Commercial paper Flashcards
Requirements of negotiability
(1) writing, signed by maker or drawer
(2) unconditional promise
(3) sum certain in money
(4) to order (delivered + indorsed) or to bearer (delivered)
(5) on demand or at definite time (by its terms)
(6) no other promise or obligation
Requirements for “holder in good faith”
(1) take the instrument as holder
(2) for value
(3) in good faith
(4) without notice of any infirmities (actual or implied, BUT NOT record notice)
Ways to become holder
(1) issuance
(2) negotiation
- for bearer instrument = on transfer of possession
- for order instrument = possession + indorsement
Forgery of signature
Forged indorsement = invalid
forged maker or drawer signature = still valid
Types of indorsement
special indorsement
blank indorsement
qualified indorser (“without recourse”)
restrictive endorsement (“for deposit” or “for collection”)
What constitutes value for a holder in due course?
(1) completed performance
(2) valid lien or security interest
(3) payment or security for debt
(4) exchange for another instrument
(5) exchange for irrevocable debt
equivalent value NOT required
Notice that an instrument is overdue
(1) any part of principal amount overdue (in NY, 30 days for check)
(2) uncured default in same series
(3) acceleration
(4) demand already made
limits on holder-in-due course
(1) instrument acquired as sucessor in interest
(2) purchased in execution, bankruptcy, creditor’s sale, etc.
(3) purchased in bulk transaction outside regular course of business
shelter rule
Despite limits, party may still be holder in due course if transferor or predecessor helt the instrument as holder in due course.
Note: applies to both transfers for value and to gifts
availability of defenses
against holder in due course: ONLY real defenses
against all others: both real and personal defenses.
real defenses
infancy
incapacity
duress
illegality
fraud in factum (BUT NOT fraud in inducement)
insolvency
statute of frauds: 6 years after cause of action accrued
personal defenses
(1) existing claims against instrument
(2) contract defenses
(3) nondelivery
(4) theft or violation of restrictive indorsement
when does cause of action accrue?
against maker or acceptor:
for time instrument, the day after maturity
for demand instrument, upon its date OR upon the date of issue.
against indorser:
upon demand following dishonor.
warranties of an accommodation party
(1) signatures are genuine
(2) no material alteration
(3) all parties have capacity to contract
(4) no knowledge of insolvency proceeding against maker or drawer.
types of guarantess
payment guarantee: unconditional
collection guarantee: first need due diligence