Commercial paper Flashcards
Does stopping payment on a check release obligation to pay check/fulfil payment?
No
To actually halt payment, what does individual need to do?
establish defense against HDC or real personal defense against non-holder
Real defenses
Fraud, void, infancy, deception
What kind of defenses can be used against HDC
Real defenses
Negotiable instrument (7)
- Writing
- Signed by the maker/drawer
- Unconditional promise or oder
- To pay a fixed amount of money
- To order (specific person) or bearer (i.e. whoever bears the instrument)
- Payable on demand or at fixed time
- Without additional undertaking or instruction
Acceleration clause
Accelerates time of payment
Does acceleration clause destroy negotiability?
no
If instrument is payable in foreign currency, still negotiable?
Yes
WHen is interest due in negotiable instruments?
If instrument provides for interest paymetn
Still negotiable if instrument doesn’t specific interest rate?
Yes, court will imply the interest rate.
Check is an?
Order instrument
Does check require endorsement by holder for transfer to subsequent party for negotiation?
Yes
What if transferee receives an unendorsed check? Still a holder?
No
What can transferee do if she receives an unendorsed check?
Enforceable right to get the check endorsed by transferor
What is restrictive endorsement?
“Pay to J only”
I.e. limiting payment to particular person or otherwise prohibiting further transfer negotiation
Is restrictive endorsement actually effective in preventing further transfer negotiation?
No
If words and numbers contradict each other in instrument, which one prevails?
Words
If handwriting of interest rate is illegible, what happens?
default rate applies. I.e. the judgment rate.
If you sue to get payment of a note, can you get attorneys fees?
Only if provided for in instrument
Can party be held liable on negotiable instrument?
Only if it bears that party’s signature or signature of an authorized agent (actual or apparent)
Doctrine of necessaries
Parents are legally responsible for children’s necessary expenses, incl. medical bills, even if parents didn’t sign agreement or note for those expenses
Ratification
principal knowingly adopts signature as her own/fails to deny validity of unauthorized signature
grantor =
person who commits to paying someone’s debt in case of default
Accommodating party =
Someone who takes on someone else’s liability without getting benefit of value given.
Discharged from obligation if impaired collateral (i.e. secured party failed to perfect interest)
I.e. someone who guarantees a promissory note.
Drawer’s obligation:
To pay according to terms issued
Check =
Order instrument
What does check require to negotiate:
Transfer and endorsement
HDC
Party who takes:
1. for value
2. in good faith
3. No notice of defects (e.g. dishonoured)
Holder is only subject to
Contract defenses
If negotiable instrument issued without consideration:
Drawer has a lack of consideration defense
Shelter rule
If receiving check from HDC, you get the rights of the HDC unless you took based on fraud
Under K theory, collector has right to recover from: (4)
- Maker of the check
- Payee
- Bank
- First holder
What happens if bank cashes forged check?
Account holder can hold bank liable.
Bank can only cash properly payable checks, not foregd ones.
Plaintiff needs to report unauthorized signature as soon as they notice it to get bank to recredit the money.
Presentment warranty to bank
Assurance that check is genuine
Legal authority to enforce the check
No knowledge of any unauthorized signatures or alterations on the check
Presentment warranty to person who originally issued the check
Check is genuine
Entitled to enforce it
No knowledge of unauthrozied signautres of alterations
Same as presentment warranty to bank!!
Bank cannot recover back from HDC unless
breach of presentment warranty
What happens when bank pays even after stop payment order?
Plaintiff can get damages, unless receiver of stop payment order was HDC
If HDC, can you assert defense of lack of consideration?
No
