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REG Law > Commercial Paper & Documents of Title > Flashcards

Commercial Paper & Documents of Title Flashcards

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1
Q

What are the 2 types of Commercial Paper?

A

Promissory Notes

Drafts

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2
Q

A promissory note has two parties: the ___ and the ____

A

Maker & Payee

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3
Q

This is when a bank acknowledges receipt of money & promises to repay with interest

A

a Certificate of Deposit

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4
Q

A Certificate of Deposit (CD) is a form of what?

a) Promissory Note
b) Draft

A

A

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5
Q

A Check is a form of what?

a) Promissory Note
b) Draft

A

B

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6
Q

Drafts and Checks are an order to a 3rd party to pay. What are the 3 parties?

A

Drawer - writes the draft/check
Payee - person the 3rd party must pay
Drawee - third party who is ordered to pay

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7
Q

T/F

A check must be payable on demand

A

TRUE

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8
Q

T/F

A check’s drawee can be any individual

A

FALSE

A check’s drawee must be a bank

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9
Q

A Trade Acceptance is a form of what?

a) Promissory Note
b) Draft

A

B

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10
Q

How is a trade acceptance different from a check and/or unique from other drafts?

A

A trade acceptance is a draft drawn by a seller ordering a buyer to pay. The seller is usually both the drawer (writes the draft) and the payee (person who receives the payment). The drawee (third party ordered to pay) is the buyer.

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11
Q

T/F

Investment Securities (Stocks/Bonds) and Documents of Title (warehouse receipts & bills of lading) are commercial paper

A

FALSE

They are not commercial paper, but they usually follow the same rules in that they can be negotiated

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12
Q

A negotiable instrument is a written order or unconditional promise to pay a fixed sum of money on demand or at a certain time. What does negotiable mean as it applies to negotiable instruments?

A

A negotiable instrument can be transferred from one person to another. Once the instrument is transferred, the holder obtains full legal title to the instrument

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13
Q

What are the 5 elements of negotiability? (SUMBOD)

A

S - must be Signed
U - must be an Unconditional promise or order
M - must be Money and nothing else but money
B, O - must be payable to Bearer or payable to Order
D - Must be payable on Demand or payable at a Definite time

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14
Q

T/F

As described in the 5 elements of negotiability, B & O state that to be negotiable the instrument must be payable to bearer or payable to order. This means that on the front of the check it must either say “Pay to Bearer” or “Pay to the Order of…”

A

FALSE

Checks are the exception. Checks do not need to be payable to bearer or to order

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15
Q

T/F

Once an instrument is negotiable on its front, it’s always negotiable

A

TRUE

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16
Q

T/F

A promise or order must be unconditional (sUmbod) for it to be negotiable. This means it is not negotiable if it is “subject to” or “contingent upon” another agreement. Therefore there must be no references to another agreement.

A

FALSE

Simple references to another agreement will not prevent negotiability.

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17
Q

T/F

References to collateral or security prevent negotiability

A

FALSE

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18
Q

T/F

Provisions as to consideration prevent negotiability

A

FALSE

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19
Q

T/F

Commercial paper must be payable in a fixed sum of money

A

TRUE

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20
Q

T/F

Since commercial paper must be payable in a fixed sum of money, interest and collection costs (attorney fees) are not allowed, because those may not be fully estimable

A

FALSE

Interest and collection costs (attorney fees) are okay

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21
Q

T/F

If words and numbers differ (for example, on a check) then the instrument cannot be negotiable

A

FALSE

Still negotiable - if words and numbers differ the words control

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22
Q

This is the act of transferring commercial paper to a third party

A

Negotiation

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23
Q

How does one negotiate bearer paper?

A

Mere delivery

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24
Q

How does one negotiate order paper?

A

Delivery plus a proper endorsement

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25
Q

A blank endorsement doesn’t name a new payee and therefore makes commercial paper _____

A

Bearer Paper

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26
Q

A special endorsement names a new payee and therefore makes commercial paper _____

A

Order Paper

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27
Q

T/F

A restricted endorsement adds a restriction and therefore prevents further negotiation

A

FALSE

The further restriction (example, “for deposit only” or “for collection only”) does not prevent further negotiation

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28
Q

A _____ endorsement is a signature which adds the words “without recourse”

A

Qualified

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29
Q

This phrase means there is no guarantee of payment (no contract liability)

A

Without Recourse

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30
Q

_____ is a guarantee of payment

A

Contract Liability

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31
Q

Primarily liable parties are the parties first expected to pay on the instrument. Who is primarily liable for a promissory note? For a draft/check?

A

Promissory Note - Maker of the Note

Draft/Check - Drawees only after they accept, but there is no obligation for them to accept

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32
Q

T/F

Drawers of drafts/checks are generally secondarily liable, but can be primarily liable in some cases

A

FALSE

They can NEVER be primarily liable

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33
Q

T/F

Endorsers are always secondarily liable

A

FALSE

They are generally secondarily liable, except for the qualified endorser who writes “without recourse”

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34
Q

Since drawers and endorsers are secondarily liable, how soon must a check be presented to hold them liable?

A

Within 30 days to hold drawers liable

Within 7 days to hold endorsers liable

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35
Q

This is a liability from transferring commercial paper

A

Warranty Liability

36
Q

If you transfer commercial paper by signing you are making warranties to ____

A

All subsequent parties

37
Q

If you transfer commercial paper without signing you are making warranties to ____

A

Only to the immediate transferee

38
Q

What are the 5 warranties from transferring commercial paper?

A 
Good Title
Signatures are Genuine
Instrument has not been materially altered
No insolvency proceeding against issuer
No defense is good against them
39
Q

What 4 requirements that you must meet to be a holder in due course? (HIDC)

A

Holder of a negotiable instrument
Give present value
Have good faith
Be without notice of any problems or defenses

40
Q

HIDC takes free of ______ but loses to ______

A

Personal Defenses

Real Defenses

41
Q

What are real defenses that beat an HIDC? (I’M BIFF)

A

1) Infancy (maker/drawer is a minor)
2) Material Alterations
3) Bankruptcy
4) adjudicated Insanity or Illegality
5) Fraud in the execution (maker/drawer had no idea what they were signing)
6) Forgery

42
Q

T/F

Sometimes duress is a real defense, but only to the extent it makes an instrument void

A

TRUE

43
Q

T/F

Along with fraud in the execution, fraud in the inducement is a real defense that will beat an HIDC

A

FALSE

Fraud in the Inducement can be beat by the HIDC

44
Q

What are examples of personal defenses?

A

Breach of contract

Fraud in the inducement (misunderstanding in the contract)

45
Q

If there was a material alteration and the drawer was negligent, the drawer is liable for ____

A

The full amount

46
Q

If there was a material alteration and the drawer was not negligent, the drawer is liable for ___

A

only for the unaltered amount

47
Q

T/F

A forger is always liable

A

TRUE

48
Q

T/F

If a forger forges a drawer’s name (one writing the draft/check), the drawee (one ordered to pay) is liable if they accept a pay

A

TRUE

49
Q

T/F

If a forger forges a payee’s name, this does not pass good title and therefore the first person the forger passed the instrument to is liable

A

TRUE

50
Q

T/F

If a holder accidentally destroys an instrument, this discharges the parties because the instrument is no longer in tact

A

FALSE

Accidental destruction does not discharge parties, only intentional destruction does.

51
Q

T/F

A renunciation to discharge a party can be either written or oral

A

FALSE

It must be written to be effective

52
Q

T/F

Unexcused delay in presentment discharges all prior endorsers

A

TRUE

53
Q

These are documents covering goods being transported or stored

A

Documents of Title

54
Q

What are the two types of documents of title?

A

Warehouse Receipts

Bills of Lading

55
Q

T/F

A warehouse employee must be bonded and licensed to issue a warehouse receipt that acknowledges receipt and storage of goods specified

A

FALSE

The employee need not be bonded or licensed

56
Q

What must a warehouse receipt state?

A

1) The location of the warehouse

2) If the goods are to be delivered to bearer, to a specified party, or to the order of a specified party

57
Q

What is the difference between a warehouse receipt and a bill of lading?

A

A bill of lading is issued by a CARRIER (not the warehouse employee) acknowledging receipt of goods and a contract for transportation (not storage)

58
Q

This person is very similar to a holder in due course in commercial paper and acquires essentially the same rights as a holder in due course does

A

A holder in due negotiation

59
Q

What are the 4 requirements to be a holder in due negotiation?

A

Must give Present Value for the document of title
Must take in good faith
Must take without any notice of an adverse claim or defense
The purchaser must obtain it in the regular course of business or financing

60
Q

What are the 3 warranties made by transferors of negotiable documents of title?

A

Document is genuine
Transfer is effective and rightful
Transferor had no knowledge of facts that would impair validity of the document

61
Q

T/F

In transfers of a document of title, there is no warranty that the warehousemen will honor the document

A

TRUE

62
Q

When does title and risk of loss pass for a document of title?

A

When a buyer gets the document

63
Q

T/F

Warehousers and carriers may limit their liability by contract

A

TRUE

64
Q

T/F

Warehousers and carriers are always liable for negligence (lack of due care)

A

TRUE

65
Q

T/F

Warehousers and carriers are liable for misdelivery of goods to a good faith purchaser

A

TRUE

66
Q

T/F

Warehousers and carriers are strictly liable

A

FALSE

Warehousers are NOT strictly liable, but Common Carriers ARE

67
Q

How is strict liability unique?

A

Under strict liability there is no requirement to prove fault, negligence, or intention.

68
Q

What is the difference between contract liability and warranty liability?

A

Contract liability is a guarantee of payment, which you only have if you signed the commercial paper.

Warranty Liability is for any transferor

69
Q

T/F

A Draft is an order to pay

A

TRUE

Drafts and Checks are three-party instruments in which the drawer orders the drawee to pay the payee

70
Q

T/F

A Certificate of Deposit is an order to pay

A

FALSE

Notes and CDs are two-party instruments in which the maker promises to pay the payee

71
Q

T/F

Under the negotiable instruments article of the UCC, for a note to be negotiable it must contain necessary conditions of payment

A

FALSE

In fact, such conditions can destroy negotiability

72
Q

This is an endorsement that does not specify any endorsee

A

A Blank Endorsement

73
Q

This is an endorsement in which the endorser disclaims liability to pay the holder or any subsequent endorsers for the instrument if it is later dishonored

A

A Qualified Endorsement

74
Q

This is an endorsement where the endorser indicates a specific person who needs to subsequently endorse it

A

A Special Endorsement

75
Q

This is an endorsement where it says “for deposit only”

A

This is a common example of a Restrictive Endorsement

76
Q

T/F

In order to be a HIDC the holder, among other requirements, must give value. An antecedent debt will satisfy this value requirement

A

TRUE

Even though the antecedent debt would not be valid for the consideration requirement under contract law, it is valid for the value requirement under negotiable instruments law

77
Q

T/F

In order to be a HIDC the holder, among other requirements, must give value. A promise to perform services at a future date will satisfy this value requirement

A

FALSE

This has no value until actually performed

78
Q

T/F

If an instrument is payable in money or by the delivery of goods, it is a nonnegotiable instrument

A

TRUE

79
Q

T/F

If a check is postdated, it is still payable on demand before the post date

A

FALSE

80
Q

T/F

If a check is postdated, it ceases to be demand paper and is payable when post dated

A

TRUE

81
Q

T/F

If a check is postdated, this destroys negotiability

A

FALSE

82
Q

T/F

If a check is postdated, a bank that pays the check is automatically liable for early payment

A

FALSE

The bank is only liable if the drawer provides notice to the bank of the postdated check

83
Q

T/F

Under the Negotiable Instruments Article of the UCC, a person endorsing a check “without recourse” makes no promise or guarantee of payment on dishonor

A

TRUE

84
Q

T/F

Under the Negotiable Instruments Article of the UCC, a person endorsing a check “without recourse” gives no warranty protection to later transferees

A

FALSE

They still give some warranties, just not a promise or guarantee of payment

85
Q

T/F

A party who found an instrument payable to bearer can become a HIDC

A

FALSE

They will not be able to satisfy all of the necessary requirements to be a HIDC

86
Q

T/F

A party who receives an instrument from a HIDC will become a holder through the HIDC, even if the receiving party may not have been a HIDC individually

A

TRUE

REG Law (12 decks)

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