Commercial Paper bar

Question 1

For an Instrument to Be Negotiable, it must be

Answer 1

1) In writing;
2) Signed by the Maker
3) Containing an Unconditional Promise/ order to Pay a
4) Fixed Amount of Money
5) To an Order or Bearer
6) Payable on Demand or at Definite Time
7) Without Stating any Additional Undertaking or Instruction

Question 2

An Instrument is Payable to Order if It

Answer 2

Identifies a person

Question 3

If you lost an Instrument, you must

Answer 3

prove the terms of the instrument and person’s right to enforce instrument

Question 4

To Negotiate an Instrument, holder Must

Answer 4

TRANSFER POSSESSION of the instrument AND INDORSE IT

Question 5

Special Indorsement

Answer 5

Names an identified person as indorsee in addition to the indorsement

Question 6

Ex. of Special Indorsement

Answer 6

Pay to Nancy Next /s/ Peter Payee

Question 7

Endorser Liability

Answer 7

Indorser is secondarily liable on an instrument

Question 8

Interest Payment

Answer 8

Unless explicitly stated, an instrument does not automatically convey an interest payment

Question 9

Interest may be at a ___ or ___ rate

Answer 9

fixed or variable

Question 10

How can interest be determined?

Answer 10

By reference to other documents or information

Question 11

How is interest rate determined when the instrument specifies only that interest will be paid

Answer 11

established by the judgment rate in the JX of the place of payment of the instrument at the time interest first accrues

Question 12

Which terms take precedence when there are conflicting or contradictory terms in instrument?

Answer 12

Handwritten over typwritten

typewritten over printed

Words over numbers

Question 13

A holder in due course is one who takes item for

Answer 13

for value, in good faith and w/o notice that item was overdue or dishonored

Question 14

Can HDC endorse check?

Answer 14

Yes notwithstanding a stop payment order unless a real defense is invoked

Question 15

Is HDC status changed by subsequent notice?

Answer 15

No

Question 16

When is HDC status defined?

Answer 16

when he accepts check in exchange for work

Question 17

Real defenses

Answer 17

infancy, void K, bankruptcy, forgery, deception, discharge known to holder

Question 18

Shelter Doctrine

Answer 18

Party that does not qualify for HDC status can assert the rights of the HDC as long as the party is not personally engaged in wrongdoing affecting the instrument

Question 19

Effect of Stopping Payment on a Check

Answer 19

Does not avoid an obligation; merely delays payment

To avoid payment, D needs to establish a real defense against a HDC by preponderance of the evidence

Question 20

For party to be Liability on Negotiable Note

Answer 20

must bear signature or that of an authorized rep for instrument to be negotiable

Question 21

Bank May charge customer’s account for a check only for

Answer 21

properly payable items

Question 22

Forged drawer’s signature makes check

Answer 22

not properly payable

Question 23

Drawer then has duty to

Answer 23

promptly report its unauthorized signature to BAnk and Bank must re-credit drawer’s account

Question 24

Presentment Warranty

Answer 24

Warranty as to drawer’s signature is breached only if warrantor has no knowledge that signature of purported drawer is unauthorized

Question 25

Knowledge means

Answer 25

actual knowledge

Question 26

WHen First Holder Endorses Check, he makes transfer warranties that

Answer 26

1) he was a person entitled to enforce check 2) all signatres on check, including his, are authentic and authorized (no forgery) 3) check has not been altered 4) check is not subject to any claims or defenses that could be raised against him 5) maker of the note is not insolvement This enables collector to recover against same parties pursuant to tort theories

Question 27

Principal Liability for Instrument Signed by Agent: Authority

Answer 27

Principal's liability on an instrument signed by agent turns on whether agent had authority, either actual or apparent

Question 28

If agent is authorized, principal is liable regardless of whether

Answer 28

agent signed principal's name, agent's own name or both

Question 29

Liability of principal if agent is not authorized

Answer 29

not liable

Question 30

Ratification: Even if an agent acts with no power to bind principal, principal can

Answer 30

ratify an act performed by another person whether or not person is an actual agent of principal

Question 31

Ratification occurs when

Answer 31

principal affirms a prior act done or purported to be done on principal's behalf

Question 32

Principal's affirmation may either be

Answer 32

express or implied Consideration is not required

Question 33

Requirement for accommodation party

Answer 33

cannot have received a direct benefit from the instrument

Question 33

Accommodation Party

Answer 33

type of surety, or one who guarantees debt of another

Question 34

Capacity that accommodation party is liable on instrument

Answer 34

liable in whatever capacity he has signed

Question 35

Accommodator's defense

Answer 35

if a party's obligation to pay an instrument is secured by an interest in collateral and person entitled to enforce instrument impairs the value of the interest in collateral, the obligations of an accommodation party are discharged to the extent of impairment

Question 35

Accommodation party: Cosigner

Answer 35

assumed to be an accommodation party

Question 36

Impairing value of an interest in collateral includes

Answer 36

1) failure to obtain or maintain perfection or recordation of the interest in collateral 2) failure to release collateral w/o substitution of collateral of equal value 3) failure to perform a duty to preserve the value of collateral owed to a debtor or surety or other person secondarily liable; or 4) failure to comply w applicable law in disposing collateral

Question 36

Burden of proving collateral's impairment is on

Answer 36

party asserting discharge

Question 37

An accommodation party is liable on the instrument only if

Answer 37

1) the person entitled to enforce the instrument has reduced his claim to judgment against the other party and execution is returned unsatisfied 2) other party has become insolvent 3) other party cannot be served w process; or 4) it appears useless to proceed against the other party

Question 38

A surety who makes payment on a loan on behalf of a principal is entitled to

Answer 38

all of the rights and remedies of a creditor

Question 39

An alteration is an

Answer 39

unauthorized change that purports to modify the obligation of a party

Question 40

Fraudulent Alteration

Answer 40

If the alteration is done fraudulently by holder, it would discharge the liability of the obligor

Question 41

If alteration is not done fraudulently, obligor would remain liable but only on

Answer 41

the original terms of the obligation

Question 42

Once drawee-bank has paid a check, it is subrogated to the rights of

Answer 42

any HDC payee or other holder on a check against drawer

Question 43

Consequently, when there is an HDC with respect to a check, the customer cannot prove loss because

Answer 43

the HDC could have demanded payment from the customer-drawer even if the bank complied with the stop-payment order.

Question 44

If a check is dishonored, the drawer has generally promised

Answer 44

to pay the holder according to the terms of the check when it was issued.

Question 45

However, the drawer may usually refuse to pay a mere holder of the check if

Answer 45

the drawer has a defense that would permit it not to pay the payee.

Question 46

If a promise or order contains an express condition to payment, it is

Answer 46

not a negotiable instrument

Question 47

A negotiable instrument must be payable in money, which includes

Answer 47

currency and currency funds... principal amount must be a fixed amount of money

Question 48

An order instrument is payable only to

Answer 48

the person named or to his order Term order MUST APPEAR

Question 49

Bearer instrument is payable to

Answer 49

anyone who possesses the instrument

Question 50

An instrument is payable at a definite time if it is payable ___

Answer 50

1) on a fixed date, 2) at end of a definite period after sight or acceptance 3) at time readily ascertainable when the instrument is issued