Commercial Paper Flashcards
Law that covers negotiable commercial paper
Article 3 of UCC
A type of commercial paper that has 3 parties in which one person or entity (drawer) orders another (drawee) to pay a 3rd party (payee) a sum of money
Draft (Bill of exchange)
A special type of draft that is payable on demand (unless postdated) and drawee must be bank and the one writing it is the drawer
Check
A type of commercial paper that is a two-party instrument in which one party (maker) promises to pay a specified some of money to another party (payee)
Note (ex. promissory notes, certificates of deposit)
A promise to pay in which the payment does not depend upon, or is not “subject to”, another agreement or event
Unconditional promise to pay
Is entitled to payment on a negotiable instrument despite personal defenses that a maker/drawer of the instrument may have
Holder in Due Course
A promise to give value in the future–does not qualify as given consideration to be a holder in due course
Executory promise
Honesty in fact and observance of reasonable commercial standards of fair dealing
Good faith
Defenses that are assertable against any party, including a HDC
REal (universal) defenses
Defenses that are not assertable against HDC
Personal defenses (ex. breach of contract, lack/failure of consideration, prior payment, etc.)
Occurs wehn a person signs a negotiable instrument and knows what s/he issigning; however, s/he was induced into doing so by intentiaonal misrepresentation
Fraud in the inducement–a personal defense
Occurs when a party is tricked into signing a negotiable instruement believing it to be something else
Fraud in the execution–a real defense
Under this rule, a party who does not quality as a HDC but obtains a negotiable instrument from a HDC has the standing of an HDC
Shelter rule
A rule intended to limit unfair hardship on consumers who sign notes promising to pay retailers for goods purcharsed that were defective (b/c they could sell them to a HDC); does NOT apply to any goods/services paid for by check
Federal Trade Commission Rule (FDC)
–takes precedent over UCC where it applies
The liability for payment of the instrument’s face value that appliese to any party who signs a negotiable instrument
Contractual liability
Liability under which a holder can seek payment from secondary parties; includes transfer warranties and presentment warranties
Warranty liability
A warranty liability under which the transferor gives these warranties whenever a negotiable instruemnt is transferred for consideration
Transfer warranties
A warranty in which the holder/HDC presenting the negotiable instrument for payment or acceptance and all prior transferors of the instrument provide to the party that pays the instrument
Presentment warranty
A party who signs to lend his/her name to another party (ex. A father-in-law endorses a note for son-in-law so creditor will accept it)
Accomdation party
Rule that applies when a maker/drawer issues a note or draft to an imposter thinking s/he actually is the real payee, and the imposter forges the real payee’s name
- -effectively negotiates note/draft so that a subsequent holder CAN collect from maker/drawer
- an exception to rule that forged endorsements cannot transfer title
Imposter rule
Rule that applies when maker/drawer, or his/her agent issues a note or a check to a fictitious payee and then the maker/drawer, or employee forges the endorsement
- -subsequent holder CAN enforce the note/check
- exception to the rule that forged endorsements cannot transfer title
Fictitious payee rule
A draft in which a seller of goods extends credit to buyer by drawing a draft on that buyer directing him/her to pay seller a sum of money on a specified date
Trade acceptance
A draft in which the drawee and drawer are a bank
Banker’s acceptance
A draft payable upon presentment to drawee
Sight draft
A draft payable at a specified date or payable a certain period of time after a specified date
Time draft
A draft purchased by one party to pay payee in which the 3rd party is typically post office, bank, or a company
Money order
A check purchased from a bank or company in which the drawer (traveler) must sign twice for purposes of identification, and the drawee is the bank or company
Traveler’s check
A check in which the drawer and drawee are the same bank witha separate party being hte payee
Cashier’s check
A check that payor bank has agreed in advance to pay so that bank becomes primarily liable
Certified check
A draft drawn by one bank on another bank
Teller’s check (bank draft)
A document issued by a common carrier and given to the seller evidencing receipt of ot hte goods for shipment
Bill of lading
A document issued by a warehouseman and given to seller evidencing receipt of goods for storage
WArehouse receipt
Occurs when a document of title is negotiated to a holder who takes it in good faith in the ordinary course of business without notice of a defense and pays value
Due negotiation
The Central Bank of US which regulates US monetary system and overseees bank holding companies
Federal Reserve
US entity which insures customer deposits against bank failure and promotes sound banking practices
FDIC
An arm of the Treasury Department establsihed to regulate and supervise national banks and federal branches of foreign banks; conducts on-site examinations of banks
OCC
A US agency established to ensure open and efficient operation of futures markets which have grown from trading agricultural futures to more sophisticated financial products
CFTC
Issues and enforces regulation governing nation’s savings and loan industry
OTS
Currently, many are recommending mergin these 2 entities, to reglect the blurred lines between securities and comodities
SEC and CFTC
