R7 Com Paper 2 (F)

Question 0

If the Instrument is Not Negotiable

Answer 0

There can be no holder in due course

Look only at the face of the instrument

Endorsements cannot destroy negotiability or create negotiability

Question 1

Rules of Construction

Answer 1

Type written terms control over printed terms.

Handwritten terms control both

Words control figures

Question 2

Becoming a Holder in Due Course (HDC)

Answer 2

Bearer paper requires mere delivery

Order paper requires delivery and endorsement

Last endorsement controls controls order vs. bearer

Question 3

Endorsement Qualities

Answer 3

Special or blank
Restrictive or unrestrictive
Qualified or unqualified

Must always look at the last endorsement to determine what is necessary for further negotiation

Question 4

Special Endorsement

Answer 4

Endorsement that names a particular person as the endorsee and always make the instrument order paper

Further negotiation requires the signature of the special endorsee plus delivery

Question 5

Blank Endorsement

Answer 5

Endorsement that does not have a special endorsee

Makes the instrument bearer paper

It can be negotiated on delivery alone

Question 6

Breaking the Chain of Title

Answer 6

If a necessary endorsement is missing or forged, the chain of title is broken and no subsequent transferee can become a holder

Forgery does not constitute a break in the chain of title because the UCC treats the forgery as a genuine signature of the forger

Question 7

Qualified Endorsement

Answer 7

An endorsement that adds the words “without recourse”

There is no guarantee of payment by the endorser (no contract liability)

The “without recourse” endorser stil has has warranty liability

Question 8

Restrictive Endorsement

Answer 8

Any other language on endorsement

Conditions, trusts, restricting negotiation

Have no effect on negotiability

If an endorsement limits the check to the check colection process, a person or the bank into which the instrument is deposited must pay the instrument consistently with the endorsement or be liable for conversion

Question 9

A holder will take commercial paper in due course to the extent that he takes the paper

Answer 9

for value

in good faith - honesty in fact

without notice of any defenses or claims of ownership on the instrument

Negotiable (front only)

Question 10

Value

Answer 10

Executory promise is not value

Value need not be equivalent to face value

Question 11

Notice to Purchaser

Answer 11

The holder must purchase the instrument “without notice” or knowledge that it is overdue, or has been dishonored, or of any defense or claim against the instrument. The purchaser has notice if:

The instrument is irregular

The purchaser knows that the obligation of any party is voidable in whole or in part

Question 12

The Shelter Doctrine

Answer 12

In order to assure free transferability of commercial paper, subsequent transferees of an HDC can “succeed to” or “take shelter in” the rights of the HDC

Question 13

Claims and Defenses on the Instrument

Answer 13

If a holder does not have the rights of a HDC, the maker or drawer can successfuly assert any defense that an obligor could successfuly assert against a transferee in a simple contract action

Question 14

Real Defenses Asserted Against HDC and non-HDC Transferees (FAIDS)

Answer 14

Fraud in the Execution & Forgery
Adjudicated insanity & material Alteration
Infancy & Illegality
Duress & Discharge in bankruptcy
Suretyship defenses & Statute of limitations

Question 15

Personal Defenses of Makers/Drawers

Answer 15

Cannot be raised against an HDC or their

Every defense available in ordinary contract law

Unauthorized completion - when holder fils in missing info on instrument w/o authority