Commercial Paper

Question 1

Commercial Paper

- Negotiability

Answer 1

• Requirements for instrument to be negotiable
  1. Must be a writing.
  2. Must be signed by the maker (note) or drawer (order).
  3. Must contain an unconditional promise to pay or order
  4. Must be to pay a fixed amount of Money
  5. Must be payable to bearer or to order
  6. Must be payable at a definite time or on demand
  7. Must not state any undertaking or instruction by person promising or ordering payment.

Question 2

Commercial Paper

- Negotiation of issued order paper

Answer 2

• Negotiated by:
  a. Making valid endorsement.
  b. Transferring possession.

Question 3

Commercial Paper

- Transfer Warranties

Answer 3

1. Transferor is person entitled to enforce the instrument.
2. All signatures are authentic and authorized
3. The instrument has not been altered.
4. No defense or claim of any party is good against the transferor.
5. Has no knowledge of insolvency proceedings against the maker, drawer, or acceptor.

Question 4

Commercial Paper

- Presentment Warranties

Answer 4

1. Person entitled to enforce the instrument
2. The instrument has not been altered.
3. Person has no knowledge that the drawer’s signature is unauthorized.

Question 5

Commercial Paper

- Indorsements

Answer 5

• Special Indorsement - Names a particular person as indorsee. Named indorsee must indorse to further negotiate.
• Blank Indorsment - Indorsement without naming an indorsee. Creates bearer paper that can be negotiated by transfer alone.

Question 6

Commercial Paper

- Holder in due course

Answer 6

• To qualify as a holder in due course must
  1. Be a holder
  2. Give value for the instrument
  3. Transact in good faith
  4. Not be on notice of claims against the instrument or in recoupment.

Question 7

Commercial Paper

-

Answer 7

b

Question 8

Commercial Paper

- Negligence contributing to forgery or alteration

Answer 8

• A person whose failure to exercise ordinary care substantially contributes to an alteration of or to a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection.

Question 9

Commercial Paper

- Responsible Employee

Answer 9

• If an employer entrusts an employee (including ind. contractor) with responsibility with respect to an instrument and the employee makes a fraudulent indorsement on the instrument, the indorsement is effective.

Question 10

Commercial Paper

- Responsible definition

Answer 10

• Responsibility to sign, indorse, process instruments received or to go out, deposit, name payees, or act otherwise with responsibility with respect to instruments.
• Does not include authority that merely allows an employee to have access to instruments or blank or incomplete instrument forms that are being stored or transported or are part of incoming or outgoing mail, or similar access.

Question 11

Commercial Paper

- Discharge

Answer 11

• If a maker pays someone who is a holder, the maker is discharged from liability.
• A maker who pays with a, non-near cash instrument is not discharged until the payee receives money.
• When a maker pays in satisfaction of an obligation with a near-cash instrument, the obligation is discharged to the same extent cash was given.

Question 12

Commercial Paper

- Conversion

Answer 12

• An instrument must be properly negotiated to transfer rightful possession to another.
• A possessor of an instrument with a forged signature is not in chain of title.
• No one after a forgery has right to enforce, proper former holder has a right in conversion against anyone taking a check after a forgery.