Commercial paper

Question 1

Negotiable instruments elements

Answer 1

• written
  -signed
  -unconditional
  -promise or order to pay
• a fixed amount of money that
• is payable to order or bearer
• is payable on demand or at a definite time; and
• states no unauthorized undertaking or instruction by the person promising or ordering payment.

Question 2

Real defenses (may be raised against HDC)

Answer 2

“FAIDS”
- Forgery
- Fraud
- Alteration
- Adjudicated Incompetency
- Infancy
- Illegality
- Duress
-Discharge
-Statute of limitations
- Surety

Question 3

Forged drawer’s signature vs. forged endorser’s signature

Answer 3

If a bank pays out on a forged drawer’s signature, payment is final and the bank can’t recover the money from the party paid because no presentment warranty is broken.
But if the bank pays out on a forged endorser’s signature, a presentment warranty is broken.

Question 4

Personal defenses (may not be raised against an HDC)

Answer 4

Simple contract defenses

Question 5

Properly Payable Rule

Answer 5

Generally, a bank can charge an item against a customer’s account only if the item is “properly payable” which in turn requires that the item be authorized by the customer. The bank then has to pay back the check in full.

Question 6

Defense to forgery- ordinary duty of care

Answer 6

A person is precluded fro raising an unauthorized signature if the person failed to exercise ordinary care in preventing the forgery and that the failure substantially contributed to the forgery.

Question 7

Holder in Due Course

Answer 7

A holder in due course is one who takes the instrument for value, in good faith, and without notice that it contains an unauthorized signature. A holder must have possession of the instrument and it must be payable either to the bearer or to the person in possession.

Question 8

Presentment Warranty

Answer 8

At the time when the note is presented