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Yaeger REG > Mod 28 Commercial Paper > Flashcards

Mod 28 Commercial Paper Flashcards

1
Q

4 types of commercial paper

A

1 promissory note
2 certificates of deposit
3 drafts and checks
4 trade acceptance

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2
Q

Promissory note

2) it will have the word…

A

Promise to pay

2) “promise” in it

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3
Q

Promissory note has 2 parties

A

1 maker

2 payee

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4
Q

Certificates of deposit 2

A

1 Bank acknowledges receipt of money

2 and promises to repay with interest (a bank promissory note)

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5
Q

Drafts and checks are…

A

An order to a 3rd party to pay

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6
Q

A draft has 3 parties

A

1 drawer

2 payee

3 drawee

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7
Q

Checks must be…2

A

1 payable on demand and

2 the drawer must be a bank

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8
Q

Trade acceptance

A

Draft drawn by seller ordering a buyer to pay

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9
Q

Trade acceptance:

The seller is usually…2

A

1 Both the drawer and payee and

2 is secondarily liable

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10
Q

Trade acceptance:

The buyer accepts by…2

A

1 Signing in lower left hand corner and

2 is primarily liable

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11
Q

Investment securities…

A

Stocks and bonds

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12
Q

Documents of title 2

A

1 warehouse receipts and

2 bills of lading

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13
Q

Investment securities and documents of title are…

A

Not commercial paper, but they usually follow the same rules

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14
Q

5 elements of negotiability neumonic

A

SUMBOD

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15
Q

5 elements of negotiability:

What does SUMBOD stand for?

A 
1 signed
2 unconditional
3 money
4 payable to Bearer or to Order
5 demand/definite time
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16
Q

5 elements of negotiability:

S

A

Must be signed

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17
Q

5 elements of negotiability:

U

A

Must be unconditional promise or order

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18
Q

5 elements of negotiability:

M

A

Must be Money, nothing else but money

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19
Q

5 elements of negotiability:

BO

A

Must be payable to bearer or payable to order

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20
Q

5 elements of negotiability:

Must be payable to bearer or payable to order. What is the exception?

A

Checks do not need to be payable to bearer or order

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21
Q

5 elements of negotiability:

D

A

Must be payable on Demand or payable at a definite time

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22
Q

Once commercial paper is negotiable on its front, it’s…

A

Always negotiable

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23
Q

Commercial paper must be signed by…

A

Maker or drawer

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24
Q

The promise or order must be…

A

Unconditional for it to be commercial paper

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25
Q

The promise or order must be unconditional for it to be commercial paper:

It is not negotiable if it is…

2) however references to another agreement will…

A

It is subject to or contingent upon another agreement

2) not prevent negotiability

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26
Q

The promise or order must be unconditional for it to be commercial paper:

2 things that do not prevent negotiability

A

1 references to collateral or security

2 provisions as to consideration

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27
Q

Commercial paper must be payable in…

A

A fixed sum of money

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28
Q

Commercial paper must be payable in a fixed some of money. 3

A

1 it must be payable in money and nothing else but money

2 interest and collection costs are ok

3 the words control

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29
Q

Interest and collection costs

A

To include attorney’s fees

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30
Q

If numbers differ from words…

A

Words always control

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31
Q

Commercial paper must be payable to…

A

Bearer or order

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32
Q

Commercial paper must be payable to bearer or order:

Bearer paper…2

A

1 names no specific payee and

2 can be transferred without signing it

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33
Q

Bearer paper names no specific payee and can be transferred without signing it. Examples 3

A

Pay “to bearer”, “to the order of cash” or “to X or bearer”

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34
Q

Commercial paper must be payable to bearer or order:

Order paper requires…

A

An endorsement and delivery to negotiate it

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35
Q

Order paper requires an endorsement and delivery to negotiate it. Must have the word…

A

“Order” on the front to be negotiable

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36
Q

Commercial paper must be payable to bearer or order:

What is the exception?

A

Checks do not need to be payable to bearer or order

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37
Q

Commercial paper must be payable on…

A

Demand and definite time

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38
Q

Commercial paper must be payable on demand or at a definite time 4

A

1 ok if payable X days after presentment or acceptance
2 ok if it is postdated, ante dated or if it has no date
3 acceleration clauses or prepayment clauses ok
4 on if payable at definite time and extended to another definite
Time

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39
Q

If commercial paper has not date, it’s…

A

Payable on demand

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40
Q

Negotiation is

A

Transferring commercial paper to a 3rd party

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41
Q

To negotiate what does bearer paper require?

A

Bearer paper requires mere delivery

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42
Q

To negotiate, what does order paper require?

A

To negotiate order paper requires delivery plus a proper

endorsement

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43
Q

All endorsements are either…2

A

1 blank endorsements or

2 special endorsements

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44
Q

Blank endorsement 2

A

1 doesn’t name a new payee and

2 always makes commercial paper bearer paper

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45
Q

special endorsement 2

A

1 names a new payee and

2 always makes commercial paper order paper

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46
Q

Restrictive endorsement

A

Adds a restriction, but doesn’t prevent further negotiation

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47
Q

2 examples of restrictive endorsement

A

1 “for deposit only” or

2 “for collection only”

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48
Q

Qualified endorsement is…

A

A signature which adds the words “without recourse”

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49
Q

Without recourse means…

A

There is no guarantee of payment (no contract liability)

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50
Q

A qualified endorser still has…

A

Warranty liability

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51
Q

Contract liability is…

A

A guarantee of payment

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52
Q

Contract liability is a guarantee of payment. 2

A

1 only those who sign commercial paper have contract liability

2 parties who sign are either primary liable or secondary liable

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53
Q

CP

A

Commercial Paper

54
Q

Primary liable parties are…

A

Parties first expected to pay on the instrument

55
Q

Primary liable parties 2

A

1 makers of notes are primarily liable

2 drawees of draft or checks are primarily liable only after they
accept

56
Q

drawees of draft or checks are primarily liable only after they
accept. There is…

A

There is no obligation for the drawee to accept

57
Q

Secondary liable parties are…

A

Liable only after presentment and notice of dishonor

58
Q

Secondary liable parties 2

A

1 drawers are secondarily liable

2 endorsers are secondarily liable except for qualified endorser

59
Q

Drawers can never be…

A

Never be primarily liable

60
Q

Checks must be presented within…3

A

1 30 days to hold drawers liable

2 7 days to hold endorsers liable

61
Q

Warranty liability is…

A

Liability form transferring commercial paper

62
Q

Warranty liability is a liability from transferring commercial paper:

If you transfer by signing, you…

A

Make warranties to all subsequent parties

63
Q

Warranty liability is a liability from transferring commercial paper:

If you transfer without signing, you…

A

Only make warranties to immediate transferee

64
Q

There are 5 warranties from…

A

Transferring commercial paper

65
Q

There are 5 warranties from transferring commercial paper:

Transferor so warrant…5

A

1 good title
2 all signatures are genuine
3 the instrument is not materially altered
4 they know of no insolvency proceeding against issuer
5 no defense is good against them

66
Q

2 requirements to be a holder of commercial paper

A

1 to be a holder of bearer paper requires mere possession

2 to be a holder of order paper requires possession and proper endorsement

67
Q

To be a holder in due course (HIDC) you must meet 4 requirements

A

1 you must be a holder of a negotiable instrument
2 you must give present value
3 you must have good faith
4 you must be without notice of any problems or defenses

68
Q

Holder in due course:

You must give present value, future value is…

A

No good

69
Q

Holder in due course:

You must be without notice of any problems or defenses. 3 examples

A

1 overdue

2 missing signature

3 party is told there’s a problem (payment refused)

70
Q

Holder in due course takes free of…

2) but loses to…

A

Takes free of personal defenses

2) but loses to real defenses

71
Q

Real defenses are defenses that…

A

Beat Holders in due course

72
Q

Real defense are defenses that beat a holders in due course:

Neumonic

A

I’M BIFF

73
Q

Real defenses:

I’M BIFF

A 
1 Infancy
2 Material Alterations
3 Bankruptcy 
4 adjudicated Insanity or Illegslity
5 Fraud in exception only
6 Forgery
74
Q

Adjudicate Insanity or Illegality or anything that…

A

Would make a contract void

75
Q

Holders in due course will beat the defense of…

A

Fraud in the inducement

76
Q

Duress is sometimes a…

A

Real defense

77
Q

Duress is sometimes a real defense, but only to the extent…

A

Only to the extent it makes an instrument void

78
Q

All other defenses that I’M BIFF are…2

A

Personal defenses and holders in due course (HIDC) beats them

79
Q

Shelter provision

A

Anyone who takes from an HDIC gets standing of an HDIC

80
Q

Shelter provision: anyone who takes from an HDIC gets standing of an HDIC, they are called…

A

a holder under holder in due course (HUHIDC)

81
Q

Material alterations:

If drawer is negligent…

A

The drawer is liable for the full amount

82
Q

Material alterations:

If drawer wasn’t negligent, the drawer is…

A

Only liable for unaltered amount

83
Q

Forgery rules:

Forger is…

A

Always liable

84
Q

Forgery rules:

Forgery of drawer’s name

A

Absent the forger, the drawee is liable if they accept and pay

85
Q

Forgery rules:

Forgery of payee’s name does…

A

Does not usually pass title

86
Q

Forgery rules:

Forgery of payee’s name does not usually pass good title. Thus, absent the forger, the…

A

First one the forger passed it to is liable

87
Q

Discharge of liability:

Payment in full by a party…

A

Discharges that party

88
Q

Holders intentional destruction of the instrument…

A

Discharges all prior parties

89
Q

Accidental destruction of instrument…

A

Does not discharge parties

90
Q

What 2 actions discharge an endorser only?

A

1 cancellation or

2 crossing out a party’s endorsement

91
Q

Renunciation 2

A

1 written renunciation discharges a party

2 oral renunciation of liability does not

92
Q

Unexcused delay in…

A

In presentment discharges all prior endorsers

93
Q

Discharge of liability:

A material alteration…

A

Discharges all prior parties as to the evil doer

94
Q

Documents of title are…

A

Written documents covering goods being transported or stored

95
Q

2 types of documents of title tested on CPA exam

A

1 warehouse receipts

2 bills of lading

96
Q

Warehouse receipts are…2

A

1 issued by a warehouse acknowledging receipt and

2 storage of goods specified in document

97
Q

Warehouse receipts need not be…

A

Need not be bonded and licensed

98
Q

Warehouse receipts must state if goods are to be delivered to…3

A

1 bearer

2 specified party

3 the order of a specified party

99
Q

Warehouse receipts must state the…

A

Location of the warehouse

100
Q

Bills of lading are…2

A

1 Documents issued by a carrier acknowledging receipt of goods
And

2 a contract for transportation

101
Q

A document of title is negotiable if by its terms…3

A

1 Goods are delivered to bearer or

2 the order of a named party

3 magic words are “bearer” and “order”

102
Q

Possession of a negotiable document is…

A

Tantamount to ownership

103
Q

Documents of title:

Negotiation is…

A

Transferring a document of title to a 3rd party

104
Q

Negotiation is transferring transferring a document of title to a 3rd party. 2

A

1 a bearer document requires mere delivery for negotiation

2 an order document requires delivery plus an endorsement for negotiation

105
Q

Delivery requirements with negotiable documents:

Carrier or warehouse is required to deliver goods to…2

A

1 the party legally in possession of negotiable document of title and

2 must take possession of negotiable document

106
Q

Delivery requirements with negotiable documents:

With bearer documents of title goods must…2

A

1 Be delivered only to party possessing the bearer document or

2 to someone designated by that party

107
Q

Delivery requirements with negotiable documents:

With order documents of title, the goods must be…2

A

1 delivered only to that party or

2 to one holding a document of title properly endorsed by that
Party

108
Q

Delivery requirements with negotiable documents:

With nonnegotiable documents the goods must be…

2) who is it not sent to?

A

E delivered to the party named in the document (consigned)

2) not sent to one legally in possession of the document

109
Q

A holder by due negotiation is very similar to…2

A

1 A holder in due course of commercial paper and

2 acquires the same rights as holder in due course does

110
Q

4 requirements to be a holder by due negotiation

A

1 present value
2 good faith
3 without any notice
4 must obtain it in regular course of business

111
Q

4 requirements of due negotiation:

Present value

A

Must give present value for the document title

112
Q

4 requirements of due negotiation:

Good faith

A

Must take in good faith

113
Q

4 requirements of due negotiation:

Without any notice

A

Must take without any notice of an adverse claim or defense

114
Q

4 requirements of due negotiation:

Must obtain it in regular course of business

A

The purchaser must obtain it in the regular course of business or financing

115
Q

The purchaser must obtain it in the regular course of business or financing:

Purchaser may not…

A

May not obtain it as payment for or settlement of an antecedent
debt

116
Q

3 warranties made by transferors of negotiable documents of title

A

1 document is genuine

2 transfer is effective and rightful

3 transferor had no knowledge of facts that would impair validity
Of the document

117
Q

Title and risk of loss only pass when…

A

Buyer gets document of title

118
Q

Rights and liabilities of warehousers and carriers:

Both may…

A

Limit their liability by contract

119
Q

Rights and liabilities of warehousers and carriers:

They are always liable for…

A

Negligence (lack of due care)

120
Q

Rights and liabilities of warehousers and carriers:

Both are liable for…

A

Misdelivery of goods to a good faith purchaser

121
Q

Rights and liabilities of warehousers and carriers:

Who is strictly liable?

A

Common carriers are strictly liable (warehousers are not)

122
Q

Rights and liabilities of warehousers and carriers:

They may commingle…

A

Fungible goods

123
Q

Fungible goods

A

Any unit is treated as the equivalent of any other unit

Ex. Wheat, oil, coal of same quality

124
Q

Documents of title:

Both have a liens for changes and expenses on goods in their possession. 2

A

1 lien may be enforced against a purchaser of the document of title

2 may be enforced for selling the goods at public or private sale

125
Q

Maker

A

Makes up instrument

126
Q

Payee

A

Gets paid

127
Q

What is the most common type of draft?

A

a check

128
Q

Drawer

A

Writes check

129
Q

Drawee

A

Bank

130
Q

IOU

A

Payable to specific person

131
Q

Antedated

A

Predated

132
Q

Restrictive endorsement destroys…

A

Transferability

Yaeger REG (77 decks)

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