Commercial Paper Flashcards

Question

REAL Defenses (9)

Answer 1

FFAIIDDSS: 1. Forgery (but forgery of names necessary to title - payee and special indorsees - prohibits proper negotion, so can't be later HDC) 2. Fraud in the Factum (switched document) 3. Alteration (Material) 4. Incapacity 5. Illegality (usury) 6. Duress 7. Discharge of insolvency; Discharge with Notice 8. Suretyship with Notice (HDC knows a prior party signed instrument as surety) 9. Statute of limitations (for note measured from due date, not issue date; for dishonored check earlier of 3 years after dishonor or 6 years after issue)

Answer 2

usually relate to the underlying contract. e.g. failure of consideration, breach of K, Fraud in the inducement (knew making K but misled about substance of K)

Answer 3

1. Indorser Liability | 2. Transfer Warranty Liability

Answer 4

Anyone who indorsed the note/check may be liable if meet certain requirements: 1. Only liable for 30 days after indorsing 2. Dishonor - if maker or bank pays check, can't make claim of indorser liability. 3. NOTICE - indorser must have notice of the dishonor. Indorser may DISCLAIM liability with a Qualified Indorsement (indorse as "without recourse, Pat Payee")

Answer 5

Triggered by act of moving paper to someone else Available against anyone who transfers for consideration BY immediate transferee (and all subsequent transferees if transfer is by indorsement) Implied warranties that arise by transfer/operation of law. Warranty liability survives the final payment of the instrument (unlike indorsement liability). Five Transfer Promises: 1. Good title 2. Genuine Signatures (authentic and authorized) 3. No Material Alteration 4. Transferor promising there are no "Real" Defenses Do NOT need knowledge of taint to be liable for breach.

Answer 6

bank must pay checks that are properly payable; must NOT pay checks that are not properly payable. properly payable = check was authorized by the drawer

Answer 7

Drawee pays but shouldn't have. Check Not Properly Payable When: 1. Stop Payment Orders (if oral, valid for 14 days; if written, valud for 6 months and may be renewed) 2. Stale Checks - Checks are payable only for 6 months from date of issue 3. Properly Post-Dated Checks - presumption is STILL PAYABLE ON DEMAND UNLESS meets three requirements (notice, in timely manner, within effective period) 4. Checks Paid after Drawer's Death - bank may pay for 10 days after Overdrafts ARE still properly payable!!

Answer 8

1. Customer provides notice of postdating to the bank describing the check with reasonable certainty 2. Notice is received in time/manner that gives bank reasonable opportunity to act on it, AND 3. Notice effective for 14 days if oral, 6 months if in writing

Answer 9

General Rule: alleged drawer NOT liable (i.e. check not properly payable) if there's a forgery or alteration (Drawee bank must recredit account) BUT Banks Defenses: Negligence, Duty to Inspect Bank Statement, Imposter Rule, Ficticious Payee, Employee "responsible" for check-writing forges signatures.

Answer 10

Customer may be precluded from asserting that the bank violated Properly Payable Rule if their Drawer's negligence SUBSTANTIALLY CONTRIBUTES to the forgery of the drawer's name (negligently giving check to thief)

Answer 11

Customer has duty to inspect bank statement and canceled checks in timely manner (1 year) and report forgeries to bank. If fails to do so, and bank can prove the delay somehow increased the loss (e.g. made it impossible to catch forger), customer precluded from getting recredit to account.

Answer 12

On bearer paper, doesn't matter because indorsement is not necessary for proper negotiation. On Order paper, forgery breaks the chain of title, so the check is not properly payable.

Answer 13

The maker/drawer will be precluded from denying validity of the forged indorsement where he is deemed to have acted negligently in issuing the check to an IMPOSTER and thus to have contributed to the forgery.

Answer 14

If drawer cannot control employees who are using checks to make payments to ficticious payees, thereby stealing, drawer is held responsible (in whole or part) and cannot get recredit.

Answer 15

If an employer entrusts an employee with responsibility with respect to handling or processing instruments made out to the employer/payee and that employee forges, the employer/payee's name to collect the $, the employer/Payee is estopped from asserting that the forgery made the check not properly payable.

Answer 16

EVERY PARTY that transfers a check makes a presentment warrant to the final payor bank. It is NOT just the last party who presents the check tot he payor bank. mutually exclusive with transfer warranties - Plaintiff can only have one as a cause of action. Presentment Warranties on Checks: 1. Good Title (forged indorsement but not forged drawer's signature breaches this) 2. No Material Alteration 3. No knowledge drawer's signature is unauthorized 4. If remotely created, that person IDed as drawer authorized the check Presentment Warranty on Other Documents: Good Title

Answer 17

If Drawer's Signature is Forged = payment is usually final and BANK CANNOT RECOVER unless it can show that prior transferor had knowledge that signature was unauthorized If Indorsement is Forged: there IS a breach of presentment warranty and bank may recover from party that presented the instrument OR from any prior transferor.

Answer 18

If presenter loses to payor bank for breach of presentment warranty of good title, may sue entities further up the chain for breach of TRANSFER WARRANTIES (good title, all signatures authentic, no good/real defenses)

Answer 19

Pre-printed checks - agent-signer not personally liable if principal's name is printed on the check. Notes - must make clear that signer is agent to avoid personal liability. If NOT clear, agent must pay against HDC and against NON-hdc will be able to introduce evidence that original parties did intend agent to be liable.

Answer 20

Liable in capacity in which signed instrument (usually indorser). Creditor may try to collect from surity before debtor unless says "collection guaranteed." Defenses Available to Surity 1. All the Primary Debtor's Defenses (duress, fraud, etc.) 2. Creditor's Extension of Debtor's Time to Pay 3. Other Material Modification b/w Debtor/Creditor 4. Impairment of Collateral Securing K b/w Debtor/Creditor

Answer 21

obligation is suspended until the instrument is paid or is dishonored. The Maker is ONLY obligated to pay a HOLDER (one in possession of a negotiable instrument with good title) who demands payment.

Answer 22

Subjectively honest AND within the bounds of commercial reasonableness.

Answer 23

1. Claim or obligation DISPUTED or unliquidated 2. Person against whom claim asserted tenders instrument IN GOOD FAITH 3. Instrument CONSPICUOUSLY states it is tendered in full payment of obligation 4. Claimant obtains payment of the instrument

Answer 24

Generally, only liable on an instrument signed. If drawer's name is forged, forger, not drawer, is liable. BUT if a person's failure to exercise ordinary care SUBSTANTIALLY CONTRIBUTES to a forged signature, she is precluded form asserting the forgery against someone who took the instrument for value in good faith (HDC). (just being inattentive while person stolen NOT "substantially contributes"