Commercial Paper Flashcards
When is a principal liable for an instrument signed by an agent?
If the agent is authorized, the principal is liable whether the agent signed the principal’s name, the agent’s own name, or both.
If the agent is not authorized, the principal generally will not be liable.
Even if an agent acts with no power to bind the principal, the principal can […] an act performed by another person, whether or not the person is an actual agent of the principal.
[ratify]
Ratification occurs when a principal affirms a prior act that was done or purported to be done on the principal’s behalf.
An accommodation party is one who…
…guarantees the debt of an other (also called a surety).
In order to be an accommodation party, a person cannot have received a direct benefit from the instrument.
An accommodation party is liable on the instrument in…
…whatever capacity he has signed.
If a party’s obligation to pay an instrument is secured by an interest in collateral and the person entitled to enforce the instrument impairs the value of the interest in collateral, then…
…the obligations of an accommodation party are discharged to the extent of the impairment.
The burden of proving the collateral’s impairment is on the party asserting discharge.
Impairing the value of an interest in collateral includes:
(i) failure to obtain or maintain perfection or recordation of the interest in collateral;
(ii) release of collateral without substitution of collateral of equal value;
(iii) failure to perform a duty to preserve the value of collateral owed to a debtor or surety or other person secondarily liable; OR
(iv) failure to comply with applicable law in disposing collateral.
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.
To be negotiable under the UCC, an instrument must be:
a writing,
signed by the maker,
containing an unconditional promise or order,
to pay a fixed amount of money,
to an order or bearer,
payable on demand or at a definite time,
and without stating any additional undertaking or instruction.
An instrument is payable to order if…
it identifies a ** person** (e.g., “Pay to the order of Joe Smith”) or **order **(“Pay Joe Smith or his order”)
To negotiate an order instrument, the holder must…
… transfer possession of the instrument and indorse it.
Restrictive words such as “only” are generally [ineffective/effective] as a limitation on the subsequent transfer of the instrument.
ineffective
An instrument [does/does not] automatically convey an interest payment
does not.
An interest payment must be explicitly
If the instrument does not specify an interest rate, the rate is…
… the established judgment rate in the jurisdiction of the place of payment of the instrument at the time interest first accrues.
When conflicting or contradictory terms exist within an instrument…
…handwritten terms take precedence over typewritten terms, typewritten terms over printed terms, and words over numbers.
The winning party [is/is not] entitled to attorney’s fees.
is not (unless the agreement specifically provides for it)
A negotiable instrument must be payable in […].
a fixed amount of money
An instrument is payable at a definite time if it is payable:
(i) on a fixed date,
(ii) at the end of a definite period after sight or acceptance, OR
(iii) at a time readily ascertainable when the instrument is issued.
Generally, a customer [may/may not] order his bank to stop payment of a check.
[may]
The bank is usually required to honor a valid stop payment order of its customer.
The burden is on the customer to prove […] in the event of payment by the bank despite a valid stop-payment order.
loss
Once the drawee-bank has paid a check, it is subrogated to the rights of any […], […], or other holder on a check against the drawer.
[holder in due course], [payee], or [other holder on a check against the drawer].
Consequently, when there is an HDC with respect to a check, the customer cannot prove loss because the HDC could have demanded payment from the customer-drawer even if the bank complied with the stop-payment order.
To become the HDC of a negotiable instrument such as a check, a person must:
(i) take the instrument as a holder,
(ii) for value,
(iii) in good faith, AND
(iv) without notice of certain infirmities of the instrument or the transaction out of which the instrument arose.
What is negotiation?
Negotiation is the delivery by a person other than the maker or drawer to any person who becomes the holder of the instrument.
Against a mere holder, a party can assert […] defenses and […] defenses.
[personal]
[real]
Against a holder in due course, a party can only assert […] defenses.
real
