"transferability" of instrument SUMWOO - signed - unconditional promise - money (fixed amount, foreign is OK) - writing - on demand at definite time - to order/bearer

Commercial Paper Flashcards by Karla Gonzales

notes

two-party commercial paper
maker to payee/bearer
“promise to pay”

ex. CD (bank promissory note)

How well did you know this?

Not at all

Perfectly

drafts

three-party commercial paper
drawer to drawee to payee
“order to pay”

ex. checks (drawee is bank)

may be payable at future date
“all checks are drafts but not all drafts are checks”

How well did you know this?

Not at all

Perfectly

checks

draft drawn on drawee (bank) and payable on demand

How well did you know this?

Not at all

Perfectly

trade acceptance

draft drawn by the payee on the drawee

How well did you know this?

Not at all

Perfectly

negotiability

“transferability” of instrument

SUMWOO

signed
unconditional promise
money (fixed amount, foreign is OK)
writing
on demand at definite time
to order/bearer

How well did you know this?

Not at all

Perfectly

writing (negotiability)

signed by maker or drawer

words control figures

How well did you know this?

Not at all

Perfectly

unconditional promise (negotiability)

instrument is NOT negotiable if conditional

subject to another agreement
subject to express condition

How well did you know this?

Not at all

Perfectly

permissible conditions (conditional terms)

implied conditions (law)
states consideration (in exchange for car)
refers to transaction which instrument arose
limits payment to particular source

How well did you know this?

Not at all

Perfectly

definite time (negotiability)

must reveal when obligation is due
acceleration clauses (or sooner clause)
extension clauses (or until)
undated, postdated, antedated
uncertainty of events like death (not negotiable)

How well did you know this?

Not at all

Perfectly

to order/bearer (negotiability)

order - payable to specified person

bearer - payable to person in possession

How well did you know this?

Not at all

Perfectly

authorized promises (negotiability)

authorization to give, maintain, protect collateral
term authorizing confession of judgement or disposition of collateral if instrument not paid when due
term that waives benefit of laws intended for benefit of obligor
promise to pay collection costs

How well did you know this?

Not at all

Perfectly

if instrument is NOT negotiable

no holder in due course (HDC)

- treated as an ordinary contract

How well did you know this?

Not at all

Perfectly

holder in due course (HDC)

persons UCC seeks to protect
person with good title to commercial paper

bearer paper requires mere delivery
order paper requires delivery AND endorsement (signature)

free from personal defenses and claims
subject only to real defenses

How well did you know this?

Not at all

Perfectly

endorsements (BACK)

special or blank
restrictive or unrestrictive
qualified or unqualified

How well did you know this?

Not at all

Perfectly

special endorsement

names particular person, turns instrument into “order”

FRONT is order to cash
BACK names payee
can only be negotiated if signed by named payee

How well did you know this?

Not at all

Perfectly

blank endorsement

no special endorsee, makes instrument into “bearer”

FRONT is order to payee
BACK is blank and signed
can be negotiated if delivered and signed by payee

How well did you know this?

Not at all

Perfectly

breaking chain of title

broken if no proper endorsement (missing/forged)

How well did you know this?

Not at all

Perfectly

forged drawer/maker signature

does NOT constitute break in chain of title

transferees are holders of forger’s instrument

qualified endorsement

adds “without recourse”

“without recourse”

no guarantee of payment by endorser

- no contract liability but still has warranty liability

restrictive endorsement

does not prevent negotiation

ex. “only”, conditions, trust endorsements, further negotiation to check collection system

(commercial paper) in due course

commercial paper taken:

has value (not a gift)
in good faith (honesty in fact)
without notice of any defenses
negotiable (front only)

value (in due course)

performance of agreed consideration
acquisition of lien or security interest in instrument
taking instrument as payment/security for antecedent debt
giving negotiable instrument for instrument
making irrevocable commitment to 3rd parties

executory promise

future promise to give value DOES NOT qualify as value

notice situations

purchaser has notice if: - knowledge that principal is overdue, acceleration made, instrument is demand instrument - irregular (visible evidence of forgery/alteration) - knowledge that obligation is voidable

non-notice situations

- antedated or postdated | - purchase at discount

transactions precluding HDC

- judicial sale - acquisition in taking over an estate - purchased as part of bulk transaction

Shelter Doctrine

most subsequent transferees of and HDC can "succeed to" or "take shelter" in rights of HDC - only protects innocent parties

real defenses

maker/drawer does not have to pay anyone may be asserted against both HDC and non-HDC transferees FAIDS - fraud in execution or forgery - adjudicated insane or material alteration - infancy or illegality - duress or discharge in bankruptcy - suretyship defenses or statue of limitations expired

personal defenses

cannot be raised against an HDC - NOT FAIDS - unauthorized completion - failure of consideration - discharge

unauthorized completion

occurs when issuer leaves part of instrument blank and later holder fills in missing information

liability of parties

anyone whose signature appears on commercial paper potentially has liability on paper

notes liability

maker has primary liability | endorser has secondary liability

draft liability

drawee has primary liability (if they accept) | drawer/endorser has secondary liability

drawer/maker

person who owns funds

drawee

person who has drawer's funds - not liable until acceptance (signs) - not liable to holder but may be liable to drawer

stop payment

oral is binding for 14 days | written is binding for 6 months

warranty liability

exists even "without recourse" writing - transferor does not endorse instrument or is authorized to act for one who is entitled to enforce - all signatures are genuine/authorized - instrument has not been materially altered - no defense of any party is good against transferor - transferor has not knowledge of insolvency

accommodation party

one who signs instrument for purpose of lending name and credit to another party a surety

forgery of drawer's signature

if forger missing-- | drawee liable upon acceptance (should know drawer's signature)

forgery of payee's name

if forger missing-- | first person forger passed to is liable

impostor rule

if maker/drawer issues to an impostor, maker/drawer is liable (negligent, should have checked for ID)

fictitious payee rule

if maker/drawer issues to nonexistent/fake payee, maker/drawer liable (negligent, poor internal control for corp)

discharge (of obligation)

- payment, satisfaction, tender of payment - cancellation or renunciation (holder intentionally destroys instrument/lining through signature) - impairing recourse/collateral (releasing party) - delay in presentment or failure to give notice of dishonor - acceptance or certification of draft