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CPA REG > R7 - Business Law 2 (Commercial Paper) > Flashcards

R7 - Business Law 2 (Commercial Paper) Flashcards

1
Q

Which UCC article governs commercial paper (e.g. any type of note or draft), which is a type of negotiable instrument?

A

Article 3

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2
Q

Which UCC article governs documents of title (e.g. bills of lading and warehouse receipts)?

A

Article 7

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3
Q

Which UCC article governs investment securities (e.g. corporate stocks and bonds)?

A

Article 8

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4
Q

What is defined as a promise to pay?

A

Note

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5
Q

How many parties are involved in a note?

A

Two parties

EXPLANATION: Maker promises to pay money to payee/to bearer

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6
Q

What is defined as a two-party commercial paper?

A

Note

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7
Q

What is a CD?

A

Type of bank promissory note

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8
Q

How many parties are involved w/ a CD?

A

Two parties

EXPLANATION: Bank and payee. A CD is a negotiable instrument issued by a bank that acknowledges receipt of money and promises to repay at a future date.

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9
Q

What is defined as an order for a third party to pay?

A

Draft

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10
Q

How many parties are involved w/ a draft?

A

3 parties

EXPLANATION: It is an order by the drawer to a drawee demanding that the drawee pay money to a payee.

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11
Q

Is a check a type of draft?

A

YES

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12
Q

A check is a type of draft with what two particular characteristics?

A
  • Drawee must be a bank

- Must be payable on demand

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13
Q

True or false.

A trade acceptance is a type of note.

A

False.

EXPLANATION: It’s a type of draft (drawn by payee on the drawee and accepted by the drawee)

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14
Q

Give an example of a demand instrument.

A

Check

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15
Q

To be a negotiable instrument within Article 3, the instrument must meet what six criteria?

A

WUS$DO

Writing
Unconditional promise or order to pay
Signed by maker (note) or drawer (draft)
$ for a fixed amount of money only
Demand or at a definite time
Order or bearer
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16
Q

Do acceleration clauses destroy negotiability?

A

NO

17
Q

If an instrument is not negotiable, can there be a holder in due course?

A

NO

18
Q

What is the first step in becoming an HDC?

A

Becoming a holder

19
Q

Bearer paper is negotiated simply by __________ the instrument to a transferee.

A

Delivering

20
Q

Order paper requires delivery and ________.

A

Endorsement

21
Q

Do restrictive endorsements prevent further negotiation?

A

NO

22
Q

True or false.

GR: Endorsers are guarantors of PMT - secondarily liable by contract if primary party defaults.

A

TRUE

23
Q

What are the requirements to be a HDC?

A
  • for value
  • in good faith
  • w/o notice of any defenses or claims
  • negotiable (front only)
24
Q

If a negotiable instrument is negotiated to an HDC, the HDC takes free from _______ defenses and claims and is subject only to ______ defenses.

A
  • personal

- real

25
Q

If the maker or drawer has a real defense (“FAIDS”), do they have to pay anyone?

A

NO

26
Q

Real defense. What does the F in FAIDS stand for?

A
  • Fraud in the execution

- Forgery of a necessary signature

27
Q

Real defense. What does the A in FAIDS stand for?

A
  • Adjudicated insanity

- Material alteration of the instrument

28
Q

Real defense. What does the I in FAIDS stand for?

A
  • Infancy

- Illegality

29
Q

Real defense. What does the D in FAIDS stand for?

A
  • Duress

- Discharge in bankruptcy

30
Q

Real defense. What does the S in FAIDS stand for?

A
  • Suretyship defenses (if status known)

- Statute of limitations

31
Q

Are drawers primarily liable?

A

No; secondarily liable

32
Q

Under the UCC, an oral stop payment order is binding on the bank for how long?

A

14 days

33
Q

Under the UCC, a written stop payment order is binding on the bank for how long?

A

6 months

CPA REG (17 decks)

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