Commercial Paper Flashcards
4 things to be negotiable
signed, in writing, for a fixed sum of money, unconditional, and contained language of negotiation
Is the drawer primarily liable for payment?
Yes
Can someone be liable if they don’t sign it as an indorser?
No
How long does a person typically have to review their bank statements and notify the bank of an issue? Exception?
Generally 1 year. Exception - . But, in some circumstances, the customer must act more quickly: if it involves a serialforger, or the bank could have prevented further loss. In these situations, the customer can only get reimbursed for the first month’s forgeries
what do you need to be a holder in due course
A holder in due course is a holder of a negotiable instrument who received the instrument in good faith, for value, without notice of any claims or defects regarding the instrument or underlying transaction
What’s the effect of being a holder in due course?
a HDC is not subject to personal defenses such as breach of contract or failure of consideration. A HDC is subject to “real” defenses, none of which are applicable here.
when is holder in due course status determined?
at the time the negotiation occurs
If a check is forged or unauthorized, what’s the general rule?
A forged or unauthorized indorsement is generally ineffective for negotiation. However, if an imposter induces a person to issue an instrument to the imposter by impersonating the payee of the instrument or an agent of the payee, an indorsement of the instrument by any person in the payee’s name may be effective as the indorsement of the payee
Forgery/unauthorized signature presentment
If a draft is presented to the drawee (here, First Bank) for payment or acceptance and the drawee pays or accepts the draft, the person obtaining payment or acceptance (National Bank), at the time of presentment, warrants to the drawee making payment that the warrantor is authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft. The warranty that the warrantor is a person entitled to enforce the instrument is generally breached by the forgery of a necessary indorsement (e.g., a payee’s signature). This places the burden of determining the validity of the signature on the bank.
What do stop payment orders need to contain?
Stop payment orders must be in writing, signed and dated, and describe with certainty the item upon which payment is to be stopped. A bank may choose to obey a verbal order, but is not required to honor it.
What’s the SOL for an HDC?
within 6 years of the due date
What is needed for full satisfaction
When a claim is subject to dispute, that claim may be discharged if the person against whom the claim is asserted tenders, in good faith, an instrument that contains a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim, and the claimant obtains payment of the instrument. The instrument must be tendered to the person or office designated by the organization for such payments.
When is discharge not effective?
When a claimant is an organization, the discharge is not effective if the instrument is not tendered to a person, place, or office designated by the organization as the proper location for that type of payment. If the organization has not made such a designation or the claimant is not an organization, the discharge is not effective if the claimant returns the payment within 90 days.
when does the 90 day exception not apply?
The 90-day exception does not apply if the claimant, or the claimant’s agent who has direct responsibility with respect to the disputed obligation, knew, within a reasonable time before collection was initiated, that the instrument was tendered in full satisfaction of the claim. The burden to establish such knowledge is on the party seeking discharge.
Under the imposter rule, does a drawer of a check have responsibility to make sure that the person they are making the check payable to is actually who they say they are?
Yes! The bank will generally not be liable.
What happens if you indorse something with a blank indorsement
The check becomes bearer paper, meaning that whoever is in possession of it is entitled to enforce it
