Commercial Paper and Negotiable Instruments

Question 1

What are two types of commercial paper?

Answer 1

Notes - promise to pay (CD)

Draft - order to pay (check or trade acceptance)

Question 2

What are requirements of negotiability?

Answer 2

Must meet all - COUPONS
Certain sum of money
Order or bearer
Unconditional promise to pay
Payment in money
ON demand or specific time
Signed by creator of instrument

Question 3

How is an instrument properly negotiated?

Answer 3

Bearer paper - by delivery

Order paper - by endorsement and delivery

Question 4

What are types of endorsements?

Answer 4

Special - endorser names next payee, makes it order paper
Blank - endorser signs
Qualified - without recourse
Restrictive - for deposit only

Question 5

What is a holder in due course?

Answer 5

Party that receives negotiable instrument:
In good faith
For value
Without notice of defect

Question 6

What are real defenses for payment?

Answer 6

Good against anyone:
FABLE
Forgery
Alteration
Bankruptcy discharge
Lack of capacity
Execution in fraud or extreme duress

Question 7

What are personal defenses for payment?

Answer 7

Good against assignees and holders, not HDC:
BUILD
Breach of contract
Unauthorized completion
Inducement of fraud
Lack of consideration
Duress

Question 8

What are different sections of UCC?

Answer 8

Article 2 - Sale of goods
Article 3 - Commercial paper
Article 7 - Documents of title
Called holder by due negotiation - must give new value at time of receiving instrument
Examples: warehouse receipt, bill of lading
Article 8 - Investment securities
Article 9 - Collateral