Commercial Paper Flashcards
Art 3 Requirements for a Negotiable Instrument SUPPOrT:
Signed Writing Unconditional Promise or Order Pay money - fixed amt ORder or bearer paper language Time: On demand or at definite time
Holder in Due Course
Person in possession (negotiated instrument),
In Due Course: Must pay value (not necessarily consideration), in good faith, with out notice of defense
Effect: Shelters further transferees as long as not a party to fraud/illegality
Indorser
Person who signs on the back, made contract that if its presented for payment
1. Presented to person responsible for payment
2. Must be dishonored
3. Give notice of dishonor
Can be held liable as an indorser
- Warranty breach
Transfer Warranty Liability - hE SAID
- Entitled to enforce
- Signatures are genuine
- No material Alteration
- No Defenses
- No knowledge of Insolvency proceedings
Holder rights against Bank (Drawee)
No rights against bank
Grantee v. Bank (customer v. bank)
- Bank should have paid and did not - Damages
2. Properly payable rule: should not have paid but did
Drawee’s Possible Defenses (Comparative Negligence Applies)
- Ratification by drawer
- Fictitious payee rule
- Employer entrustment rule
- Drawer negligence
- Drawer’s failure to inspect/notify (should check statements
Payor (Drawee Bank) v. Presenter
- Entitled to enforce
- Hasn’t been altered
- No knowledge the drawer’s signature has been forged
Forged Drawer Signature
Final Payment Rule: Bank supposed to know their customer’s signature, so payment is final and cannot go against forger.
Negotiation
Transfer to a holder
- Bearer Paper > Transfer of Possession
- Order Paper > indorse and transfer
- Forgery of indorsement breaks chain of title
- Only bank can act w/o indorsement to deposit
Real Defenses (Against HDC): FRAUDS
- Forgery of payee or special indorsee signature
- Real Fraud - signer doesn’t know what he’s signing
- Alteration of instrument
- Unable to enforce cuz its VOID
- Incapacity
- Infancy
- Illegality
- Duress - Discharge in insolvency
- Statute of Limitations
Defenses Against Holder: FRAUDS + TPILB (Personal Defenses)
This Paper Is Latently Bad
- Theft
- Personal Fraud (knows what he is signing)
- Impossibility
- Lack/failure of Consideration
- Breach
Presentment Warranties - GAS
Good Title (no missing/forged indorsements) Alterations - none Signature - drawer's believed authorized
Good Guy Negligence Contributed ITFN
I’m Truly Fried Now
- Imposter
- Trusting another w/ Checks
- Failing to check stmts
- Negligence that allows the problem
SEVEN BASIC QUESTIONS:
- Is it a negotiable instrument?
- Is party a Holder or HDC?
- Who can be Liable?
- What defenses can prevent enforcement?
- Did anyone transfer the instrument?
- Did anyone present the instrument for payment?
- Did a good guy’s negligence contribute to the problem?
