Commercial Paper

Question 1

Requirements of Negotiable Instrument

FAMOUS

Answer 1

Payable at FIXED times or on demand

For a certain AMOUNT ( money only)

MUST be in WRITiNG

Payable to ORDER or TO BEARER (except check)

Contain UNCONDITIONAL PROMISE (except” subject to”, “contingent upon” is not negotiable)

SIGNED by the MAKER or DRAWER

Question 2

Transfers of Negotiable Instruments

Answer 2

NEGOTIATION: transferee has same rights as transferor or superior right

BEAR PAPER: Negotiated by delivery alone

ORDER PAPER: Negotiated by delivery and endorsement

Question 3

Types of Endorsements ( on the back of instrument)

Answer 3

BLANK: sign of payee converts order paper to bear paper

SPECIAL: Payee SIGNS and names NEW PAYEE ( “pay to A”, signed B is special endorsement) ENDORSEment is required for further Negotiation

QUALIFIED=Without Recourse: not restrict further negotiation, endorser not guarantee pmt upon dishonor

RESTRICTED= Only, or For deposit : Add condition but Does NOT PREVENT further negotiation

Question 4

4 Requirements to be a Holder in Due Course HDC

Answer 4

Instrument taken for VALUE ( not gift or service): money, negotiable instrument

Taken in GOOD FAITH

WITHOUT Notice of DEFENSES to or Claims of Ownership on the instrument

NEGOTIABILITY ( front only)

Question 5

Shelter Doctrine, HOlder has SAME RIGHT as HDC if

Answer 5

Anyone who receive instrument from an HDC gets all of the rights of an HDC even if they are not HDC and know about the fraud

Question 6

Real defenses of HDC ( DRAWER or MAKER win HDC)

Answer 6

FRAUD in Execution: tricked to sign sth

FORGERY

Adjudicial Insanity
Infancy
Illegality
Duress
Discharge of bankruptcy
Suretyship defenses
Statue of limitation

Question 7

Personal Defense ( HDC win)

Answer 7

Breach of contract

Lack of consideration

Imposter, fictitious name

Simple duress

Fraud in the inducement

A wrongful filling of amount payable

Question 8

Liabilities of the parties

Answer 8

NOTE/CD:
+ Maker: Primary liab
+ Endorsers: Secondary liab

DRAFT/CHECK:
+ Drawee: Primary liab if they accept the pmt
+ Drawer and Endorsers: Secondary liab

If ENDORSERS sign Without Recourse, they wont be liab

Question 9

Stop pmt orders

Answer 9

ORAL STOP pmt: only good for 14days

WRITTEN Stop pmt: only good for 6months

WARRANTY LIAB exist even if u dont sign or sign without recourses

Question 10

Document of title

Answer 10

NEGOTIABLE if face of Document contains words of negotiability( Order or Bearer)

Containing Promise to deliver goods to the order of a named person->Order paper

””"”deliver goods to bearer->Bear paper

Question 11

Bill of lading

Answer 11

Doc issued by common carrier, given seller evidencing receipt of good for shipment

Is nonnegotiable if the bill states that the goods are to be delivered to a consignee. Endorsement of nonnegotiable bill doesnt:
+ make the bill negotiable
+give the transferee any additional right

Question 12

Warehouse receipt

Answer 12

Doc issued by warehouseman

Must contain location of warehouse

Date issue

Rate charges

Description of goods

Signature of warehouseman

Question 13

Due negotiable ~HDC

Answer 13

Doc of title negotiated to a holder who take in good faith, value, with knowledge of defenses

Question 14

Holder by Due negotiation rights

Answer 14

Title to document

Title to goods

All rights accruing under law of agency or estoppel

Same defense as HDC

Question 15

Drafts

Order 3rd party to pay

Answer 15

Include 3 parties:
+Drawer:issuer
+Drawee: party receive the money
+Payee:party is ordered to pay the payee

Sight draft: draft payable on demand

NOT a promise to pay, it is a ORDER to pay

Question 16

Article 3 UCC, pmt on a negotiable instrument may be designated

Answer 16

To come from a particular source of fund

Question 17

Article 3 UCC, postdating a check

Answer 17

Doesnt destroy negotiability

But make check properly payable on or after the date written on the check

Question 18

Risk of loss pass for warehouse receipt if there is no agreement to contrary and neither parties breach

Answer 18

RoL pass at the time the negotiable document of title is properly negotiated to the buyer

Question 19

Trade acceptance

Answer 19

Draft by SELLER ordering a buyer to pay the seller or some 3rd party at a future time

Question 20

Investment securities

Answer 20

Include:
+ Stock and bond
+Document of title

Are NOT Commercial Paper but following the same rules

Question 21

Warehouse receipt

Answer 21

The document of title issued by a person who stores goods for another

Question 22

Security includes

Answer 22

Limited partnership interests

Rights & warrants

Treasury stocks

Investments contracts: bond, stock, note, CDs, debenture