Exam Rules - Commercial Paper

Question 1

What is an accommodation party

Answer 1

An accommodation party is a type of surety, or one who guarantees the debt of another

Question 2

What are the requirements for an accommodation party

Answer 2

A person cannot have received a direct benefit from the instrument. An accommodation party is liable on the instrument in whatever capacity he has signed.

Question 3

What happens if a party entitled to enforce an instrument impairs the value of the collateral

Answer 3

The obligations of an accommodation party is discharged to the extent of the impairment. The party seeking discharge has the burden of proof.

Question 4

What are examples of impairing the value of an interest in collateral

Answer 4

(1) failure to obtain or maintain perfection or recordation of the interest in collateral (2) release of collateral without substitution of collateral of equal value (3) failure to perform a duty to preserve the value of collateral owed to a debtor or surety (4) failure to comply with applicable law in disposing collateral

Question 5

When is an accommodation party liable on the instrument

Answer 5

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

Question 6

What makes an instrument negotiable

Answer 6

(1) writing (2) signed by the maker (3) unconditional promise to pay (4) due at a definite time (5) for a specified amount

Question 7

What interest rate is used if an instrument does not specify one

Answer 7

The established judgment rate in the jurisdiction of the place of payment of the instrument at the time interest first accrues

Question 8

Who has the burden of proving loss after a stop payment order

Answer 8

The customer has the burden of proving loss after a bank fails to adhere to their stop payment order

Question 9

What prevents a customer from seeking repayment after a stop payment order

Answer 9

If the check was drawn after an HDC, the bank is subrogated to the HDC or any other older on a check against the drawer. Therefore, the customer cannot prove loss because the HDC could have demanded payment from the customer-drawer even if the bank honored the stop-payment order

Question 10

What are the requirements to be an HDC

Answer 10

(1) take the instrument as a holder (2) for value (3) in good faith and (4) without notice of infirmities of the instrument or transaction from which the instrument arose