upon dishonor before seeking payment from an indorser?

Answer 14

No

Question 15

If a person takes a note as a HDC, and then becomes aware of a defect, does they lose their HDC status?

Answer 15

No, once acquired, it stays HDC

Question 16

A person may be able to enforce an instrument that has been lost, destroyed, or stolen if the person

Answer 16

1. was in possession of the instrument and
2. entitled to enforce it at the time that it was lost, destroyed, or stolen

Question 17

If a HDC gives the check to someone by gift, is that person a HDC?

Answer 17

No bc no value so no HDC

Question 18

Who authorizes dividends?

Answer 18

Directors

Question 19

To impose liability as a purported partner, what 4 elements must be established?

Answer 19

i) There must be a representation—orally, in writing, or implied by conduct—that a person is a partner in an actual or purported partnership;
ii) The representation must be made by the purported partner, or done with his consent;
iii) A third party must have reasonably relied on the representation; and
iv) The third party must have suffered damages as a result of that reliance.

Question 20

Is a partnership agreement subject to the statute of frauds?

Answer 20

YES

Question 21

What are the six statutorily enumerated circumstances in which the sharing of profits from a business does not create a rebuttable presumption that the arrangement is a partnership and the recipients are partners?

Answer 21

i) Debt payments, including installment payments;
ii) Interest or other loan charges, even though the payment varies with the profits of the business;
iii) Rent;
iv) Wages or other compensation paid to an employee or independent contractor;
v) Goodwill payments stemming from the sale of a business, including installment payments; and
vi) An annuity or a retirement or health benefit paid to a beneficiary of a deceased or retired partner.

Question 22

How many people are needed to form a partnership?

Answer 22

2 or more

Question 23

Under the UPA, a wrongfully dissociating partner was prevented from receiving value for the “good will” of a business, does that rule apply in Florida?

Answer 23

NO, wrongfully dissociating partner will still be able to receive value for the good will of the business

Question 24

How is order paper negotiated?

Answer 24

Order paper is negotiated by the voluntary OR involuntary transfer of possession of the instrument AND proper indorsement

Question 25

What SIX transfer warranties are made by a transferor of an instrument?

Answer 25

1. Transferor is entitled to enforce instrument
2. All signatures are authentic
3. All signatures are authorized
4. Instrument has not been altered
5. No defenses or claims can be asserted against transferor AND
6. To transferor’s knowledge, the maker, acceptor, and drawer are not subject to insolvency proceedings

Question 26

What happens when a note is taken for an obligation?

Answer 26

a note taken for an obligation suspends the obligation until the note is dishonored or paid

Question 27

A holder cannot be a HDC if she has notice of infirmities in the _________ or the ___________.

Answer 27

instrument; underlying transaction

Question 28

What presentment warranties are made by a person who presents a draft to the drawee for payment?

Answer 28

1. Person is entitled to obtain payment
2. Draft has not been altered AND
3. Person has no knowledge that drawer’s signature is unauthorized

Question 29

Name two of the nine defenses an obligor (e.g., a bank) has against a HDC who presents an instrument for payment?

Answer 29

An obligor may assert only real defenses against an HDC:

• Infancy
• Incapacity
• Duress
• Illegality
• Fraud
• Discharge in insolvency proceedings
• Alteration
• Forgery
• Statute of limitations

Question 30

When a negotiable instrument is made payable to the order of two or more persons jointly, all payees must

Answer 30

sign the instrument to negotiate it to someone else