Commercial Paper Flashcards
NEGOTIABILITY
NEGOTIABILITY
(1) Writing, signed by maker/drawer
(2) Unconditional promise to pay a fixed amount of money
- Interest is okay, if it’s clear. Can ref an outside source for determination. The fallback int rate is whatever the “judgment rate” is.
- Can limit the source of the money (“to be paid from my savings account”)
(3) Payable on demand or at fixed time
- Date must be readily ascertainable
- Can give holder the right to accelerate pmt
- Can give obligor/holder the right to extend the due date
(4) Negotiability language (“to the order of…”) (if a CHECK is missing only this element, that’s okay)
NEGOTIABILITY
Determined when?
“non-negotiable” means:
- Determined at ISSUANCE—indorsements will NOT impact negotiability
“non-negotiable” means it’s non-neg UNLESS it’s a check—then that doesn’t have any effect
HOLDER IN DUE COURSE
HOLDER IN DUE COURSE
(1) Negotiable instrument
(2) Holder (entitled to enforce)
(3) Authenticity not questioned (no forgeries or alterations)
(4) Paid VALUE (if only partially paid, only HDC for that proportion of the note)
(5) Good faith
(6) Without notice of shady stuff (overdue, defenses against payment, etc.)
TRANSFER WARRANTIES
TRANSFER WARRANTIES
(1) Entitled to enforce (“I am a holder.”)
(2) All signatures are authentic (“No forgeries”)
(3) No alterations.
(4) No defenses against transferor. (“I’m not subject to any defenses, so neither will you be. I’m a perfect plaintiff to enforce this note, so you will be too.”)
- No knowledge of insolvency.
- Drawer authorized this transaction—if remotely-created.
PRESENTMENT WARRANTIES:
PRESENTMENT WARRANTIES:
(1) Entitled to enforce (“I am a holder.”)
(2) No alteration
(3) No knowledge of unauthorized drawer signature. (“Every signature on this paper is authentic.”)
(4) Drawer authorized this transaction—if remotely-created.
HOLDER IN DUE COURSE
SOL =
- SOL—must present within:
- 6 yrs after due date for a NOTE
- 10 yrs for a CHECK (or 3 yrs after dishonor)
AGENT SIGNATURE
When is a principal bound by a note signed by his agent?
When is the agent personally liable on a note?
- General elements
- Liability to HDC
- Liability to non-HDC
AGENT SIGNATURE
Principal is bound under ORDINARY AGENCY rules (authority, actual or apparent).
Agent PERSONAL LIABILITY:
- Personally liable if there’s no indication that he’s signing on BEHALF of a principal.
- TWO ELEMENTS:
- Identify the principal
- Unambiguous indication that signature is on behalf of principal
- TWO ELEMENTS:
- If agent is personally liable:
- HDC escape hatch: HDC had actual notice of agency
- Non-HDC escape hatch: The original parties did not INTEND agency
FORGED DRAWOR SIGNATURE
IF Drawee bank cashes the check:
Bank is LIABLE unless:
FORGED DRAWOR SIGNATURE
IF Drawee bank cashes the check:
Bank is LIABLE unless:
(1) they can sue for presentment/transfer warranties
OR
(2) they have a defense against their customer for negligently allowing the forgery to happen or go through.
FORGED DRAWOR SIGNATURE
Defenses to recrediting customer acct:
Defenses to recrediting customer acct:
- DUTY TO INSPECT STATEMENT: Must be reported within ONE YEAR.
- For subsequent statements (repeat forgeries), must report w/in 30 days.
- NEGLIGENCE: left a blank check on your desk
FORGED DRAWOR SIGNATURE
Sue for breach of presentment warranties:
Sue for breach of presentment warranties
- DRAWEE WILL LOSE *
- Argue Presenter bank was not a holder entitled to enforce because the drawer signature was forged. This argument will LOSE. The forged signature is treated as the forger’s actual signature, so the presenter actually IS a holder. There’s no break in the chain of title as there is with forged indorsements.
- Payee knew the check was forged. This will never be true.
FORGED INDORESMENT
IF Drawee bank cashes the check, could be sued by TWO potential plaintiffs:
SOL =
FORGED INDORESMENT
IF Drawee bank cashes the check, could be sued by TWO potential plaintiffs:
- CONVERSION by the intended payee
- NOT PROPERLY PAYABLE by the drawer (the bank’s customer)
SOL = 3 years
FORGED INDORSEMENT
Drawee bank’s DEFENSES against the maker/drawer:
SOL =
DEFENSES:
- NEGLIGENCE of the maker/drawer.
- Imposter (wrote the check to an imposter—you should have made sure this was the right person)
- Employees (not keeping a close enough eye on your employees who are handling your pmts for you)
- Negligence contributed to the forgery
- SOL: 3 years
FORGED INDORSEMENT
IF Drawee bank has no defense against its customer, what other options does it have?
IF Drawee bank loses, then they will sue up the chain on PRESENTMENT warranties.
- The forged indorsement broke the chain of title, so the presenter was NOT A HOLDER.
FORGED INDORSEMENT
IF Presenter loses against the Drawee bank, what other options does it have?
IF Presenter loses, they will sue up the chain on TRANSFER warranties.
- None of the transferors was a proper holder, so they breached their transfer warranties.
- Who will pay in the end? Either the forged or the first transferor who trusted the forger.
ALTERATIONS
TWO TYPES:
ALTERATIONS
TWO TYPES:
- CHANGE in obligation
- Unauthorized COMPLETION
