Section 18: Commercial Paper/Negotiable Instruments

Question 1

Article 3 of the UCC

Answer 1

governs commercial paper - paper that is used as a sub. for money

Question 2

Article 7 of the UCC

Answer 2

governs documents of title - bills of lading and warehouse receipts - paper that gives evidence of rights to certain goods

Question 3

Article 8 of the UCC

Answer 3

governs investment securities - corp. stocks and bonds - paper that indicates an interest in a business

Question 4

Notes

Answer 4

• Two party instrument - “promise to pay”
• Maker is primarily liable - first to be held liable
• Maker and Payee
• Ex:
  
  • Promissory note
  • CD by bank

Question 5

Draft

Answer 5

• 3 party agrement - “Order to pay”
• Drawer/Drawee/Payee
• Orders another to pay money
• Drawer secondary liable
• Drawee primarily only after accepting the draft
• Ex:
  
  • Check - demand draft drawn on a bank
  • Trade Acceptance - draft drawn by the seller on the buyer that is payable to the seller at some future date

Question 6

Requirements of Negotiability

COUPONS

Answer 6

• Certain sum of money
• Order or Bearer
• Unconditional promise to pay
• Payment in money
• ON demand or a specific time
• Signed by the creator of the instrument

Question 7

Holder

Answer 7

• Person who properly receives instrument is the holder
  
  • Bearer paper is negotiated by DELIVERY
  • Order paper is negotiated by Endorsement and Delivery

Question 8

Types of Endorsments

Answer 8

• Special - endorser names next payee - instrument is now order paper and requires signature to negotiate further - “Pay to Alex”
• Blank - Endorser signs but doesn’t specify next payee - Instrument is now bearer paper
• Qualified - endorser writes “without recourse” - eliminates signature an contract liability
• Restrictive - endorser writes conditions on transfer - “For Deposit Only”

Question 9

Holder in Due Course (HDC)

Answer 9

• Properly receives instrument for:
  
  • Value
  • In Good faith
  • Without notice of defect

Question 10

Real Defenses

FABLE

Answer 10

• Forgery
• Alteration
• Bankruptcy discharge
• Lack of Capcity
• Execution fraud/Extreme duress

Question 11

Personal Defenses

BUILD

Answer 11

• Breach of contract
• Unauthorizes completion
• Inducemnt of fraud
• Lack of consideration
• Duress