R7 - Business Law 2 (Commercial Paper) Flashcards
Which UCC article governs commercial paper (e.g. any type of note or draft), which is a type of negotiable instrument?
Article 3
Which UCC article governs documents of title (e.g. bills of lading and warehouse receipts)?
Article 7
Which UCC article governs investment securities (e.g. corporate stocks and bonds)?
Article 8
What is defined as a promise to pay?
Note
How many parties are involved in a note?
Two parties
EXPLANATION: Maker promises to pay money to payee/to bearer
What is defined as a two-party commercial paper?
Note
What is a CD?
Type of bank promissory note
How many parties are involved w/ a CD?
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.
What is defined as an order for a third party to pay?
Draft
How many parties are involved w/ a draft?
3 parties
EXPLANATION: It is an order by the drawer to a drawee demanding that the drawee pay money to a payee.
Is a check a type of draft?
YES
A check is a type of draft with what two particular characteristics?
- Drawee must be a bank
- Must be payable on demand
True or false.
A trade acceptance is a type of note.
False.
EXPLANATION: It’s a type of draft (drawn by payee on the drawee and accepted by the drawee)
Give an example of a demand instrument.
Check
To be a negotiable instrument within Article 3, the instrument must meet what six criteria?
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
Do acceleration clauses destroy negotiability?
NO
If an instrument is not negotiable, can there be a holder in due course?
NO
What is the first step in becoming an HDC?
Becoming a holder
Bearer paper is negotiated simply by __________ the instrument to a transferee.
Delivering
Order paper requires delivery and ________.
Endorsement
Do restrictive endorsements prevent further negotiation?
NO
True or false.
GR: Endorsers are guarantors of PMT - secondarily liable by contract if primary party defaults.
TRUE
What are the requirements to be a HDC?
- for value
- in good faith
- w/o notice of any defenses or claims
- negotiable (front only)
If a negotiable instrument is negotiated to an HDC, the HDC takes free from _______ defenses and claims and is subject only to ______ defenses.
- personal
- real
If the maker or drawer has a real defense (“FAIDS”), do they have to pay anyone?
NO
Real defense. What does the F in FAIDS stand for?
- Fraud in the execution
- Forgery of a necessary signature
Real defense. What does the A in FAIDS stand for?
- Adjudicated insanity
- Material alteration of the instrument
Real defense. What does the I in FAIDS stand for?
- Infancy
- Illegality
Real defense. What does the D in FAIDS stand for?
- Duress
- Discharge in bankruptcy
Real defense. What does the S in FAIDS stand for?
- Suretyship defenses (if status known)
- Statute of limitations
Are drawers primarily liable?
No; secondarily liable
Under the UCC, an oral stop payment order is binding on the bank for how long?
14 days
Under the UCC, a written stop payment order is binding on the bank for how long?
6 months
