Commercial Paper

Question 1

How does a guarantor of a loan limit liability

Answer 1

Using “collection guaranteed” or similar words makes the guarantor secondarily liable only if the creditor cannot compel payment from the debtor

Question 2

Impairment of collateral

Answer 2

If an obligation of the pricnipal obligor is secured by collateral, there is a secondary obligor, and the person entitled to enforce the instrument has impaired the value of the interest in the collateral, secondary obligor’s interest is discharged to the extent of the impairment

Question 3

What does it mean to impair collateral?

Answer 3

Includes:
i) failure to obtain or maintain perfection;
ii) Release of collateral without substitution of collateral of equal value;
iii) Failure to perform a duty to preserve the value of collateral;
iv) failure to comply with applicable law in disposing collateral

Question 4

Types of Negotiable INstruments

Answer 4

Note and Draft (checks)

Question 5

Six requirements for negotiability

Answer 5

(1) writing; (2) unconditional promise or order; (3) pay a fixed amount; (4) to order or bearer; (5) payable on demand or at a definite time; (6) and no additional undertaking or instructions

Question 6

Holder in Due Course

Answer 6

Take the instrument (1) as a holder; (2) for value; (3) in good faith; (4) without notice of infirmities

Question 7

How to become a holder

Answer 7

By issuance - delivered by the maker or drawer for the purpose of giving rights in the instrument to any other person

By Negotiation - Delivery, regardless of voluntariness, by a person other than the maker or drawer to any person who, as a consequence, becomes holder of the instrument

Question 8

Negotiating a bearer instrument

Answer 8

Requires only transfer of possession of instrument. Trasnfer does not need to be voluntary (e.g., thief or finder)

Question 9

Negotiating an Order Instrument

Answer 9

Requires (1) transfer of possession and (2) Indorsement

Question 10

Special Indorsement

Answer 10

Names an identified person as indorsee. Indorsee msut sign for further negotiation.

Special indorsement of bearer instrument creates an order instrument

Question 11

Blank Indorsement

Answer 11

Not accompanied by the naming of a specific indorsee.

Blank indorsement of an order instrument creates a bearer instrument