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
2
Q
Promissory note
2) it will have the word…
A
Promise to pay
2) “promise” in it
3
Q
Promissory note has 2 parties
A
1 maker
2 payee
4
Q
Certificates of deposit 2
A
1 Bank acknowledges receipt of money
2 and promises to repay with interest (a bank promissory note)
5
Q
Drafts and checks are…
A
An order to a 3rd party to pay
6
Q
A draft has 3 parties
A
1 drawer
2 payee
3 drawee
7
Q
Checks must be…2
A
1 payable on demand and
2 the drawer must be a bank
8
Q
Trade acceptance
A
Draft drawn by seller ordering a buyer to pay
9
Q
Trade acceptance:
The seller is usually…2
A
1 Both the drawer and payee and
2 is secondarily liable
10
Q
Trade acceptance:
The buyer accepts by…2
A
1 Signing in lower left hand corner and
2 is primarily liable
11
Q
Investment securities…
A
Stocks and bonds
12
Q
Documents of title 2
A
1 warehouse receipts and
2 bills of lading
13
Q
Investment securities and documents of title are…
A
Not commercial paper, but they usually follow the same rules
14
Q
5 elements of negotiability neumonic
A
SUMBOD
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
16
Q
5 elements of negotiability:
S
A
Must be signed
17
Q
5 elements of negotiability:
U
A
Must be unconditional promise or order
18
Q
5 elements of negotiability:
M
A
Must be Money, nothing else but money
19
Q
5 elements of negotiability:
BO
A
Must be payable to bearer or payable to order
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
21
Q
5 elements of negotiability:
D
A
Must be payable on Demand or payable at a definite time
22
Q
Once commercial paper is negotiable on its front, it’s…
A
Always negotiable
23
Q
Commercial paper must be signed by…
A
Maker or drawer
24
Q
The promise or order must be…
A
Unconditional for it to be commercial paper
25
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...
It is subject to or contingent upon another agreement
2) not prevent negotiability
26
The promise or order must be unconditional for it to be commercial paper:
2 things that do not prevent negotiability
1 references to collateral or security
2 provisions as to consideration
27
Commercial paper must be payable in...
A fixed sum of money
28
Commercial paper must be payable in a fixed some of money. 3
1 it must be payable in money and nothing else but money
2 interest and collection costs are ok
3 the words control
29
Interest and collection costs
To include attorney's fees
30
If numbers differ from words...
Words always control
31
Commercial paper must be payable to...
Bearer or order
32
Commercial paper must be payable to bearer or order:
Bearer paper...2
1 names no specific payee and
2 can be transferred without signing it
33
Bearer paper names no specific payee and can be transferred without signing it. Examples 3
Pay "to bearer", "to the order of cash" or "to X or bearer"
34
Commercial paper must be payable to bearer or order:
Order paper requires...
An endorsement and delivery to negotiate it
35
Order paper requires an endorsement and delivery to negotiate it. Must have the word...
"Order" on the front to be negotiable
36
Commercial paper must be payable to bearer or order:
What is the exception?
Checks do not need to be payable to bearer or order
37
Commercial paper must be payable on...
Demand and definite time
38
Commercial paper must be payable on demand or at a definite time 4
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
39
If commercial paper has not date, it's...
Payable on demand
40
Negotiation is
Transferring commercial paper to a 3rd party
41
To negotiate what does bearer paper require?
Bearer paper requires mere delivery
42
To negotiate, what does order paper require?
To negotiate order paper requires delivery plus a proper
| endorsement
43
All endorsements are either...2
1 blank endorsements or
2 special endorsements
44
Blank endorsement 2
1 doesn't name a new payee and
2 always makes commercial paper bearer paper
45
special endorsement 2
1 names a new payee and
2 always makes commercial paper order paper
46
Restrictive endorsement
Adds a restriction, but doesn't prevent further negotiation
47
2 examples of restrictive endorsement
1 "for deposit only" or
2 "for collection only"
48
Qualified endorsement is...
A signature which adds the words "without recourse"
49
Without recourse means...
There is no guarantee of payment (no contract liability)
50
A qualified endorser still has...
Warranty liability
51
Contract liability is...
A guarantee of payment
52
Contract liability is a guarantee of payment. 2
1 only those who sign commercial paper have contract liability
2 parties who sign are either primary liable or secondary liable
53
CP
Commercial Paper
54
Primary liable parties are...
Parties first expected to pay on the instrument
55
Primary liable parties 2
1 makers of notes are primarily liable
2 drawees of draft or checks are primarily liable only after they
accept
56
drawees of draft or checks are primarily liable only after they
accept. There is...
There is no obligation for the drawee to accept
57
Secondary liable parties are...
Liable only after presentment and notice of dishonor
58
Secondary liable parties 2
1 drawers are secondarily liable
2 endorsers are secondarily liable except for qualified endorser
59
Drawers can never be...
Never be primarily liable
60
Checks must be presented within...3
1 30 days to hold drawers liable
2 7 days to hold endorsers liable
61
Warranty liability is...
Liability form transferring commercial paper
62
Warranty liability is a liability from transferring commercial paper:
If you transfer by signing, you...
Make warranties to all subsequent parties
63
Warranty liability is a liability from transferring commercial paper:
If you transfer without signing, you...
Only make warranties to immediate transferee
64
There are 5 warranties from...
Transferring commercial paper
65
There are 5 warranties from transferring commercial paper:
Transferor so warrant...5
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
2 requirements to be a holder of commercial paper
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
To be a holder in due course (HIDC) you must meet 4 requirements
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
Holder in due course:
You must give present value, future value is...
No good
69
Holder in due course:
You must be without notice of any problems or defenses. 3 examples
1 overdue
2 missing signature
3 party is told there's a problem (payment refused)
70
Holder in due course takes free of...
2) but loses to...
Takes free of personal defenses
2) but loses to real defenses
71
Real defenses are defenses that...
Beat Holders in due course
72
Real defense are defenses that beat a holders in due course:
Neumonic
I'M BIFF
73
Real defenses:
I'M BIFF
```
1 Infancy
2 Material Alterations
3 Bankruptcy
4 adjudicated Insanity or Illegslity
5 Fraud in exception only
6 Forgery
```
74
Adjudicate Insanity or Illegality or anything that...
Would make a contract void
75
Holders in due course will beat the defense of...
Fraud in the inducement
76
Duress is sometimes a...
Real defense
77
Duress is sometimes a real defense, but only to the extent...
Only to the extent it makes an instrument void
78
All other defenses that I'M BIFF are...2
Personal defenses and holders in due course (HIDC) beats them
79
Shelter provision
Anyone who takes from an HDIC gets standing of an HDIC
80
Shelter provision: anyone who takes from an HDIC gets standing of an HDIC, they are called...
a holder under holder in due course (HUHIDC)
81
Material alterations:
If drawer is negligent...
The drawer is liable for the full amount
82
Material alterations:
If drawer wasn't negligent, the drawer is...
Only liable for unaltered amount
83
Forgery rules:
Forger is...
Always liable
84
Forgery rules:
Forgery of drawer's name
Absent the forger, the drawee is liable if they accept and pay
85
Forgery rules:
Forgery of payee's name does...
Does not usually pass title
86
Forgery rules:
Forgery of payee's name does not usually pass good title. Thus, absent the forger, the...
First one the forger passed it to is liable
87
Discharge of liability:
Payment in full by a party...
Discharges that party
88
Holders intentional destruction of the instrument...
Discharges all prior parties
89
Accidental destruction of instrument...
Does not discharge parties
90
What 2 actions discharge an endorser only?
1 cancellation or
2 crossing out a party's endorsement
91
Renunciation 2
1 written renunciation discharges a party
2 oral renunciation of liability does not
92
Unexcused delay in...
In presentment discharges all prior endorsers
93
Discharge of liability:
A material alteration...
Discharges all prior parties as to the evil doer
94
Documents of title are...
Written documents covering goods being transported or stored
95
2 types of documents of title tested on CPA exam
1 warehouse receipts
2 bills of lading
96
Warehouse receipts are...2
1 issued by a warehouse acknowledging receipt and
2 storage of goods specified in document
97
Warehouse receipts need not be...
Need not be bonded and licensed
98
Warehouse receipts must state if goods are to be delivered to...3
1 bearer
2 specified party
3 the order of a specified party
99
Warehouse receipts must state the...
Location of the warehouse
100
Bills of lading are...2
1 Documents issued by a carrier acknowledging receipt of goods
And
2 a contract for transportation
101
A document of title is negotiable if by its terms...3
1 Goods are delivered to bearer or
2 the order of a named party
3 magic words are "bearer" and "order"
102
Possession of a negotiable document is...
Tantamount to ownership
103
Documents of title:
Negotiation is...
Transferring a document of title to a 3rd party
104
Negotiation is transferring transferring a document of title to a 3rd party. 2
1 a bearer document requires mere delivery for negotiation
2 an order document requires delivery plus an endorsement for negotiation
105
Delivery requirements with negotiable documents:
Carrier or warehouse is required to deliver goods to...2
1 the party legally in possession of negotiable document of title and
2 must take possession of negotiable document
106
Delivery requirements with negotiable documents:
With bearer documents of title goods must...2
1 Be delivered only to party possessing the bearer document or
2 to someone designated by that party
107
Delivery requirements with negotiable documents:
With order documents of title, the goods must be...2
1 delivered only to that party or
2 to one holding a document of title properly endorsed by that
Party
108
Delivery requirements with negotiable documents:
With nonnegotiable documents the goods must be...
2) who is it not sent to?
E delivered to the party named in the document (consigned)
2) not sent to one legally in possession of the document
109
A holder by due negotiation is very similar to...2
1 A holder in due course of commercial paper and
2 acquires the same rights as holder in due course does
110
4 requirements to be a holder by due negotiation
1 present value
2 good faith
3 without any notice
4 must obtain it in regular course of business
111
4 requirements of due negotiation:
Present value
Must give present value for the document title
112
4 requirements of due negotiation:
Good faith
Must take in good faith
113
4 requirements of due negotiation:
Without any notice
Must take without any notice of an adverse claim or defense
114
4 requirements of due negotiation:
Must obtain it in regular course of business
The purchaser must obtain it in the regular course of business or financing
115
The purchaser must obtain it in the regular course of business or financing:
Purchaser may not...
May not obtain it as payment for or settlement of an antecedent
debt
116
3 warranties made by transferors of negotiable documents of title
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
Title and risk of loss only pass when...
Buyer gets document of title
118
Rights and liabilities of warehousers and carriers:
Both may...
Limit their liability by contract
119
Rights and liabilities of warehousers and carriers:
They are always liable for...
Negligence (lack of due care)
120
Rights and liabilities of warehousers and carriers:
Both are liable for...
Misdelivery of goods to a good faith purchaser
121
Rights and liabilities of warehousers and carriers:
Who is strictly liable?
Common carriers are strictly liable (warehousers are not)
122
Rights and liabilities of warehousers and carriers:
They may commingle...
Fungible goods
123
Fungible goods
Any unit is treated as the equivalent of any other unit
Ex. Wheat, oil, coal of same quality
124
Documents of title:
Both have a liens for changes and expenses on goods in their possession. 2
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
Maker
Makes up instrument
126
Payee
Gets paid
127
What is the most common type of draft?
a check
128
Drawer
Writes check
129
Drawee
Bank
130
IOU
Payable to specific person
131
Antedated
Predated
132
Restrictive endorsement destroys...
Transferability
