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Bar Prep Rule Statements MBE/FLORIDA > FL COMMERCIAL PAPER > Flashcards

FL COMMERCIAL PAPER Flashcards

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1
Q

COMMERICAL PAPER

A

Written instruments for the payment of money.

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2
Q

ANALYTICAL FRAMEWORK

A

What type of paper?
Who are the parties?
Is instrument negotiable?
Was instrument properly negotiated?
Was transferee a HDC?
What are Ps COA?
What are Ds defenses?
May D pass on liability?

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3
Q

NOTE

A

A promise to pay money. It is a 2 party instrument.

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4
Q

MAKER

A

One who owes the money (promisor, obligor, debtor)

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5
Q

PAYEE

A

The person entitled to payment

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6
Q

CERTIFICATE OF DEPOSIT

A

Type of notice issued by bank containing
1. acknowledgment of money received and
2. a promise to repay.

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7
Q

DRAFT

A

A draft is an order to pay money. It is a 3 party instrument.

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8
Q

DRAWER

A

The person ordering payment in draft

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9
Q

DRAWEE

A

The person to make the payment in draft

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10
Q

PAYEE

A

The person to receive payment from draft

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11
Q

CHECK

A

A check is a type of draft. A draft will qualify as check if
1. a bank is the drawee and
2. the instrument is payable on demand

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12
Q

TYPES OF CHECKS

A

Ordinary Check
Certified Check – bank has accepted (agreed to pay)
Cashier’s Check – draft where the drawer and drawee are the same bank (also called remitter)
Teller’s Check – draft drawn by one bank on another bank.
Traveler’s Check – demand instrument requiring a counter-signature by a person whose specimen signature already appears on the instrument.

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13
Q

NEGOTIABILITY

A

Refers to the form of the instrument and is determined at the time of issuance. Important because, under K law, a transferee gets no better rights than the transferor. But, if the paper is negotiable and properly negotiated, it may reach the hands of a holder in due course and the HDC gets better rights than transferor

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14
Q

ELEMENTS TO BE NEGOTIABLE

A
  1. Unconditional
  2. Promise or order to pay
  3. A fixed amount of money
  4. Is payable to order or bearer
  5. Is payable on demand or at definite time and
  6. State no unauthorized undertaking or instruction by the person promising or ordering payment
    ALSO
  7. Must be a written instrument
  8. Must be signed by maker or drawer
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15
Q

CONDITIONAL - WHEN AND WHEN NOT

A

Presumption that it is unconditional. But is conditional if
1. Contains an express condition to payment
2. It states that the promise or order is subject to or governed by another record or
3. The rights or obligations with respect to the promise are stated in another record
What doesn’t make it conditional
1. states the consideration
2. refers to another record
3. incorporates by reference items that wouldn’t hurt the holder such as (i) rights regarding collateral (ii) right of obligor to early payment and (iii) right of holer to get paid early on happening of some event
4. limits payment to particular fund or source
5. requires counter-signature
6. contains a statement required by law that the holder is subject to claims or defenses

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16
Q

FIXED AMOUNT - INTEREST

A

Only the principal amount need be fixed, interest rates do not have to be fixed. Interest stated the following ways does not violate
1. amount of money
2. fixed or variable rate
3. reference to outside source
4. plus interest

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17
Q

NEGOTIABILITY - IN MONEY

A

Includes foreign money, cannot be payable in goods or services, words prevail over figures

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18
Q

NEGOTIABILITY - NO OTHER UNDERTAKING

A

Negotiable instruments are just promises or order to pay money. They are often called “couriers without luggage.” Only 3 undertakings are permissible
1. promises regarding collateral
2. an authorization or power given to holder to confess judgment or realize on or dispose of collateral and
3. waiver of law meant to benefit obligor

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19
Q

NEGOTIABILITY - NO OTHER UNDERTAKING
“C W/O L”

A

Negotiable instruments are just promises or order to pay money. They are often called “couriers without luggage.” Only 3 undertakings are permissible
1. promises regarding collateral
2. an authorization or power given to holder to confess judgment or realize on or dispose of collateral and
3. waiver of law meant to benefit obligor

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20
Q

PAYABLE ON DEMAND

A

payable on demand if it states that it is payable on demand, at sight, etc, or fails to state a date or time for payment

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21
Q

PAYABLE AT DEFINITE TIME

A

Is payable at a definite time if it is payable on a fixed date, fixed period, after sight, or acceptance, or at a time readily ascertainable when instrument issued

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22
Q

PERMITTED DATE CHANGE MATTERS

A

The following date change matters do not prevent an instrument from being payable at definite time
1. prepayment
2. acceleration of due date
3. extending the due date at the option of the maker and extension that are automatic on happening of an event are acceptable if the extension is to a further definite time

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23
Q

CONTAIN WORDS OF NEGOTIABILITY

A

To Bearer
– an instrument is payable to bearer if it
1. states that it is payable to bearer
2. does not name the payee or
3. is payable to cash or otherwise indicates that it isn’t payable to an identified person
To Order
– an instrument is payable to order if it is payable “to the order of” an identified person or to an identified person or order

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24
Q

BOTH ORDER AND BEARER LANGUAGE

A

If instrument contains both, bearer language controls.
Exception
Order/bearer language requirement is waived for checks if it is the only missing negotiability element

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25
Q

NEGOTIATION - BECOMING A HOLDER

A

A holder is a person in possession of an instrument w/ a right to enforce it. Holder status is
1. possession of the instrument and
2. good title, which depends on the words of negotiability used
– bearer paper – possession
– order paper – possession + indorsement

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26
Q

BLANK INDORSEMENT

A

A blank indorsement is a signature that isn’t accompanied by the naming of a specific indorsee. The indorser merely signs his own name.

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27
Q

SPECIAL INDORSEMENT

A

A special indorsement is accomplished by the payee’s signature plus a designation of a new person to whom the instrument is payable.

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28
Q

FOR DEPOSIT OR COLLECTION INDORSEMENT

A

A restrictive indorsement limiting what can be done with the instrument

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29
Q

IDENTIFICATION OF PAYEE - INTENT OF ISSUER

A

The intent of the issuer determines the initial payee.

30
Q

TRANSFEREE’S RIGHT OT TRANSFEROR’S INDORSEMENT

A

If instrument is transferred for value, the transferee has a specifically enforceable right to the transferor’s indorsement

31
Q

PAYEE LACKING CAPACITY

A

Negotiation is effective even if the payee was a minor, incompetent, or unduly influence, or subject to duress.

32
Q

WHEN IS HDC STATUS RELEVANT

A

When the obligor raises a defense to payment.

33
Q

REQUIREMENTS FOR HDC STATUS

A

SHAG WIN P
1. Status as holder
2. authenticity not questioned
3. good faith
4. without notice
5. instrument negotiable
6. pays value (can be less than full amount & past consideration counts)

34
Q

FACTS NOT CONSTITUTING NOTICE

A
  1. instrument is antedated, postdated, or undated
  2. the instrument was issued in return for an executory promise
  3. any party signed for accommodation
  4. an incomplete instrument has been completed
  5. any person negotiating the instrument was a fiduciary
  6. that there has been a default in payment of interest
  7. there is a public filing or recording of a document
  8. the instrument was sold at a discount
  9. notice of discharge of a party.
35
Q

FACTS CONSTITUTING NOTICE

A
  1. instrument overdue
  2. instrument dishonored
  3. unauthorized signature or alteration
  4. claims to the instrument
  5. defenses or claims in recoupment
36
Q

REAL DEFENSES TO HOLDER IN DUE COURSE

A
  1. Infancy
    – is a defense if its a defense in a simple contract action
  2. duress
  3. incapacity to K
  4. illegality
  5. fraud in the factum (real fraud)
    – fraud that causes obligor to sign an instrument without knowledge of the instruments character or essential terms and without reasonable opportunity to learn of them
  6. discharge in insolvency
  7. SOL
    – 5 years
  8. alteration
  9. unauthorized signatures and forgeries
37
Q

CONTRACT LIABILITY

A

Contract liability arises from the signature.

38
Q

LIABILITY OF PRINCIPAL

A

If an agent signs their own name or the name of the principal, the principal is bound if the agent had the authority to sign.

39
Q

LIABILITY OF AGENT

A

**agent not personally liable **
1. the principal is identified in the instrument and
2. the signature unambiguously shows that it was made on behalf of the principal
When agent personally liable
If signature doesn’t show it was made in a representative capacity or the principal isn’t identified in the instrument, the agent is personally liable on K if
1. The holder is a HDC unless the agent can prove the HDC had notice of representative nature
2. the holder is not an HDC and agent can’t prove that the original parties did not intend the agent to be liable

40
Q

MAKER OF NOTE - PRIMARY LIABILITY

A

The maker or issuer owe their obligation to
1. a person entitled to enforce the instrument (holder) and
2. indorser who paid the instrument after its dishonor

41
Q

DRAWER OF DRAFT - SECONDARY LIABILITY

A

A) Disclaiming liability
– a drawer can disclaim liability on any instrument except for checks
B) Secondary Liability
– A drawer is liable only after 2 conditions are satisfied
1. If the draft is a check, presentment w/n 30 days
2. dishonor (the drawee refuses to pay upon proper presentment)

42
Q

LIABILITY OF INDORSER OF NOTE OR DRAFT (how to negate, order of liability, 2nd liability)

A

A) Indorsers obligation may be negated if the indorser includes the words w/o recourse w/ the indorsement
B) order of liability – indorsers are liable to each other in the order of their signatures. An indorser may sue prior indorsers for payment, and they’re liable to later indorsers.
Secondary Liability
Only after 3 prereqs:
(i) presentment
(ii) dishonor
(ii) notice of dishonor w/n 30 days

43
Q

DRAWEE LIABILITY

A

General rule - a drawee of a draft makes no negotiable instruments contract and can’t have any liability unless and until they sign the instrument
So, holder generally cannot force a drawee to pay out on a draft.

44
Q

Acceptance and Certification

A

The drawee may agree to pay the draft by signing the draft. Also known as a certified check. The drawee has no obligation to accept a draft and they can’t be sued for failing to accept a draft. But if they do, its a certification and discharges drawer and all prior indorsers.

45
Q

Death of Customer

A

the customer’s death doesn’t revoke the bank’s authority to pay a check until the bank
1. knows of the death and
2. has reasonable time to act on knowledge
Even with knowledge, bank may continue paying checks for 10 days after the date of death unless ordered to be stopped

46
Q

Accommodation Parties

A

An accommodation party signs an instrument to lend credit to another party to the instrument and receives no direct benefit. They are in essence a surety.
Accommodating party – person w/ bad credit
Accommodation party – person with good credit
Holder – person who wants payment assured

47
Q

Warranty Liability

A

Invoked to get money paid back.

48
Q

Transfer Warranties

A

Transferor who receives consideration makes warranties.
Warranties are made to transferees.
– warranties run to the immediate transferee whether or not the transfer is by indorsement, all subsequent transferees if by indorsement
For banks - liability runs to any subsequent collecting bank even without indorsement
Never a drawee or makers.

49
Q

The Transfer Warranties

A
  1. Entitled to enforce the instrument
  2. all signatures are authentic and authorized
  3. instrument has not been altered
  4. no defense or claim
  5. transferor has no knowledge of any insolvency proceedings that have been instituted
50
Q

Disclaiming transfer warranties

A

Warranties cant be disclaimed for check.
other than check, can be negated by a transferor by placing words of that effect on instrument

51
Q

Presentment warranties

A

Who makes – defendants in an action on presentment and previous transferors
Who made to – the plaintiffs are any parties who pay in good faith – drawee, maker, or acceptor

52
Q

Warranties when unaccepted draft presented

A

On unaccepted drafts, persons obtaining payment and previous transferors warrant that
1. warrantor is entitled to enforce the draft or is authorized
2. the draft has not been altered and
3. the warrantor has no knowledge that the drawer’s signature is unauthorized

53
Q

Warranty vs Indorser’s Contract

A

If Plaintiff is holder
– holder will sue the indorser on indorser’s contract
If plaintiff is payor
– will attempt to sue the indorser for breach of warranty

54
Q

Overdrafts

A

A bank is obliged to honor its customer’s check if sufficient funds are on deposit to cover the draft. A may choose to honor a check even if the customer has insufficient funds, in which case the customer is liable to bank for the overdraft.

55
Q

Overdrafts

A

A bank is obliged to honor its customer’s check if sufficient funds are on deposit to cover the draft. A may choose to honor a check even if the customer has insufficient funds, in which case the customer is liable to bank for the overdraft.

56
Q

Postdated Checks

A

A bank may pay a postdated check unless the customer gives the bank notice of the postdating. If the customer notified, the bank cant pay the check before stated date.

57
Q

Stop Payment orders

A

A drawer may stop payment on a check. Other parties have no authority to do so. Order is effective for 6 months but can be renewed. Must be in writing, signed, and dated. Received at a time and in a manner that affords the bank a reasonable opportunity to act on it.

58
Q

Wrongful Dishonor

A

If a bank (drawee) dishonors a properly payable check, the customer (drawer) may bring an action and collect damages for harm proximately caused by the wrongful dishonor, such as the bounced check fee and expenses incurred defending prosecution.

59
Q

Banks Defenses for Wrongful Dishonor

A
  1. payment would overdraw the drawer’s account
  2. the check is more than 6 months old - bank may honor a stale check if it does so in GF, but itsn’t obligatied
60
Q

Payment in Full Check

A

A payment in full check is a check on which the drawer conspicuously indicates that cashing the check acts as payment in full of an existing obligation that is unliquidated or subject to bona fide dispute.
Excepts, will not operate as an accord and satisfaction if
- payee returns the money w/n 90 days or
- claimant/payee is an organization and sends notice, before the instrument is tendered, requiring they be tendered to designated palce

61
Q

Forgery

A

Essential in determining whose signatured. If the chain of title is broken, no subsequent possessors will qualfiy as holders.

62
Q

Forged Maker’s Signature

A

The purported maker isn’t liable because the maker’s signature doesn’t appear on the note. Instead, the forger is liable on the note

63
Q

Forged Drawer’s Signature

A

If a drawer’s signature is forged on a check, the purported drawer is not liable. Unless they have a defense, the drawee bank must recredit the drawer’s account because the check was not properly payable.

64
Q

Bank Defenses to RE-crediting Drawer

A

A) Drawer negligence – if drawer’s negligence contributed to alteration or forged signature, the drawer may not raise the forgery against a party who paid instrument in good faith.
B) Bank Statement Rule – duty to inspect statement and cancel checks in a timely manner – forged drawer signature need to be reported to bank within 180 days
C) repeat offender rule - drawer fails to report repeat forgeries within 30 days

65
Q

Effect of Forging Payee’s Name

A

Bearer paper – since indorsement isn’t necessary to negotiate, forgery of indorsement is irrelevant
Order paper – forgery breaks chain of title and the check is not properly payable

66
Q

When Party precluded From Asserting Forgery

A

Imposter Rule – maker or drawer will be estopped from denying validity of forged indorsement if they act carelessly in issuing instrument.
Fraudulent Indorsements by Employees – Payee Estopped – If an employer entrusts an employee with responsibility with respect to an instrument and the employee makes a fraudulent indorsement, the indorsement is effective. Payee is estopped to assert the forgery.

67
Q

Liability of Drawee

A
  • Conversion Liability to Payee (payee’s name was forged, can sue payor bank)
  • Not properly payable liability to drawer
  • Drawee protected from double liability
  • Bank defenses
    — imposter rule
    — fraudulent indorsement by employee entrusted with check
    — drawer’s negligence
68
Q

Liability of Presenter/Transferor for Forged Indorsement

A

– Drawee bank pays payee or drawer –> can sue presenter and prior transferors for breach of entitlement to enforce warranty
– Presenter loses on presentment warranty –> can sue prior transferors on transfer warranties

69
Q

Alteration

A

An unauthorized change that purports to modify the obligation of any party. There are 2 types
- an alteration of an existing, complete instrument and (may enforce to its original terms)
- unauthorized completion of an incomplete instrument (may enforce according to terms completed)

70
Q

Not properly payable - alteration & defenses

A

an altered check is not properly payable
Defenses
1. negligence
2. bank statement rule

Bar Prep Rule Statements MBE/FLORIDA (23 decks)

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