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Texas Law > Commercial Paper > Flashcards

Commercial Paper Flashcards

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1
Q

Types of Commercial Paper

A
  1. Note

2. Draft

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2
Q

Note

A

A 2-party instrument in which the maker promises to pay a sum of money to the payee

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3
Q

Draft

A

A 3-party commercial paper in which the drawer orders the second party (drawee or payor) to pay a sum of money to a third-party payee

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4
Q

When there are contradictory terms

A
  1. Handwritten terms over typewritten terms
  2. Typewritten terms over printed terms
  3. Words over numbers
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5
Q

Formal Requirements of Negotiability

A
  1. Writing, signed by drawer/maker
  2. Contains an unconditional promise or order
  3. To pay a fixed amount of money
  4. Payable to order or to bearer
  5. Payable on demand or at a definite time
  6. No additional undertaking or instructions
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6
Q

Types of Instruments

A
  1. Order Instrument

2. Bearer Instrument

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7
Q

Requirements for Holder in Due Course (HDC)

A

To become the HDC of a negotiable instrument, one must take the instrument -

  1. As a holder
  2. For value
  3. In good faith
  4. Without notice of infirmities
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8
Q

How does a person become a holder?

A
  1. Issuance

2. Negotiation

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9
Q

Transfer Warranties

A
  1. Transferor is entitled to enforce instrument
  2. All signatures (including drawer’s signature) are authentic and authorized
  3. Instrument has not been altered
  4. There are no defenses or claims that can be asserted against transferor
  5. Maker, acceptor, or drawer is not, to transferor’s knowledge, subject to insolvency proceedings
  6. With respect to any remotely-created consumer check, the person on whose account the check is drawn has authorized issuance in the amount for which the item is drawn
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10
Q

Shelter Rule

A

A person to whom an HDC transfers an instrument acquires the rights of an HDC, even if the transferee herself does not qualify as an HDC.

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11
Q

When do transfer warranties apply?

A

Transferor must transfer the instrument for consideration of transfer warranties to apply.

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12
Q

Beneficiaries of Transfer Warranties

A

Transferee WHO INDORSES instrument makes warranties to ALL SUBSEQUENT transferees.

Transferee who DOES NOT indorse instrument makes warranties ONLY to IMMEDIATE transferee

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13
Q

In a legal action for enforcement of instrument, what must π prove?

A

Prima facie case:

(i) entitled to enforce the instrument, and
(ii) signatures are valid

If ∆ makes out a defense, can re-establish by proving HDC status.

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14
Q

In a legal action for enforcement of instrument, what must ∆prove?

A

∆ may avoid paying by proving defense or claim in recoupment

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15
Q

Real Defenses are effective against whom?

A

ALL HOLDERS, including HDC

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16
Q

What are the Real Defenses?

A
  1. Infancy
  2. Incapacity
  3. Duress
  4. Illegality
  5. Fraud (fraud in the factum only)
  6. Discharge in insolvency proceedings
  7. Alteration and forgery
  8. Statute of limitations (generally three years)
  9. Accommodation party
17
Q

Against whom are Personal Defenses effective?

A

Not HDC

18
Q

What are the Personal Defenses?

A
  1. Issuance (not issued, conditionally issued, or issued for special purpose)
  2. Any contract defense (lack/failure of consideration, non-occurrence of condition, mistake, impossibility, fraud, duress, incapacity, infancy, illegality)
  3. Claim in recoupment (offset against amount owed on the instrument)—claim must arise from a transaction that gave rise to the instrument and is limited to the amount owed at the time the action is brought
  4. Defenses and claims in recoupment of other persons—obligor may generally raise only his own defenses
  5. Claims to the instrument
19
Q

Presentment Warranties

A
  1. Warrantor is, or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft
  2. Draft has not been altered
  3. Warrantor has no knowledge that the signature of the drawer of the draft is unauthorized
  4. With respect to any remotely-created consumer check, the person on whose account the check is drawn has authorized issuance of the item in the amount for which the item is drawn
20
Q

Presentment Warranties are made by

A

A person obtaining payment or acceptance of draft and by any previous transferor of the draft

21
Q

Presentment Warranties are made to

A

Made to a person who in good faith pays or accepts

22
Q

Dishonor

A

Failure by the drawee of a draft or maker of a note to pay within the required time after presentment

Texas Law (11 decks)

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