Commercial Paper

Question 1

Preamble

Answer 1

TX has adopted the UCC Article 3 to govern negotiable instruments and Article 4 for checks.

Question 2

Methods of Endorsement

Answer 2

1. blank: payee signs only (bearer paper)
2. special: payee signs + designation of new owner (order paper)
3. forgery: doesn’t break title, later ppl are holders
4. restrictive: limits what can be done with instrument
5. multiple: “and” needs all to endorse, “or” means anyone can
6. ambiguous name: issuer’s intent controls

Question 3

Note def.

Answer 3

Promise to pay (2 parties)

Question 4

Draft def.

Answer 4

Order to pay (drawer, drawee/bank, payee/bearer

Question 5

Bearer language ex.

Answer 5

1. “payable to bearer”
2. no payee stated
3. to cash

Question 6

Order language ex.

Answer 6

1. “payable to order of Jane Doe”

Question 7

Negotiability Elements

Answer 7

1. in writing;
2. signed by maker/drawer;
3. unconditional promise/order to pay;
4. a fixed amount of money;
5. payable to order or bearer;
6. payable on demand or at definite time;
7. has no other undertaking by maker; and
8. contains words of negotiability (bearer or order language)

Question 8

Holder Elements

Answer 8

1. person identifies in instrument;

2. in possession

Question 9

Holder in Due Course Elements

Answer 9

1. takes for value;
2. in good faith;
3. w/out notice overdue, unauthorized sig, alteration, claim, or defense to payment

Question 10

Negotiation

Answer 10

1. transfer of possession of instrument;

2. endorsement by holder (blank, special, restrictive)

Question 11

Maker liability

Answer 11

1. primary liability;
2. pay amt promised when instru due;
   pay according to terms at time issued or when first came into possession of a holder; and
3. unless he has defense

Question 12

Real Defenses

Answer 12

1. alteration
2. unauthorized signature
3. infancy
4. duress
5. lack of capacity
6. limitations
7. illegality
8. fraud in execution
9. bankruptcy
10. omissions of req consumer protection language
11. SOL
12. payment to former holder

Question 13

Improper Ways to Make Payment

Answer 13

1. forged drawer sig
2. 3P alters amount of check
3. bank pays wrong person (forger)
4. postdated items properly notified

Question 14

Who are Parties to Commercial Paper

Answer 14

1. two party paper or a note
2. involves maker & payee
3. three party paper or a check
4. involves drawer, drawee bank and payee

Question 15

Stop Order Payment

Answer 15

1. broad latitude for customer
2. any reasons
3. in writing
4. dated
5. signed
6. describe item w/ certainly
7. valid for 6 mos / renewable

Question 16

Transferoror’s Liability

Answer 16

1. for consideration
2. transfer warranty holder status
3. by endorsement: runs to all sub holders
4. no endorsement: only to immediate

Question 17

Types of Alterations

Answer 17

1. change in obligation

2. unauthorized completion

Question 18

Surety Liability

Answer 18

1. never liable to accommodated party

2. is liable in capacity signed

Question 19

Drawee Bank Liability

Answer 19

1. not liable unless signs or accepts

2. tort or K liability if refuse to accept

Question 20

Payor Bank Liability

Answer 20

1. usually drawee bank
2. if accepts then liable & drawer is discharged
3. midnight rule

Question 21

Indorser’s Liability

Answer 21

1. arises from signature
2. pay according to terms of instrument
3. w/out recourse
4. need dishonor or 30 day rule

Question 22

Drawee/Bank Duties to Customer

Answer 22

1. must honor drafts
2. postdated checks
3. only pay properly payable charges

Question 23

Drawer’s Liability

Answer 23

1. draft dishonored
2. pay according to terms when signed
3. need dishonor
4. bank accepts then liability discharged
5. w/out recourse (no checks)

Question 24

Maker Liability

Answer 24

1. pay instrument according to its terms
2. pay at time of issuance
3. promise unconditional

Question 25

When Forgery is Valid

Answer 25

1. fictitious payee signature forged
2. instrument employees sig
3. negligence contributed to forgery
4. bank statement rule violated
5. brank certifies

Question 26

Way Person Becomes a Holder

Answer 26

1. possession + good title
2. bearer paper = possession only
3. order paper = possession + necessary endorsement

Question 27

Transfer Warranties

Answer 27

1. PETE
2. all sigs genuine & authorized
3. not been materially altered
4. no defenses
5. no knowledge of insolvency proceedings
6. if draft, authorized by drawer

Question 28

Order of Parties Liabilities

Answer 28

1. maker or drawer always primarily liable on NI
2. secondary liability possible
3. through present or endorsement warranties