Commercial Paper

Question 1

Negotiable Instrument

Answer 1

Written, signed, i) unconditional ii) promise/order to pay iii) a fixed amt of money; iv) to order or bearer v) on demand or at a definite time; vi) which states no unauthorized undertakings

Question 2

Holder in Due Course

Answer 2

Takes an instrument i) for value, ii) in good faith (honesty in fact- subjective and observance of commercial standards of fair dealing-objective), iii) without notice of any claims or defenses

Question 3

Statute of Limitations

Answer 3

In Florida, the SOL on all negotiable instruments is five years

Question 4

Note

Answer 4

Maker and payee/bearer

Question 5

Draft

Answer 5

Drawer, drawee, payee

Question 6

Check

Answer 6

Draft payable on demand and drawn on bank

Question 7

Value

Answer 7

1) performance of the consideration; 2) acquisition by the holder of a lien or a security instrument in the instrument (other than judicial lien); 3) taking the instrument as payment of antecedent debt; 4) trading a negotiable instrument for another instrument; or 5) giving instrument in exchange for incurring irrevocable obligation to third party by taking instrument

Question 8

Facts Constituting Notice

Answer 8

1) instrument overdue (i; any part of principal overdue, ii; acceleration has been made, iii; more than a reasonable time has elapsed after issue of a demand instrument - 90 days for checks)
2) unauthorized signature of alteration
3) Claims to the instrument (
4) Defenses or claims in recoupment
5) When and how notice received - such time and manner so as to give a rsbl opportunity to act on it.

Question 9

Real Defenses

Answer 9

Fraud in the Factum
Forgery
Alteration
Adjudicated Incompetency
Infancy
Illegality
Duress
Discharge through bankruptcy/known by HDC
Suretyship Defenses
Statute of limitations

Question 10

Who May Enforce

Answer 10

i) holder; ii) nonholder in possession with rights of holder; iii) person not in possession but entitled to enforce

Question 11

Burden of Proof

Answer 11

i) signatures are genuine; ii) person presenting is entitled to enforce

Question 12

Who Liable

Answer 12

1) Maker/issuer of cashier check; 2) indorser - secondary liability; 3) Transferor; 4) Drawer; 5) Drawee; 6) Acceptor; 7) Accommodation Party

Question 13

Indorser Liability

Answer 13

Secondary Liability. Basic Obligations: Holder must show presentment; dishonor, and notice of dishonor to look to indorser for payment.
On a check - liability discharged unless presented for payment or given to depositary bank within 30 days after indorsement
Warranty Liabiliity - when indorser transfers for consideration, becomes liable as transferor

Question 14

Presentment

Answer 14

Demand for payment made by person entitled to enforce.
Excused for indorser liability if i) person entitled to present cannot with reasonable diligence; ii) maker has repudiated, is dead, or insolvent; iii) presentment not necessary in instrument terms; or v) drawer instructed drawee not to pay/drawee not obligated

Question 15

Dishonor

Answer 15

Maker/drawee does not pay within allowed time after presentment.

Question 16

Notice of Dishonor

Answer 16

Indorser not liable unless she is given timely notice - any commercially reasonable means but generally within 30 days after dishonor

Question 17

Transferor Liability

Answer 17

Five warranties made by any person who transfers an instrument for consideration. Warranties run to all subsequent holders if by indorsement, but to immediate transferee only if not.

1) Entitled to enforce the instrument or item;
2) all signatures authentic and authorized
3) Instrument or item has not been altered
4) No defense or claim is good against transferor
5) No knowledge of any insolvency proceedings against maker/accepter/drawer

Question 18

Drawer Liability

Answer 18

Secondary liability. If draft is dishonored, drawer obliged to pay according to draft’s terms when drawer signed. If draft accepted by bank however, drawer is discharged and cant be liable if bank fails to pay.

Question 19

Drawee Liability

Answer 19

No liability until signs and becomes an acceptor.

Question 20

Drawee Bank Duties

Answer 20

Bank to Customer - bank may be liable for failure to accept draft b/c contractual relationship exists which imposes duties on both bank and customer.
If sufficient funds on hand, bank must honor customer’s check (even if insufficient they MAY but then customer liable); if bank wrongfully dishonors, customer may collect damages for harm proximately caused. Bank may refuse to pay checks over six months old

Customer to bank - bank can charge customers acct if it can show it suffered a loss bc customer negligently failed to discover/notify of unauthorized payments on statements resulting from alteration/forgery of signature.