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VA Essay Topics > Commercial Paper > Flashcards

Commercial Paper Flashcards

1
Q

Is a draft conditional because it limits payment to a particular source or fund?

A

No, it is unconditional and negotiable.

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2
Q

To qualify as a negotiable instrument, what is needed?

A

A writing payable to order or to bearer, signed by maker or drawer reciting a sum certain, containing an unconditional promise or order and no additional promise, payable on a demand or definite time and payable in currency
(otherwise it is a contract)

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3
Q

What is a draft and who are the parties?

A

A command or order to pay money

Three parties: drawer, drawee, and payee

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4
Q

What is a promissory note and who are the parties?

A

affirmative promise to pay, not a mere IOU

Two parties: promisor or promisee

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5
Q

In a commercial paper, what theories might make the defendant liable

A
  1. contract or signature liability

2. warranty or transfer liability

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6
Q

Commercial paper statement

A

When a negotiable instrument is duly negotiated to a holder in due course, the holder in due course takes the instrument free of all claims to it free of all personal defenses and subject only to real defenses

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7
Q

If a note or draft states “$75,000 principal plus interest from date at 5%”, is it negotiable?

A

Yes, even if it does not state how much interest - use judgment rate.

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8
Q

What is contract liability on negotiable instrument?

A

defendant has liability by signing the negotiable instrument

  • promisor of a note (maker)
  • indorser sign name on back of instrument
  • drawer of a draft (checker)
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9
Q

Does a drawee have contract liability for a negotiable instrument?

A

No - no signature liability

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10
Q

If the words “without recourse,” on a negotiable paper, what is the effect?

A

passes title but assumed no contract liability

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11
Q

What warranties are made by person on a negotiable instrument?

A
  1. plaintiff has good title
  2. all signatures are genuine and authorized (forgery is breach)
  3. no material alterations of instrument
  4. no defense or claim against the defendant - meaning that instrument is enforceable
  5. promises that no knowledge of bankruptcy or insolvency against maker or drawer
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12
Q

Under a warranty theory, who may be sued?

A

any indorser, unless they are a donor, and plaintiff is in possesion

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13
Q

If a note states “Pay to Andy,” is it negotiable?

A

No, unless it is check.
Must use the words “order” or “assigns”
Must use the word “bearer” - anyone use has possession

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14
Q

When negotiable instrument is payable to order of payee, it is negotiated by ____?

A

Delivery to payee

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15
Q

When negotiable instrument is payable to order of bearer, it is negotiated by ____?

A

possession

- no indorsement required to transfer

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16
Q

Holder in due course is?

A

Holder who takes the instrument for value, in good faith, and without notice that it is overdue or has been dishonored or is subject to any defense or claim

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17
Q

Can a holder become a holder in due course by giving old value?

A

Yes. old value is good value

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18
Q

Instrument recites that it payable on Jan. 1. Holder buys instrument on Jan. 5. Is the holder a holder in due course?

A

No; had notice that is overdue.

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19
Q

What are personal defenses that a holder in due course takes free from?

A

ordinary contract actions (lack of consideration, unconsciousability, waiver, estoppel, fraud in the inducement)

20
Q

What are real defenses that a holder in due course does not takes free from?

A

1) material alteration
2) duress
3) fraud in factum
4) incapacity, illegality, infancy, and insolvency

21
Q

Makes write a check for $100. Payee changes the amount to $2,100 and then sells it to a HDC. Make is liable only for?

A

$100, unless negligence that opens up to estoppel and a personal defense

22
Q

Difference between fraud in factum and fraud in the inducement?

A

Fraud in factum - lie about instrument (real defense)

Fraud in inducement - knew about the instrument, but underlying contract involved fraud

23
Q

What are the duties of the drawee bank?

A

Honor check is there are sufficient funds to cover check.

24
Q

How long is an oral stop payment binding on the bank?

A

14 days unless renewed in writing during those 14 days.

25
Q

In VA, what is the statute of limitations for actions notes payable at a definite time or on demand?

A

6 years

26
Q

An instrument to be negotiable must be payable to _____ or to____.

A

bearer; order

27
Q

Can a defense of duress or illegality be raised against a holder in due course?

A

yes.

28
Q

Can a defense of a lack of consideration be raised against a holder in due course?

A

No.

29
Q

Fraud in the factum is defined as ____.

A

fraud that induced the obligor to sign the instrument with neither the knowledge nor reasonable opportunity to learn of its character or its essential terms.

30
Q

What type of fraud is fraud that induced the obligor to sign the instrument with neither the knowledge nor reasonable opportunity to learn of its character or its essential terms?

A

Fraud in the factum (rule fraud)

This is real defense that may be asserted against a holder in due course

31
Q

Is a check that is postdated into the future a valid obligation on payee?

A

No - does not represent current demand to pay.

Bank can allow payment, and protected from liability unless drawer notified payee of postdating

32
Q

When there is a dispute between written words and numbers on a check, what controls?

A

Written words.

33
Q

If payee is presented with check that is altered, what can the payee pay?

A

Original amount

Could pay altered amount if in good faith and without knowledge of alteration

34
Q

When is a drawer liable on a check that is subsequently altered by a third party?

A

When drawer failed to exercise ordinary care and thereby substantially contributed to an alternation of the instrument
- then precluded from asserting the alternation against a person who in good faith pays the instrument

35
Q

If the drawer leaves the amount blank and delivers the check to drawee who then fills in the amount. How much is the drawer liable for?

A

If not fraudulent, even if unauthorized, then it is ok

36
Q

Is antecedent debt proper value to entitled an person who negotiates an instrument?

A

Yes, would entitled to a holder in due course

37
Q

Who does the bank have an obligation to?

A

obligation runs only to customer and that obligation is to pay drafts that are properly payable.

38
Q

Does a bank have any obligation to holder of a draft instrument drawn on the bank?

A

No. Obligation runs to customer not holder.

39
Q

Can an indorsor sign a check over to a holder if the person does not have actual authority?

A

Yes, may have apparent authority

40
Q

Is infancy a good defense even against a holder in due course?

A

Yes. Infancy is a real defense.

Exception is when the contract is for necessities.

41
Q

If a note contains ambiguous language on when payment will be made is the note negotiable?

A

No. Must be payable at definite time that is readily ascertainable.

42
Q

If a principal who made a check dies before the check is presented, what is the effect?

A

Terminates the authority of the bank to make the payment.

Exception is bank may honor check if presented within 10 days after it learns of customer’s death.

43
Q

A stop payment order is binding for how long?

A

in writing - 6 months

oral - 14 days

44
Q

Is a bank required to stop payment on a cashier check?

A

No obligation.

45
Q

Who has burden of proving loss in spite of a stop payment order?

A

Customer (maker) has burden.

If there is a holder in due course, then customer cannot recover

VA Essay Topics (23 decks)

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