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Virginia Bar > Commercial Paper > Flashcards

Commercial Paper Flashcards

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1
Q

Types of commercial paper

A

(1) note (2) drafts

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2
Q

Certificate of deposit

A

Bank receives notification of deposit

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3
Q

What is a draft

A

Order to pay; drawer is ordering payment, drawee is the person being ordered to pay, payee is the person who gets the money

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4
Q

Types of checks

A

Cashier checks, tellers check (drawn by one bank on another bank), travelers check

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5
Q

Priority of contradictory terms

A

Hand written > typewritten/printed, words > numbers

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6
Q

What is a note

A

A two-party negotiable instrument

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7
Q

Who is a party to both a note and a draft

A

Payee

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8
Q

What makes an instrument negotiable

A

(1) must be in writing and signed (stamped, thumbprint, computer generated); (2) promise to pay must be unconditional; (3) payable to order or bearer; (4) must be a fixed amount of money but interest can be variable; (5) payable on demand or at a definite time

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9
Q

What does payable to order

A

“Pay to the order of” or “Pay X to the order of”

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10
Q

What does bear mean

A

Does not need the phrase to the order of because it is not directed to a specific person

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11
Q

What does it mean that an order is payable at a definite time

A

The holder of the instrument may freely extend the time for payment; extensions, conditioned on the option of the maker, do not destroy negotiability; events that will ocurr but not at a specific time are not readily ascertainable. However, acceleration clause are NOT a definite time

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12
Q

What is negotiation

A

Any transfer of possession of an instrument by any person other than the issuer to a person who thereby becomes the holder

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13
Q

What is a blank indorsement

A

A blank indorsement is not made to a specific person

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14
Q

How does someone become a holder

A

Through issuance or negotiation of an instrument

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15
Q

Who can make an instrument

A

A maker or drawer

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16
Q

What constitutes value

A

Forgiveness of debt obligation; doing something of value; giving something of value

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17
Q

What requirements for a note

A

(1) value (2) good faith (3) instrument as a holder

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18
Q

How is good faith judged

A

Honesty if act (subjective) and observance of reasonable commercial standards of fair dealing (objective)

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19
Q

When is an instrument overdue

A

(1) day after due date (2) day after accelerated due date (3) day after installment due date

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20
Q

Types of infirmity that prevent holder from being a holder in due course

A

(1) instrument has been altered (2) forged (3) claim in recoupment

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21
Q

Shelter Rule

A

Rights follow the instrument

22
Q

Must you give value under the shelter rule to acquire rights?

A

No

23
Q

Can you acquire rights if you are aware of an earlier fraud

A

Yes

24
Q

Transfer Warranty

A

Movement of the instrument between parties are making warranties by transferring itself. (1) all signatures are authentic and authorized (2) instrument has not been altered (3) no defenses or claims can be asserted against the instrument

25
Q

Recovery

A

Deposit bank re-credits account because instrument was not properly payment, not entitled to enforce the instrument because it was a forged indorsement.

26
Q

What must the plaintiff must seeking enforcement demonstrate

A

(1) have the right to enforce and (2) signatures are valid, assumed valid unless contested in the pleadings

27
Q

Defenses

A

Personal defenses

28
Q

Conversion

A

can be brought against the person who deprived them of property, the depository bank, payor bank. Relief is generally limited to the amount payable on the instrument. An instrument is converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument.

29
Q

Who can bring a conversion action

A

Issuer CANNOT bring conversion action, neither can payees or endorsees,

30
Q

What is the SoL for notes payable at a definite time

A

6 years

31
Q

Claim of recoupment

A

(1) offset against an amount owed on an instrument (2) must arise from the transaction that gave rise to the instrument (2) may be asserted against a non-HDC

32
Q

If an impostor induces the issuer to issue an instrument to the impostor, whose indorsement of the instrument in the name of the payee may be effective as the payee’s indorsement

A

Any person’s indorsement

33
Q

If a person whose intent determines to whom an instrument is payable does not intend for the payee to have any interest in the instrument, or the payee is fictitious, whose indorsement of the instrument in the name of the payee may be effective as the payee’s indorsement?

A

Any person’s indorsement

34
Q

Alteration

A

Unauthorized modification of an instrument, obligor is discharged. A payor bank and HDC can enforce the instrument as completed.

35
Q

Incomplete Instrument

A

Depends on the information missing. Enforceable if intended to complete it later (payee left blank, bearer instrument). Not enforceable (not signed by drawer), obligor is discharged on the instrument

36
Q

Presentment Warranties

A

Specific warranties made to the drawee (payor bank)

37
Q

What is a presentment

A

A legal pre-condition to payment

38
Q

Excused presentment

A

Cannot locate the one liable to be paid

39
Q

Warranties

A

(1) warrantor is entitled to enforce the instrument, no missing indorsements (2) no alterations (3) no knowledge of false indorsements

40
Q

When can presentment be excused

A

(1) drawer has waived the presentment requirement (2) drawer has instructed drawee not to pay (3) maker has repudiated the obligation to pay

41
Q

What are examples of presentment

A

(1) demand made to a maker by a HDC for payment (2) demand made to a drawee by a holder for payment of a draft (3) demand made to a bank by a person entitled to enforce a check drawn on that bank

42
Q

What type of liability do parties have

A

Maker has primary liability, drawer has secondary liability, drawee is not legally obligated on the instrument unless they sign the instrument

43
Q

Proper Payable Rule

A

Bank is required to honor a check that is properly payable - (1) sufficient funds and (2) bank account holder has authorized the payment

44
Q

Wrongful Dishonor

A

Can sue for damages proximately caused by that wrongful dishonor.

45
Q

How long is a written stop payment order binding on the bank

A

6 months

46
Q

Define accommodation party

A

An accommodation party is a type of surety, or one who guarantees the debt of another. In order to be an accommodation party, a person cannot have received a direct benefit from the instrument.

47
Q

What is an accommodation party’s liability

A

An accommodation party is liable on the instrument in whatever capacity he has signed.

48
Q

When is an accommodation party liable on the instrument

A

An accommodation party is liable on the instrument only if: (i) the person entitled to enforce the instrument has reduced his claim to judgment against the other party and execution is returned unsatisfied, (ii) the other party has become insolvent, (iii) the other party cannot be served with process, or (iv) it appears useless to proceed against the other party.

49
Q

What is a special indorsement

A

A special indorsement names an identified person as indorsee in addition to the indorsement. The indorsee must sign in order for the instrument to be further negotiated

50
Q

What interest rate is used if not specified in the instrument

A

The rate is the established judgment rate in the jurisdiction of the place of payment of the instrument at the time interest first accrues.

51
Q

Is a note invalid if it doesn’t have a date for payment

A

No. It is assumed to be payable on demand.

Virginia Bar (41 decks)

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