Commercial Paper

Front 1

What is THE RULE for Negotiable instruments?

Back 1

1) Writing 2) Signed by the author 3) Payable to order or bearer 4) Promise or order to pay money 5) Fixed amount 6) No conditions 7) Payable on demand or at a definite time

Front 2

Who is liable on the instrument?

Back 2

Signers are liable on the instrument

Front 3

What counts as a signature?

Back 3

Any symbol with present intent to authenticate

Front 4

What is the effect of a forged signature on liability?

Back 4

Forged Signature's do not prevent negotiability

Front 5

What is the effect of an Authorized representative's signature?

Back 5

It binds the principal

Front 6

When is the representative not liable?

Back 6

When the signature unambiguously indicates the principal

Front 7

What must makers do?

Back 7

Pay per terms of the note

Front 8

Drawers of drafts must pay the check if....

Back 8

THE CHECK IS DISHONORED

Front 9

Indorsers are liable if what?

Back 9

The instrument is dishonored unless indorsed "without recourse"

Front 10

How is a surety liable?

Back 10

Per the terms of the obligation to pay

Front 11

Who is entitled to enforce a negotiable instrument?

Back 11

By persons entitled to enforce the instrument

Front 12

Who is a holder?

Back 12

1) Anyone in possession of bearer paper
2) Possession of the designated payee if it is order paper

Front 13

What is a "special indorsement"?

Back 13

(Pay to Sally) Designated payee must sign before anyone else can become a holder

Front 14

What are transferees?

Back 14

They are 1) Nonholders, who 2) have the rights of a holder

Front 15

What are Real Defenses that everyone is subject to?

Back 15

1) Infancy, 2) Duress, 3) Fraud in the factum 4) Bankruptcy discharge

Front 16

What are Personal Defenses?

Back 16

1) Statutory defenses: payment of the instrument
2) Defenses based on the underlying obligation
(like breach of K breach of warranty)

Front 17

What is a Holder in Due Course?

Back 17

1) Instrument 2) Holder 3) Good faith 4) value 5) innocently 6) without notice of weird stuff

Front 18

What is the shelter rule?

Back 18

One who takes from an HDC has rights of a HDC as a transferee UNLESS transferee takes by fraud or illegality affecting the instrument

Front 19

What is the scope of Article 4?

Back 19

1)Check collection 2) Relationship with bank and customer

RULE: PAYOR BANK'S PAYMENT OF CHECK DISCHARGES UNDERLYING OBLIGATION

4) Dishonor: Liabilities still remain on the underlying obligation

Front 20

What are the two rules on Check Collection?

Back 20

1) payor bank must honor or dishonor a check presented to it for payment by its midnight deadline

2) Midnight deadline is midnight of the next banking day after presentment

Front 21

What must a payor Bank do with checks that are properly payable?

Back 21

PAY THEM

Front 22

What is a properly payable check?

Back 22

1) Authorized by the customer and
2) In accordance with any agreements
3) If not payor bank wrongfully dishonors and customer is entitled to a wide range of damages

Front 23

What can a bank do with a check that is not properly payable?

Back 23

It has the choice to pay them or not

Front 24

What kinds of checks are not properly payable?

Back 24

1)Overdrafts but Bank has choice to honor or dishonor and charge the customer for the deficiency

2) Stop Payment Orders

Front 25

What are the requirements for Stop Payment Orders?

Back 25

1) Order by authorized customer to dishonor a check

2) Right is ABSOLUTE

3) Requirements are:
A) reasonably accurate describes check to be stopped
B) Order arrives at bank before the check is paid

Front 26

What are the General Rules for Forgery?

Back 26

1) Drawer's signature is missing or not authorized

2) Payor bank is liable because the forgery renders the check not properly payable

Front 27

What are the defenses to Forgery for the bank?

Back 27

1) Customer expressly or impliedly authorized signiture

2) Customer is negligent contributing to forgery

3) Bank Statement Rule:
customer duty to review statement and detect forgery and report to bank. Subsequent forgeries by same wrongdoer=customer is liable
One Year Rule: Any loss from forgeries after one year after issuance of bank statement falls on customer

Front 28

What is the rule for Stolen Checks?

Back 28

1) Missing unauthentic, or ineffective indorsement
2) Payee can sue the drawer of the check under breach of K
3) Drawer of the check can sue his bank because his bank paid an item that was not properly payable
4) Payor Bank can sue transferring banks for breach of presentment warranties

5) Transferring banks can sue the thief for breach of transfer warranty

6) General rule of thumb: THE RISK OF LOSS WILL ALWAYS FALL ON THE PARTY THAT DEALT MOST CLOSELY WITH THE THIEF

Front 29

Defenses for forged indorsements

Back 29

1) Forged indorsement is deemd authorized because the theif was an employee entrusted with responsibilities involving checks

2) Negligence substantially contributed to making the unauthorized signature.