Commercial Paper

Question 1

A promise to pay a specific amount. There are two parties involved - maker and a payee. It can reference other transactions without harming the instruments negotiability. Example: Bank Certificate of Deposit (CD)

Answer 1

Commercial Paper

Question 2

A commercial paper involving three parties- a drawer; a payee and a drawee

A drawer orders a sum to be paid to a payee by the drawee

May be payable on demand or in the future

Answer 2

Commercial Paper

Question 3

A check is a type of draft that is payable ON DEMAND; payable to order of drawer or bearer

Drawer - person writing the check

Payee - person being paid

Drawee - the bank

Answer 3

Commercial Paper

Question 4

A check is payable on demand; even if post-dated.

A negotiable time draft is not payable until the date designated for payment.

Answer 4

Commercial Paper

Question 5

Seller extends credit to Buyer

Buyer agrees to pay Seller - Buyer has primary liability

Seller is both Drawer and Payee - Seller has Secondary Liability

Answer 5

Commercial Paper

Question 6

Transfers ownership to another party

Answer 6

Commercial Paper

Question 7

Must be in writing

Signed by drawer/maker

Be without conditions for payment (other than limitations on payment sources)

Amount of money must be stated

Payable to order or bearer

Answer 7

Commercial Paper

Question 8

An additional promise is stated in addition to the promise to pay (like the option to purchase Real Estate)

The promise to pay occurs after some action by another party or an event; it cancels negotiability

Cannot allow for an alternative such as payment or some other action by the maker

Note: a stated amount of payment plus a stated % of interest is OK

Answer 8

Commercial Paper

Question 9

Must have delivery and endorsement

If paper is exchanged for value; transferor must give an UNQUALIFIED endorsement

Answer 9

Commercial Paper

Question 10

Blank - Doesnt name a new payee; transforms into a bearer paper

Special - Names a new payee; transforms into an order paper

Restrictive - Adds restrictions; doesnt stop further negotiation

Qualified - Payment not guaranteed; without recourse added to endorsement

Answer 10

Commercial Paper

Question 11

Within 7 days

Answer 11

Commercial Paper

Question 12

Written amount supersedes the numerical dollar amount.

For example; if the words say One hundred dollars and the numerical amount states $1000.00; the value of the paper will be $100.00.

Answer 12

Commercial Paper

Question 13

First in line to pay on the note/draft

Maker of a Promissory Note has primary liability and must pay according to terms of the note

With a Check; no party has Primary Liability

Exception: Drawee (your bank) is primarily liable to pay if they certify - i.e. promise to
pay

Answer 13

Commercial Paper

Question 14

Drawers are Secondarily Liable if Drawee fails to pay a Draft

Endorsers (the payee) are secondarily liable

Holder in due course can hold Endorser liable

Exception: Endorsed Without Recourse

Answer 14

Commercial Paper

Question 15

Guarantees payment of a liability

Answer 15

Commercial Paper

Question 16

Occurs when you negotiate commercial paper

By signing; you warrant to all future parties

By not signing; you warrant to current party only

Answer 16

Commercial Paper

Question 17

Warranty of Title

No defense will stand against it

No material alteration

No knowledge of bankruptcy proceedings

All signatures are legitimate

Answer 17

Commercial Paper

Question 18

Holding a negotiable instrument

Taking instrument in Good Faith - Even if you buy a stolen note and you dont know that its stolen; youre still an HDC

Having no knowledge of defenses again instrument; i.e. problems with the instrument

Giving a present value for the instrument (a future value doesnt count)

Answer 18

Commercial Paper

Question 19

An HDC takes an instrument free of Personal Defenses (LOSE vs. HDC)

Lack of consideration/value given
Breach of contract/warranty
Duplicate payments
Fraud (in the inducement only)
Voidable contracts

Answer 19

Commercial Paper

Question 20

A holder in due course takes an instrument subject to Real Defenses (WIN vs. HDC)

Material alterations to the instrument
Forgery
Bankruptcy
Maker not competent to Contract
Fraud in the execution

Answer 20

Commercial Paper