Commercial Paper Essay

Question 1

Commercial Paper

Properly Payable

Answer 1

The bank is obligated to honor its customers checks if there are sufficient funds on deposit to cover the draft and it is presented for payment within 6 month of issuance.

• if Bank wrongfully dishonors the draft, the customer can recover damages as a result.

Stop Payment

• under UCC, a written stop payment order is binding on the bank for 6 months.
• however, a verbal order lapses after 14 days from if not confirmed in writing.

Question 2

Commercial Paper

Indorser Liability

Answer 2

Parties other than the Maker can be liable on a check.
* a holder may sue the indorser for the amount of check under a contractual theory based on the indorsement alone unless it was signed “w/out recourse” or the like.

There are three Prerequisites:

1) Presentment (w/in 30 days)
2) Dishonor
3) Notice of dishonor

Question 3

Commercial Paper

Alteration as a Defense

Answer 3

Alteration of an instrument is a Real Defense except as against person precluded from raising the defense.

• a person is precluded from raising such defense when the person negligently substantially contributed to alteration.

Question 4

Commercial Paper

Defense (Fraudulent)

Answer 4

Real defense may be asserted against all holder, including an HDC.
* Fraudulent alteration is a real defense and occurs when there is an authorized change in the term of the instrument.

Question 5

Payment by Maker

Answer 5

If a maker of a note pay a holder, the maker of the note is discharged from liability.

• but if the maker pays someone who is not the holder the makers will have to pay on the note again to the true holder comes along.
• When a note is payable to a specific payee a later transferee cannot become a holder f the note unless the specific payee endorser the note by signing his name on the bank of instrument.

Question 6

Indorser Liability (dishonor)

Answer 6

When an indorser signs her name to an instrument, she enters into a contract that if the instrument is presented for payment and is dishonored, and the indorser is given notice of dishonor, she will pay on the instrument according to its terms at the time of endorsement.

Question 7

Liability of the Drawer of a Draft

Theft alteration

Answer 7

The drawer of a draft also enters into a contract that will pay the draft according to its terms.

However, if Negligent HDC can collect the altered amount from Drawer.

Question 8

Commercial Paper

Conversion

Answer 8

A person entitled to possession of an instrument may bring action for conversion of the instrument under the circumstances that would give rise to an action for conversion of other property.

• An action for conversion cannot be maintained unless the person brings the action received possession of the instrument.
• Receipt by an agent will be treated as receipt by principal.

Question 9

Conversion

Payable in Turst

Answer 9

When an instrument is payable in trust (Principal), the depositing bank can be held liable for paying instrument inconsistent with the trust.

• However, a subsequent transferee is not liable in conveyancing unless it has notice that the fiduciary (agent) breached his duty.

Question 10

Commercial Paper

Warrant Liability

Answer 10

Under article 3, the holder of a negotiable instrument generally has a contract right to enforce the instrument against any prior indorser.

• However, such contract right is negated if indorses with words “ without recourse”.

However, in addition to his contract liability, and indorser who transfers an instrument for CONSIDERATION also incurs a warranty liability

• he warrants that no defense of any party is good against him.
• this warrant can be negated, but needs to more than “without recourse”