Barbri Commercial Paper

Front 1

Indorsement "without recourse"

Back 1

Protects indorser from contractual liability

Front 2

When paper contains a forged indorsement...

Back 2

There can be no valid HDC

Front 3

Exception for banks and indorsements

Back 3

If bank takes unindorsed check it still becomes a valid holder if the customer is the holder at time of delivery.

Front 4

Instrument specially indorsed...

Back 4

is order paper

Front 5

A holder in due course is...

Back 5

a holder
who gives value
in good faith
without notice

Front 6

Holder (defined)

Back 6

A holder is in possession of bearer paper or in possession of order paper that has been issued or properly indorsed to him

Front 7

Value

Back 7

A party is an HDC to the exten that the agreed consideration has been performed. A mere promise is no enough

Front 8

FIFO

Back 8

First in, first out:
value and bank accounts - series of deposits/withdrawals

Front 9

HDC - honsesty/good faith

Back 9

honesty - subjective
fair dealing - objective

Front 10

HDC - Notice

Back 10

Includes both actual knowledge and reason to know (ie instrument so irregular, overdue, unauthorized signature, claim, etc.)

Front 11

Knowledge of a default in interest or principal

Back 11

Interest - harmless
Principal - deprives HDC status

Front 12

Check overdue

Back 12

A check becomes overdue after 90 days

Front 13

Large discount on negotiated instrument

Back 13

Transferee is probably not an HDC - shows lack of good faith

Front 14

Close connectedness doctrine

Back 14

The more the holder knows about the underlying transaction, the less likely they will be an HDC

Front 15

Not and HDC if

Back 15

Instrument taken by:
legal process or purchase in an execution, bkr, C's sale
purchase as part of bulk transaction not in ordinary course of business of transferor
as the successor in interest to an estate

Front 16

The shelter rule

Back 16

A subsequent transferee can take shelter in the defenses of their transferor so long as that transferor was an HDC. The transferee need not be and HDC, can even know of fraud, so long as did not participate.

Front 17

FTC shelter rule

Back 17

Any holder or assignee is subject to all claims and defenses that the debtor could assert against the seller of the goods or services covered by the K.

Front 18

HDC "real defenses"

Back 18

Infancy
incapacity, duress, illegality
misrepresentation inducing party to sign
discharge in insolvency proceedings
any other discharge of which holder has notice

Front 19

Fraud in the inducement

Back 19

Personal defense - cannot be raised against HDC
Person is aware of character of document and terms, but induced to sign by deception as to some other matter

Front 20

Fraud in the factum (aka in the execution)

Back 20

Real defense - person induced to sign by deception with respect to the writing's character or terms
Also have to show excusable ignorance

Front 21

Payee as an HDC

Back 21

Payee can be an HDC, but where issuer and payee are the only two parties, the buyer can assert any defense agains the seller regardless of the HDC doctrine

Front 22

Recovery against indorsers

Back 22

Indorser can get complete reimbursement from those signing prior in time

Front 23

Exception to order of indorsement rule

Back 23

Where parties made an anomalous indorsement - J&S liability regardless of order

Front 24

Secondary liability

Back 24

Indorser liable only after the instrument has been presented to the maker or drawee, that party has dishonored the check, and a notice of dishonor has been given to the indorser

Front 25

How to avoid secondary liability as indorser

Back 25

Write "without recourse" when indorsing the check

Front 26

Drawee's K liability

Back 26

No K liability on the check unless certified check

Front 27

Accommodation party

Back 27

When accom party is one who signs instrument in any capacity for the purpose of lending his name to another party to it, that party is liable in the capacity in which he signed

Front 28

Remedy for accommodation party

Back 28

Can seek complete reimbursement, not simply contribution

Front 29

Defenses for accommodation parties

Back 29

Can raise any defenses the other party has except
insolvency
infancy
lack of legal capacity

Front 30

"Collection guaranteed" language

Back 30

The signor agrees to be liable if:
execution of j against other party unsatisfied
other party is insolvent
other party cannot be served with process
otherwise apparent that payment cannot be obtained from the other party

Front 31

Signature by agent

Back 31

Depends on language
"Company" Co: Yes, A: No
"Company, by Pres" Co: Yes A: No
"Name, Pres" Co: Yes A: Probably not, parol evid ok except against HDC
"Name" Co: Yes, so long as auth A: No

Front 32

Properly payable rule

Back 32

Bank may pay out customer's money only if it follows the customer's order exactly

Front 33

Forged drawer's signature
Missing/Forged indorsement

Back 33

Not properly payable

Front 34

Wrongful dishonor

Back 34

damages limited to actual damages

Front 35

Check issued to X AND Y

Back 35

BOTH must indorse

Front 36

Death or incompetence

Back 36

Bank may continue to pay for 10 days after notice, generally do not

Front 37

Customer's stop payment

Back 37

Effective for 6 months, but lapses after 14 calendar days

Front 38

Stop payment - bank messes up

Back 38

If they paid HDC, customer would have had to pay anyway, thus they have a valid defense to their mistake

Front 39

To be an HDC...

Back 39

...one must take the instrument for value, in good faith, and without notice of any defenses on the instrument

Front 40

HDC rule

Back 40

If a negotiable instrument is negotiated to an HDC, he takes free of personal defenses and claims and is subject on ly to real defenses

Front 41

Alteration defense

Back 41

..is available as a real defense except where the person's negligence substantially contributes to the alteration.

Front 42

Negotiation of order paper...

Back 42

...requires indorsement of the named payees plus delivery

Front 43

Negotiation of bearer paper..

Back 43

...requires only delivery

Front 44

Warranty arising when someone transfers an instrument for value

Back 44

A warranty of transfer arises, whereby the transferee warrants that he is entitled to enforce the note

Front 45

What is a negotiable instrument under Article 3?

Back 45

It must be
1. signed by the maker or drawer
2. be unconditional
3. contain a promise to pay or order to pay
4. a fixed amount of money with or w/o interest
5. to bearer or to order
6. on demand or at a definite time, and
6. without any undertaking or instruction not authorized by law

Front 46

Liability for contribution where one co-maker has been discharged.

Back 46

Discharge of a co-maker does not affect the liability for contribution of one co-make to another.

Front 47

Fictitious payee rules

Back 47

A holder is entitled to enforce a check only if the indorsements of the payee and any special indorsee are genuine.
However, where the drawer draws the instrument payable to a fictious payee, any person in possession of the instrument is a holder and any indorsement in a name substantially similar to the fictitious payee is effective as an indorsement of the named payee or taker in good faith and for value.

Front 48

Liability of a drawer on a draft

Back 48

A drawer of a draft can be held liable on the draft unless the drawer has a defense to the payment.

Front 49

Discharge of a party from an instrument by a person entitled to enforce the instrument

Back 49

A person entitled to enforce an instrument may, even without consideration, discharge any party from the instrument by a voluntary act.

Front 50

A party entitled to enforce an instrument is deemed to know of an accommodation if...

Back 50

the accommodating party's signature is anomalous (made by someone who was not the holder) or otherwise indicates that the party signed as a surety.

Front 51

An accommodation party's liability discharged when collateral is involved if...

Back 51

..the person entitled to enforce an instrument impairs collateral securing the instrument and the accommodation party had a right of recourse against the collateral.

Front 52

Obligor's obligations once an instrument is given for payment on an obligation

Back 52

The obligor's obligation is suspended to the same extent as if cash were given. If the isntrument is lost or stolen, the origial obligation is permanently suspended and the obligee's rights are limited to enforcement of the instrument.

Front 53

Subsequent transferee's liability for conversion when receiving instrument from depositary bank

Back 53

Only the depositary bank can be held liable for paying the instrument inconsistent with the trust, unless the subsequent transferee has notice that the fiduciary breached his duty

Front 54

Maker's discharge of liability on payment of a note

Back 54

If to a holder, then discharged; if payment is made to someone who is not a true holder, then there is no discharge

Front 55

When a note is payable to a psecific payee...

Back 55

...a later transferee cannot become a holder of the note unless the specific payee has indorsed the note by signing his name on the back of the instrument.

Front 56

Enforceability of stolen instruments

Back 56

Maybe enforceable even if not in possession of he payee as long as
he can prove ownership;
the terms of the instrument;
the facts that prevent him from producing it
(although he may be required to indemnify the maker against losses)

Front 57

Finality of payment rule

Back 57

When a maker pays out on a note, payment is final and the maker cannot recover money paid out on the instrument, except where the person who presents a note for payment makes a warranty of enforceability; if he breaches this warranty, the maker can recover money paid to the presenter under a breach of warranty theory.

Front 58

Presentment warranty

Back 58

Any party presenting a NI for payment warrants that he has a right to enforce the instrument, and no missing or fraud. terms.

A bank may only make payment on a properly indorsed check under the presentment warranty.

Front 59

Obligation on a certified check

Back 59

A certified check becomes the obligation of the issuing bank and discharges the liability of the drawer (check-writer).

Front 60

Drawer

Back 60

Check-writer

Front 61

Properly payable rule

Back 61

A bank may only charge a customer's checking account for those items properly payable.

Front 62

Effect of a forged endorsement on title

Back 62

A forged necessary indorsement destroys title to the instrument and makes it not properly payable

Front 63

A bank that pays to a person not properly payable...

Back 63

becomes liable for conversion on the check

Front 64

To be negotiable an instrument must be in writing and signed and
(memorize)

Back 64

1. unconditional
2. promise or order to pay
3. a fixed amount of money (with or without interest that:
a. is payable to order or bearer; b. on demand or at definite time; c. states no unauthorizedundertaking or instruction

Front 65

Value means

Back 65

1. Performance of the agreed upon consideration
2. Holder acquires a lien or security interest in the instr. other than judicial proceeding
3. payment of or security for an antecedent debt
4. trading one neg. instr. for another
5. third party obligation