R7pt1- Com.Paper Flashcards

1
Q

What is a promissory note?

A
  • A promise to pay a specific amount.
  • There are two parties involved - maker and a payee.
  • It can reference other transactions without harming the instruments negotiability.

Example: Bank Certificate of Deposit (CD)

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2
Q

What is a draft?

A
  • A commercial paper involving three parties- a drawer; a payee and a drawee
  • A drawer orders a sum to be paid to a payee by the drawee
  • May be payable on demand or in the future
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3
Q

What is a check?

A
  • A check is a type of draft that is payable ON DEMAND
  • Payable to order of drawer or bearer
  • Drawer - person writing the check
  • Payee - person being paid
  • Drawee - the bank
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4
Q

What is the difference between a Post-Dated Check and a Negotiable Time Draft?

A
  • A check is payable on demand; even if post-dated.
  • A negotiable time draft is not payable until the date designated for payment.
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5
Q

What is a Trade Acceptance?

A
  • Draft drawn by the Payee on the Drawee

&

  • Accepted by the drawee
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6
Q

What is the purpose of the Negotiation of Commercial Paper?

A

Transfers ownership to another party

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7
Q

What is Required to maintain the Negotiability of a Commercial Paper?

A
  • Must be in writing
  • Signed by drawer/maker
  • Contain Unconditional Promise or Order
  • Payable On Demand or Definite Time
  • Amount of money must be Stated & Fixed
  • Payable to order or bearer: Exception of checks
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8
Q

What characteristics will Cancel the Negotiability of a Commercial Paper?

A
  • An additional promise is stated in addition to the promise to pay (like the option to purchase Real Estate)
  • The promise to pay occurs after some action by another party or an event; it cancels negotiability
  • Cannot allow for an alternative such as payment or some other action by the maker
  • Note: a stated amount of payment plus a stated % of interest is OK
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9
Q

What is required to Negotiate Order Paper?

A
  • Must have delivery and endorsement
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10
Q

What are the Major types of Endorsements on commercial paper?

A
  • Blank: Mere signature of holder, transforms into a bearer paper
  • Special: Names a new payee; transforms into an order paper
  • Restrictive: Adds restrictions; doesn’t stop further negotiation, “for deposit’, ‘for collection’
  • Qualified: Payment not guaranteed; Without Recourse added to endorsement
  • Unqualified
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11
Q

If endorsed; within what amount of time must a check be presented for payment in order to hold the ENDORSER liable?

A

Within 7 days

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12
Q

On a commercial paper; What type of print & which value will supersede?

A
  • Handwritten terms have control over Typewritten & Printed terms
  • Written amount $ supersedes the numerical dollar amount.
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13
Q

Who has Primary Liability with respect to a contract liability?

A

-Pay on the Note/CD:

– Maker of a Promissory Note

  • With a Check/Draft:

— Drawee ( Bank) if they accept to pay

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14
Q

Who has Secondary Liability with respect to contract liability?

A

-Pay on the note/draft:

–Endorsers (the payee) are secondarily liable

  • With a Check/Draft:

– Endorsers & Drawers (if Drawee fails to pay a Draft)

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15
Q

Define Contract Liability.

A

Guarantees payment of a liability

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16
Q

When does warranty liability occur?

A

Occurs when you negotiate commercial paper

By signing; you warrant to all future parties

By not signing; you warrant to current party only

17
Q

What five warranties occur with every commercial paper transfer?

A
  • Warranty of Title
  • No defense will stand against it
  • No material alteration
  • No knowledge of bankruptcy proceedings
  • All signatures are legitimate
18
Q

What are the requirements for a holder to be a Holder in Due Course?

A
  • Holding a Negotiable instrument (Front only)
  • For Value
  • Taking instrument in Good Faith
  • Without Notice of any defenses to or Claims of ownership on the instrument
19
Q

What are the REAL defenses against a Holder in Due Course (HDC)?***

A
  • Fraud in the execution & Forgery
  • Adjudicated Insanity & Material Alterations
  • Infancy& Illegality
  • Duress & Discharge
  • Suretyship &Statute of Limitations

“FAIDS”

20
Q

An Unconditional Promise or Order is NOT Negotiable if?

A
  • It states that Payment is conditional
  • No terms in separate instrument: Subject to another agreement
  • No Express Condition
21
Q

When are instruments Not Negotiable in relation to Time?

A
  • Events certain to happen but uncertain as to Time
  • Acceleration Clauses
  • Extension Clauses
  • Undated, Postdated, Antedated
22
Q

Becoming a Holder in Due Course, provides?

A
  • Freedom from many defenses that a Maker or Drawer might have against payment
23
Q

Bearer Paper Requires?

A
  • Mere Delivery
24
Q

Order Paper Requires?

A
  • Delivery & Endorsement
25
Q

If a necessary endorsement is missing or forged, the Chain of Title is?

A
  • Broken & No subsequent transferee can become holder
  • Thus, Subject to all defenses
26
Q

If any One requirement to becoming a Holder in Due Course is missing, Holder gets?

A
  • Same Rights as Transferor
27
Q

What is the Shelter Doctrine?

A
  • If Transferee might not qualify as an HDC, he can claim rights of an HDC who held the commercial paper before him.
28
Q

If Drawee signs a Draft, as Primarily liable, discharges?

A
  • All Prior Parties
29
Q

What is a Blank Endorsement?

A
  • Mere signature of holder, transforms into a bearer paper
30
Q

What is a Special Endorsement?

A
  • Names a new payee; transforms into an order paper
31
Q

What is a Restrictive Endorsement?

A
  • Adds restrictions; doesn’t stop further negotiation, “for deposit’, ‘for collection’
32
Q

What is a Qualified Endorsement?

A
  • Payment not guaranteed; Without Recourse added to endorsement