Commercial Paper Flashcards
What endorser liability is disclaimed when it is “Without recourse?”
A: Contract liability
Person signing “without recourse” makes no promise or guarantee of payment on dishonor
The 7 Requirements to be a Negotiable Instrument under UCC
1) Be in writing
2) Signed by maker/drawer (Drawee NOT necessary)
3) Contain UNconditional promise or order
4) Fixed amnt of money
5) Payable on demand/at a definite time HINT: things like promissory demand notes don’t NEED dates if they are to be considered payable on demand
6) Be payable to order or bearer
7) Contain NO addit’l undertaking/instructions not authorized by the UCC
Order Paper?
3-party paper:
Drawer, Drawee, Payee
ex: Checks, Sight Drafts, Trade Acceptancse
Note Paper?
2-party paper:
Maker, Payee/Bearer
ex: Promissory Notes, CD (AKA bank promissory note AKA promise to pay)
What is one feature of a check that distinguishes it from another draft?
A check is payable on demand.
What are the “Real Defenses” available against a Holder in Due Course?
Material Alteration Discharge in Bankrupty Infancy/"Minority of the Maker" Forgery Fraud in the Execution
Breach of contract is a “Personal” defense not real defense!
Is a holder in due course subject to personal defenses (EG someone somewhere breached an agreement?)
No. HDC took note of value, in good faith, without notice of defense.
Can an endorsement destroy negotiability?
No. Only what is on the face of the instrument, is what will determine negotiability.
Who can be held liable when it comes to negotiable instruments?
Only those that endorse
What does commercial paper include?
What does it exclude, and why?
ONLY Drafts and Notes
Excluded: investment securities (EG corporate bonds); ANY document of title (EG warehouse receipts, bills of lading)
What is a special endorsement?
What is a restrictive endorsement?
What is a qualified endorsement?
What is a blank endorsement?
Special: specifies a person to whom it is PAYABLE.. eg “Pay John Smith” (not just a name)
Restrictive: “For Collection” or other restrictive terms
Qualified: “Without Recourse”
Blank: Does not name a new, specific endorsee
“Subject to” or “Contingent upon” does what to an instrument?
Renders it NON-negotiable
4 Holder in Due Course requirements
1) You are holding the negotiable instrument
2) You give value of some kind
3) Take the note in good faith
4) No notice of non-performance
not subject to personal defenses EG breach of contracts
A check is a draft with two characteristics:
1) Drawn on the bank
2) Payable on demand
What does “Fraud in the execution” look like for negotiable instruments?
Person tricked into signing something that they don’t know is a negotiable instrument.
