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Florida Distinctions > Commercial Paper > Flashcards

Commercial Paper Flashcards

1
Q

True or False:
HDC status is not conferred if that specific holder could determine that the negotiated instrument has apparent evidence of forgery or alteration or is otherwise so irregular or incomplete as to call into question its validity.

A

FALSE: The standard is objective (whether a reasonable person could determine the forgery) not subjective (whether the holder in question could determine forgery)

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2
Q

what are the two ways a person becomes a holder

A

> issuance
negotiation

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3
Q

True or False:
A promise to “pay to the order of Ann or to bearer” is invalid.

A

FALSE:
A writing that has characteristics of both an order instrument and a bearer instrument will be treated as bearer paper.

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4
Q

True or False:
If the bank dishonors a check that is properly payable, the customer may sue for damages proximately caused by the wrongful dishonor including consequential damages.

A

True

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5
Q

What is required for a holder to become a HDC?

A

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.

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6
Q

With respect to taking an instrument as a HDC, good faith amounts to honesty-in-fact and the observance of reasonable commercial standards of fair dealing. What’s the judging standards for
> Honesty-in-fact
> Fair dealing

A

> Honesty-in-fact: subjective

> Fair dealing: objective

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7
Q

A ______ is a two-party negotiable instrument between a ________ and a ________

A

note
maker
payee

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8
Q

True or False:
The shelter rule usually confers the rights of a prior HDC on all subsequent persons to whom the instrument is transferred.

A

true

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9
Q

May a transferee who took the instrument in good faith recover damages for breach of warranty?

A

YES: A beneficiary of the transfer warranties may recover damages based on the loss suffered as a consequence of the breach up to the amount of the instrument + plus expenses and loss of interest due to the breach.

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10
Q

True or False: An unauthorized signature on the instrument is effective as the signature of the unauthorized signer in favor of a person who, in good faith, pays the instrument or takes it for value or collection.

A

true

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11
Q

When can an agent be held liable on an instrument that the agent was authorized to sign on behalf of the principal?

A

An authorized agent who signs his own name without unambiguously indicating that the signature is made in a representative capacity, or who does not identify the principal in the instrument, will be personally liable to a HDC

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12
Q

An indorser is generally required to pay an instrument that has been __________ upon receiving notice of that fact.

A

dishonored

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13
Q

What 2 things must a plaintiff who seeks to enforce an instrument prove?

A

(1) Plaintiff is entitled to enforce the instrument
and
(2) Signatures on the instrument are valid

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14
Q

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

A

within three years of the date of dishonor or within ten years of the date of the draft, whichever is earlier.

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15
Q

drawee

A

the person ordered to pay

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16
Q

What real defenses does an obligor (e.g., a bank) have against a holder (non-HDC) who presents an instrument for payment?

A

Real defenses:
* Infancy
* Incapacity
* Duress
* Illegality
* Fraud
* Discharge in insolvency proceedings
* Alteration
* Forgery
* Statute of limitations

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17
Q

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

A

> 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

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18
Q

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

A

A holder

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19
Q

When is presentment excused?

A
  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
20
Q

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.

A

6 months

14 days

21
Q

how is a bearer paper negotiated?

A

by the mere transfer of possession of the instrument.

22
Q

True or False:
A note taken for the amount of an obligation discharges the obligation.

A

False
Unless otherwise agreed, a note taken for an obligation SUSPENDS the obligation until the note is dishonored or paid.

23
Q

order instrument
vs.
bearer instrument

A

order instrument
> names a specific payeee

bearer instrument
> doesnt state specific payee
> made out “to bearer”

24
Q

who is a holder in due course?

A

a holder who took the instrument
> for value
> in good faith, and
> without notice of any defects in the instrument or the underlying transaction.

25
Q

When a claim is unliquidated or subject to dispute, the claim can be discharged by the good-faith tender of an instrument (i.e., an accord and satisfaction).

What must the instrument have?

A

> a conspicuous statement that it was tendered in full satisfaction of the claim (e.g., “payment in full”), and
the claimant must obtain payment of the instrument.

26
Q

The alteration of a negotiable instrument discharges the obligation of a party whose obligation is affected by the alteration.
However, a party whose negligence substantially contributes to the alteration cannot assert the alteration as a defense against a holder in due course.

A
27
Q

are you still a holder in due course if you become aware of a defect after acquiring the note?

A

yes bc when you first got it you didn’t know

28
Q

A person may be able to enforce an instrument that has been lost, destroyed, or stolen if the person was in possession of the instrument and entitled to enforce it at the time that it was lost, destroyed, or stolen

A

The person seeking enforcement must prove the terms of the instrument and the person’s right to enforce it.

29
Q

An instrument payable to more than one payee is payable to them jointly or severally. If there is ambiguity as to whether an instrument is payable jointly or severally, it is payable severally.

A
30
Q

are you a HDC if you acquire by gift?

A

no you need to acquire the instrument for value

31
Q

When must a negotiable instrument be payable?

A

> on demand
or
at a definite time

32
Q

What types of defenses may an obligor (e.g., a bank) have against a HDC who presents an instrument for payment?

A

An obligor may assert real defenses AND personal defenses

33
Q

Define “indorsement” in the context of order or bearer paper.

A

An indorsement is a signature on the instrument by someone other than the maker, drawer, or acceptor

typically made for the purpose of negotiating the instrument.

34
Q

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

A

> Transferor is entitled to enforce instrument

> All signatures are authentic and authorized

> Instrument has not been altered

> No defenses or claims can be asserted against transferor AND

> To transferor’s knowledge, the maker, acceptor, and drawer are not subject to insolvency proceedings

35
Q

How does a transferor disclaim transfer warranties on an instrument (not a check)?

A

By:
> Agreement between immediate parties OR

> Indorser specifies “without warranties” (or similar words) in conjunction with the indorsement

36
Q

A ______ is a three-party negotiable instrument between a ________ , a ________and a ________.

A

draft; drawer; drawee; payee

37
Q

Can a person who loses or destroys an instrument enforce it?

A

Yes, someone who was in possession of the instrument and entitled to enforce the instrument is still entitled to enforce it if the instrument has been lost, destroyed, or stolen

38
Q

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

A

true

39
Q

Does liability on an instrument always require a signature of the person to be bound?

A

No,
When an instrument is signed by a person’s representative (e.g., agent), the represented person (i.e., principal) may be bound despite not signing the instrument.

40
Q

What personal defenses does an obligor (e.g., a bank) have against a holder (non-HDC) who presents an instrument for payment?

A

Personal defenses:
> Instrument not issued, conditionally issued, issued for special purpose

> Contract defense (e.g., no consideration, mistake)

> Claims in recoupment
Wrongful possession

41
Q

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

A

instrument; underlying transaction

42
Q

can a thumbprint be a valid signature?

A

yes, if intended to authenticate the instrument

43
Q

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

A

> they’re entitled to obtain payment
draft hasn’t been altered
Person has no knowledge that drawer’s signature is unauthorized

44
Q

diff between real and property defenses

A

real defenses
> based on legal issues that affect the validity of the instrument itself.

property defenses
> arise from the relationship between the parties involved in the transaction rather than from inherent defects in the instrument itself.

45
Q

when a neg instrument is payable to multiple ppl, they all have to sign

A
46
Q

someone who receives a neg instrument as a gift may become a holder but not a HDC

A

Florida Distinctions (17 decks)

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