Commercial Paper

Question 1

What is Commercial Paper?

Answer 1

A written instrument for the payment of money

Question 2

What is a note?

Answer 2

A two-party instrument, as a promise to pay money.

Question 3

What is a Maker?

Answer 3

The party that creates a note as the payor

Question 4

What is a payee?

Answer 4

The person due to be paid under a note.

Question 5

What is a certificate of deposit?

Answer 5

A special type of note issued by a financial institution as payor. The financial Institution must acknowlege receipt of money and and promose to repay the money.

Question 6

What is a draft?

Answer 6

A three-party instrument, as an order to pay money to someone else. The drawer is the person ordering payment, the drawee is the person making the payment, and the payee is the person receiving payment.

Question 7

What is a check?

Answer 7

A type of draft where a financial institution is the drawee and it is payable on demand, whenevr the payee wants it.

Question 8

What is a certified check?

Answer 8

A check that he bank has accepted or agreed to pay.

Question 9

What is a cashier’s check?

Answer 9

When the drawer and drawee are the same bank. The person receiving the funds is the remitter.

Question 10

What is a teller’s check?

Answer 10

When the bank is the drawer of a check on another bank, with the payee referred to as a remitter

Question 11

What is a traveler’s check?

Answer 11

a check requiring a counter-signature (two signatures).

Question 12

What is a remotely-created item/demand draft?

Answer 12

A draft not signed by the drawer, but created with the drawer’s authority, like phone or internet.

Question 13

What is negotiability?

Answer 13

The ability of an instrument in its FORM, at the time of issuance, to be able to reach a holder in due course.

Question 14

What happens when an instrument is not negotiable?

Answer 14

It cannot reach/create a holder in due course, and the holder is subject to normal contract rules.

Question 15

What are the elements of negotiability?

Answer 15

Eight elements:

1) . In writing
2) . signed by the maker/drawer. This can be any symbol.
3) . An unconditional promise or order to pay. A condition to payment breaks this, referencing other things won’t. See outline for more.
4) . For a fixed amount of principal
5) . In money, not goods/services
6) . No other undertaking or instruction–this can’t be a full contract, just an obligation to pay. *See outline
7) . Payble on demand or at a definite time
8) . Must contain words of negotiability. (bearer or order language)

Question 16

What must the receiver of an instrument do to negotiate it?

Answer 16

to be a holder of an instrument, the receiver must have possession of it and good title to it.

Question 17

How does a holder get good title to a bearer instrument?

Answer 17

merely possess it.

Question 18

How does a holder get good titled to an order instrument?

Answer 18

Have the required indorsements: signature on the instrument by someone other than the drawer, normally on the back

Question 19

What types of indorsements are there?

Answer 19

Blank endorsement: when the payee signs the instrument, this creates a bearer instrument.
A special indorsement: when the payee signs and makes it payable to another person, creating order paper.
A restrictive indorsement: when the signee limits what can be done with the instrument. If the drawee does not comply with the limitation, the drawee is liable.

Question 20

What are the requirements to be a holder in due course?

Answer 20

6 elements:

1) . there must be a negotiable instrument
2) . he must be a holder
3) . The instrument is apprently authentic
4) . the holder must pay value
5) . He must have god faith
6) . He must have no notice of anything wrong with the instrument.

Question 21

When migh a holder not meeting the HDC status still get HDC rights?

Answer 21

When he is sheetlered by a previous HDC by the Shelter rule, giving him the same rights as the transferor.

Question 22

What must the receiver of an instrument do to negotiate it?

Answer 22

to be a holder of an instrument, the receiver must have possession of it and good title to it.

Question 23

How does a holder get good title to a bearer instrument?

Answer 23

merely possess it.

Question 24

How does a holder get good titled to an order instrument?

Answer 24

Have the required indorsements: signature on the instrument by someone other than the drawer, normally on the back

Question 25

What types of indorsements are there?

Answer 25

Blank endorsement: when the payee signs the instrument, this creates a bearer instrument.
A special indorsement: when the payee signs and makes it payable to another person, creating order paper.
A restrictive indorsement: when the signee limits what can be done with the instrument. If the drawee does not comply with the limitation, the drawee is liable.

Question 26

What are the requirements to be a holder in due course?

Answer 26

6 elements:

1) . there must be a negotiable instrument
2) . he must be a holder
3) . The instrument is apprently authentic
4) . the holder must pay value
5) . He must have god faith
6) . He must have no notice of anything wrong with the instrument.

Question 27

When migh a holder not meeting the HDC status still get HDC rights?

Answer 27

When he is sheetlered by a previous HDC by the Shelter rule, giving him the same rights as the transferor.