COMMERCIAL PAPER Flashcards
A written and signed unconditional promise (note) or order (draft) to pay a fixed amount of money (i.e. sum certain) to bearer or order, on demand or at a definite time.
*** What are the elements of a negotiable instrument?
A check is an order or instruction by the drawer (person writing the check) to the drawee (the person’s bank) to pay to payee (the person to whom the check is made out) on demand.
*** What is a personal check?
- Typewritten terms prevail over mechanically printed
- Handwritten terms prevail over both
- Words prevail over numbers
- How are contradictory terms resolved?
A transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.
** What is the definition of negotiation?
If an instrument can be negotiated by transfer of possession alone v if an instrument requires endorsement by the holder and transfer of possession.
** What is the difference between negotiation of bearer paper v order paper?
This specifies who (or to whose order) the instrument is payable (e.g. to the order of Mickey Mouse) usually used with order paper.
*** What is a special indorsement?
In this case, no particular indorser is specified. This action makes it negotiable by delivery only and makes the instrument payable to bearer (bearer paper).
*** What is a blank indorsement?
A holder in due course takes the instrument free from any defects in the underlying obligation it may represent. A person is an HDC if: 1) the instrument, when issued or negotiated to the holder, (a) lacks the apparent evidence of forgery or alteration or (b) is not otherwise so irregular or incomplete as to call its authenticity into question; and 2) the person is a 1) holder; 2) for value; 3) in good faith; and 4) without notice.
** What elements are required for a holder in due course?
A holder in due course may: 1) enforce the instrument in one’s own name; 2) transfer or negotiate the instrument; 3) obtain a judgment on instrument; 4) takes note free from all defenses except “real defenses”
*** What are the rights of an HDC?
Defenses available to this holder: 1) infancy of the obligor; 2) duress, lack of legal intimacy, or illegality of the transaction which nullifies the obligation of the obligor; 3) fraud that induced the obligor to sign the instrument; and 4) discharge of the obligor in insolvency proceedings
What are the real defense that may be asserted against a holder and a holder in due course?
An agreement (accord) between two contracting parties to accept alternate performance to discharge a preexisting duty between them and the subsequent performance (satisfaction) of that agreement.
** What is accord and satisfaction?
1) Conspicuous notation on instrument; 2) Proof of knowledge of full tender; 3) Creditor can avoid Inadvertent Accord and Satisfaction
** What three TX provisions apply to accord and satisfaction?
These parties have unconditional liability on instruments
*** What liability do the maker of a note and the drawee (usually the bank) of a draft have?
When an instrument is settled by 1) Payment; 2) Tender of Payment; 3) Discharge by Cancellation; 4) Discharge by Impairment of Collateral
*** What are the four ways in which an instrument can be discharged?
A bank can only take this action when a customer authorizes it and it complies with an agreement between a bank and a customer.
*** When can a bank charge a properly payable item from a customer’s account (e.g. a check)?
