commercial paper & secured transactions

Question 1

commercial paper: law

Answer 1

UCC article 3 is the creation of uniform rules for the payment of obligations in forms other than cash. These non-cash forms of payment, known as negotiable instruments or commercial paper, have unique characteristics that convey rights from one party to another while creating legally enforceable obligations. Article 3 applies to notes and drafts. Article 3 applies only to negotiable instruments

Question 2

commercial paper: note

Answer 2

a note is a two-party instrument in which the maker promises to pay the payee a sum of money. The promissory instrument is generally evidence of an extension of credit; notes contain promises

Question 3

commercial paper: certificate of deposit

Answer 3

a two-party instrument, particular to banks, in which the bank acknowledges an amount of money and promises to repay that amount. A CD is only an Article 3 instrument if it is negotiable, which most are not.

Question 4

commercial paper: draft

Answer 4

a 3-party commercial paper in which the drawer orders a 2nd party (drawee or payor) to pay a sum of money to a 3rd party payee; contains orders: “to national bank, pay to the order of paula the sum of $100, signed, mark.” Four types: check, traveler’s check, teller’s check, and cashier’s check

Question 5

commercial paper: check

Answer 5

a type of draft: drawn on a bank and payable on demand

Question 6

commercial paper: traveler’s check

Answer 6

a type of draft; must be “countersigned” by a person whose “specimen signature” appears on the traveler’s check

Question 7

commercial paper: cashier’s check

Answer 7

a type of draft; drawer and drawee are the same bank

Question 8

commercial paper: teller’s check

Answer 8

type of draft; drawn by a bank on another bank or payable at or through a bank

Question 9

commercial paper: contradictory terms

Answer 9

when conflicting or contradictory terms exist within an instrument, handwritten terms take precedence over typed terms, and typed terms take precedence over printed terms, words over numbers

Question 10

Negotiability defined

Answer 10

1-unconditional; 2-promise or order to pay; 3-a fixed amount of money, w/ or w/o interest; 4-payable to order or bearer; 5-on demand or at a definite time; and 5-states no unauthorized undertaking or instruction.

Question 11

Unconditional instruments

Answer 11

Cannot expressly state a condition for payment, and cannot be subject to or governed by another writing. It can refer to another writing regarding collateral, prepayment, or acceleration; limit payment to a particular fund; require a countersignature or specimen signature; contain the statement that the holder is subject to claims and defenses of the original payee; recite consideration out of which the instrument arose.

Question 12

definite time: acceleration clause

Answer 12

“pay bearer $5 on 5/1/2014, or at my death if i die sooner” does not destroy negotiability

Question 13

definite time: extension clause

Answer 13

extensions at option of the maker, or that are automatic at the happening of an event are okay, if the extension is to a further definite time stated in the instrument , such as “pay bearer $5 on 8/2/2014, but if a uranus mission has been launched, payment may be made on 8/2/2015.” An extension at the option of the holder is always permitted-but he may not exercise if maker objects & tenders payment

Question 14

permitted undertaking or instructions in negotiable instruments

Answer 14

1-an undertaking or power to give, maintain, or protect collateral; 2-an authorization or power to given to the holder to confess judgment or to realize on or dispose of collateral; and 3-a waiver of the benefit of a law that protects the obligor