MD Commercial Paper Flashcards
Note
2-party instrument where maker promises to pay the payee a sum of money. Promisory obligation.
Draft
3-party instrument where drawer orders drawee (bank) to pay the payee a sum of money (ie a check)
A negotiable instrument must be:
(1) promise or order in writing and signed (2) unconditional/enforceable in all events (3) must be stated to payable in money in a fixed amount w/ or w/o interest (4) payable to order or bearer at time issued or when first comes into possession of the holder (5) payable on demand or at a definite time (or a check) (6) no undertakings or instruction made by issuer
An instrument is NOT unconditional/ enforceable in all events if:
(1) express condition (2) says subject to or governed by other writing (3) states that rights or obligations are stated in another writing
An instrument is payable at a definite time if:
(1) at end of a definite period (e.g. w/in 90 days) (2) a fixed date (3) at a time readily ascertainable at the time of issue (Thanksgiving 2015)
Undertakings that do not destroy negotiability:
(1) to give, maintain or protect collateral to ensure payment (2) authentication or power to confess judgement or realize on or dispose of collateral (3) promise waiving benefit of any law intended for obligor’s protection
Negotiation
in/voluntary transfer of possession by someone other than the issuer to someone who thereby becomes the holder of the instrument
Payable to bearer
may be negotiated (transferred) by delivery alone
Payable to an identified person/Payable to order
Negotiation requires transfer and indorsement by holder. If indorsement is blank (name of transferor only) becomes bearer paper. If special (name of transferee also) becomes order paper.
Presentment
demand on maker or drawee.
Holder
(1) in possession AND (2) payable to bearer (bearer paper0 OR (3) payable to ID’ed person and that person is in possession (order paper properly indorsed). OJO! Could have obtained illegally. a depository bank may become the holder of a check deposited to the account of a customer if the customer was a holder, whether or not the customer endorses the check.
Fictitious payee
If payee (1) not intended to have any interest or (2) is a fictitous person, THEN indorsement by the payee in favor of one who takes in good faith and pays value is effective (negligent company)
Imposter
Where someone impersonates the payee and induces drawer or maker to issue the instrument payable in name of impersonated person, indorsement in name of payee in favor of one who takes in good faith and pays value is effective (negligent company)
Holder in Due Course: Requirements
(1) instrument bears no evidence of forgery, alteration, other irregularity (2) takes (a) for value (b) in good faith (c) without notice of problems such as (i) overdue, doshonored, or defaulted (ii) unauthorized signature (iii) any defense against or claim to the instrument by someone else
Derivative HDC rights
HDC rights transfer to subsequent holder EXCEPT to a transferee who was part of fraud or as a prior holder knew of defense/defect
Liability of representative signatory
NOT liable if unambiguously shows that it’s made on behalf of a disclosed P. Otherwise liable unless can show that the original parties did not so intend.
Effect of unauthorized signatures (not forgeries)
Effective as against the actual signer
Maker v. drawer liability
Maker is primarily liable on the note, Drawer is secondarily liable on the draft after the drawee (bank) if: 1) there has been presentment of the check to the drawee; 2) the check was dishonored by the bank; and 3) there was notice of the dishonor to the drawer.
Drawee liability
Bank only liable if accepts the draft, ie certifies it, and becomes an acceptor. Acceptance is a signed promise written on the draft.
Warranties made by transferor of an instrument
(1) entitled to enforce the instrument (2) all signatures authentic and authorized (3) has not been altered (4) not subject to defenses (5) no knowledge of insolvency of the maker, drawer, acceptor
Indorser liability
Secondarily liable after maker/drawer. Makes warranties to immediate and all other transferees. UNLESS endorsement says “without recourse”
Accommodation party
one who signs an instrument in order to lend credit and does not get any benefit. still fully liable.
Presentment warranties (for a draft)
(1) person is entitled to enforce the draft (2) draft hasn’t been altered (3) no knowledge that signature of the drawer is forged or unauthorized
Real defenses
Even HDC takes subject to. (1) infancy (2) duress - must be physical (3) fraud in the factum - signed w/o knowledge or reasonable opp to find out was a note (4) discharge in insolvency proceedings (5) forgery (kind of)
