Commercial Paper Flashcards
Preamble
TX has adopted the UCC Article 3 to govern negotiable instruments and Article 4 for checks.
Methods of Endorsement
- blank: payee signs only (bearer paper)
- special: payee signs + designation of new owner (order paper)
- forgery: doesn’t break title, later ppl are holders
- restrictive: limits what can be done with instrument
- multiple: “and” needs all to endorse, “or” means anyone can
- ambiguous name: issuer’s intent controls
Note def.
Promise to pay (2 parties)
Draft def.
Order to pay (drawer, drawee/bank, payee/bearer
Bearer language ex.
- “payable to bearer”
- no payee stated
- to cash
Order language ex.
- “payable to order of Jane Doe”
Negotiability Elements
- in writing;
- signed by maker/drawer;
- unconditional promise/order to pay;
- a fixed amount of money;
- payable to order or bearer;
- payable on demand or at definite time;
- has no other undertaking by maker; and
- contains words of negotiability (bearer or order language)
Holder Elements
- person identifies in instrument;
2. in possession
Holder in Due Course Elements
- takes for value;
- in good faith;
- w/out notice overdue, unauthorized sig, alteration, claim, or defense to payment
Negotiation
- transfer of possession of instrument;
2. endorsement by holder (blank, special, restrictive)
Maker liability
- primary liability;
- pay amt promised when instru due;
pay according to terms at time issued or when first came into possession of a holder; and - unless he has defense
Real Defenses
- alteration
- unauthorized signature
- infancy
- duress
- lack of capacity
- limitations
- illegality
- fraud in execution
- bankruptcy
- omissions of req consumer protection language
- SOL
- payment to former holder
Improper Ways to Make Payment
- forged drawer sig
- 3P alters amount of check
- bank pays wrong person (forger)
- postdated items properly notified
Who are Parties to Commercial Paper
- two party paper or a note
- involves maker & payee
- three party paper or a check
- involves drawer, drawee bank and payee
Stop Order Payment
- broad latitude for customer
- any reasons
- in writing
- dated
- signed
- describe item w/ certainly
- valid for 6 mos / renewable
Transferoror’s Liability
- for consideration
- transfer warranty holder status
- by endorsement: runs to all sub holders
- no endorsement: only to immediate
Types of Alterations
- change in obligation
2. unauthorized completion
Surety Liability
- never liable to accommodated party
2. is liable in capacity signed
Drawee Bank Liability
- not liable unless signs or accepts
2. tort or K liability if refuse to accept
Payor Bank Liability
- usually drawee bank
- if accepts then liable & drawer is discharged
- midnight rule
Indorser’s Liability
- arises from signature
- pay according to terms of instrument
- w/out recourse
- need dishonor or 30 day rule
Drawee/Bank Duties to Customer
- must honor drafts
- postdated checks
- only pay properly payable charges
Drawer’s Liability
- draft dishonored
- pay according to terms when signed
- need dishonor
- bank accepts then liability discharged
- w/out recourse (no checks)
Maker Liability
- pay instrument according to its terms
- pay at time of issuance
- promise unconditional
When Forgery is Valid
- fictitious payee signature forged
- instrument employees sig
- negligence contributed to forgery
- bank statement rule violated
- brank certifies
Way Person Becomes a Holder
- possession + good title
- bearer paper = possession only
- order paper = possession + necessary endorsement
Transfer Warranties
- PETE
- all sigs genuine & authorized
- not been materially altered
- no defenses
- no knowledge of insolvency proceedings
- if draft, authorized by drawer
Order of Parties Liabilities
- maker or drawer always primarily liable on NI
- secondary liability possible
- through present or endorsement warranties
