Commerical paper

Question 1

What are the 5 requirements of a valid negotiable instrument?

Answer 1

1. negotiable words in writing
2. unconditional promise to pay
3. time certain (on demand or specified time)
4. sum certain
5. signed by drawer/ maker

Question 2

What 3 things does UCC3 not apply yo?

Answer 2

1. money/ cash
2. documents of title
3. investment securities (silas)

Question 3

What is the significance of a note/draft made payable to order?

Answer 3

in connection with payment to a specified payee (ex pay to order of John)

Question 4

What is the significance of a note/ draft made payable to bearer?

Answer 4

payable to whoever holds instrument (ex payable to bearer or pay to cash_

Question 5

What are 7 examples of matters not affecting the negotiability of instruments?

Answer 5

1. omission of C
2. statement that collateral given
3. promise to maintain collateral
4. confession of judgement if instrument not paid
5. waiver of low favoring obligor
6. term provifing that payee acknowledge full satisfaction upon endorsement/ cashing
7. statement that order effective only if no toher part honored

Question 6

How is an instrument payable to order negotiated?

Answer 6

by delivery to payee

-any further negotiation requries payee to endorse and deliver to transferee

Question 7

What is a special endorsee?

Answer 7

specific person IDed on instrument who must endorse/ sign instrument for it to be further negotiated

Question 8

What is a restrictive endorsement?

Answer 8

limits endorsement (ex deposit only)

Question 9

When will a subsequent possessor of a note not get a good title?

Answer 9

when signature on note forged (does not become holder/ HDC)

Question 10

When is endorsement not required?

Answer 10

when instrument payable to bearer (instrument becaomes bearer paper and possessor becomes holder w/ ability to negotiate instrument)

Question 11

What 5 things qualify a holder as a HDC?

Answer 11

1. a holder (posession, clear title)
2. took for value
3. in good faith
4. w/o notice of defects/ claims
5. and instrument properly negotiated OR holder covered by shelter rule

Question 12

What is a shelter rule?

Answer 12

transferee gets beenfits of all rights of the transferor when transferor was HDC

Question 13

What are the rights of an HDC in terms of defenses?

Answer 13

HDC takes instrument free of all claims and personal Ds but is still subject to real Ds

Question 14

What is fraud in factum?

Answer 14

when maker did not know she was making a negotiable instrument at all

Question 15

When will suretyship defense be valid against HDC?

Answer 15

when HDC knew prior to acquiring instrument that prior parties were sureties

Question 16

When will discharge by cancellation of liability be a valid defense against a HDC?

Answer 16

when prior parties name has been stricken from the instrument

Question 17

What are the 10 real defenses?

Answer 17

Material alteration

1. duress
2. fraud in factum
3. incapacity
4. infancy
5. illegality
6. insolvency
7. discharge (cancel liability/agreement no to sue)
8. suretyship
9. forgery
10. persons HDC has dealt w/ (unless took rights under shelter rule)

Question 18

When is the unauthorized signing of an instrument not deemed ineffective?

Answer 18

when instrument is later ratified by person who in good faith takes instrument for value

Question 19

Who is liable if a check bounces?

Answer 19

1. drawer/ writer of check
2. endorser if endorser had notice
   - not liable=bank didnt sign, signer if they disclaim liability

Question 20

Typically, when is a drawer discharged of liability of a draft?

Answer 20

when bank accepts draft

Question 21

What is the drawers obligation when the acceptor is not a bank?

Answer 21

like an endorser, drawer will be liable for payment if they had notice of dishonor (bounced check)

Question 22

IF an incomplete instrument is dishonored, when is an endorser obligated to pay?

Answer 22

when instrument is completed (pays according to terms of instrument)_

Question 23

When is the signature of an instrument not presuemd valid?

Answer 23

when action is to enforce liability of signer, then signer has burden of establishing validity of signature

Question 24

Who has the burden to establish defenses?

Answer 24

defendent

Question 25

Who has burden to establish status as HDC?

Answer 25

party claiming HDC status (ususally P)

Question 26

IS a HDCs rights affected by other writings?

Answer 26

NO unless HDC had notice of limitation when taking instrument

Question 27

When does the cause of action on a time instrument accrue?

Answer 27

on day after maturity

Question 28

When does c/a accrue on a demand instrument?

Answer 28

on date on instrument or date of issue

Question 29

When does a c/a against a drawer accrue?

Answer 29

upon demand followed by dishonor

Question 30

When can material alteration of an instrument not be asserted as defense against HDC?

Answer 30

when party asserting negligently contributed to alteration

Question 31

When an instrument is ambigous what factors control construction?

Answer 31

• handwriting controls over printed text

- when multiple parties sign all are considered jointly and severally liable

Question 32

What is teh significance of an instrument naming “parties in alternative”?

Answer 32

payable to any of named parties and negotiable by any one of them

Question 33

What is the significance of an instrument naming parties “not in alternative”?

Answer 33

payable to all parties named & may be negotiated, discahrged, or enforced only by all of them

Question 34

What 3 factors could keep a holder that takes for value, in good faith, w/o notice from gaining HDC status?

Answer 34

If holder:

1. purchased instrument at judicial sale or via legal process
2. acquires instrument while taking over an estate
3. purchases instrument as a part of a bulk transaction not in regular course of business of the transferor