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31 Cards in this Set
- Front
- Back
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Commercial Paper
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Commercial Paper
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What are the steps for analyzing a commercial paper question?
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1. identify type of paper
2. identify parties 3. negotiable? 4. properly negotiated? 5. is transferee an HDC? 6. determine P's causes of action 7. determine D's defenses 8. can D pass liability to another party? |
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What is a note?
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promise to pay money (2 party instrument)
- maker: obligor/promissor, person who promises to pay - payee: promisee, person entitled to payment |
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What is a draft?
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order to pay (3 party instrument)
- drawer: person ordering payment - drawee: person to make the payment - payee: person to receive payment Examples: - check, demand draft |
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What are the different kinds of checks?
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- check: bank is drawee, account holder is drawer, payable on demand
- certified check: check a bank has acepted - cashier's checks: drawer and drawee are same bank, remitur buys - teller's check: drawn by one bank on other bank, person is remittur |
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What are the elements of negotiability?
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At time of issuance:
1. in writing 2. signed by maker or drawer 3. unconditional promise or order to pay 4. fixed amount (interest ok) 5. in money (not goods or services) 6. no other undertaking 7. payable on demand or def. time 8. containing words of negotiability (if missing on check, waived) |
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What is a holder?
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Physical possession of negotiable instrument + good title
- good title= - bearer: possesion only - order: possession + necessary endorsements |
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What is a blank indorsement?
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payee signs check and no one else named
- creates "bearer paper" - same as if the check was made out to "cash" |
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What is a special endorsement?
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payee signs + designation of new person to whom instrument payable
- creates "order paper" |
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What is a restrictive endorsement?
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Limits what may done with instrument
- "for deposit in my account only" |
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Who is a draft payable to?
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The intent of the drawer controls
- if "and" separates names, all payess must endorse - if "or" separates, any payee |
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What is a holder in due course?
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1. negotiable instrument
2. holder 3. authenticity not apparently questioned 4. holder must pay value 5. good faith 6. without notice |
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What constitutes notice to an HDC?
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HDC must not know:
1. instrument overdue (90 days after issue) 2. instrument dishonored 3. uncured default of other ins in series 4. unauthorized sig 5. alteration 6. any claim 7. any defense |
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What is the shelter rule?
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If purchased from HDC, person still has rights of HDC:
- even if not an HDC |
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What are the rights of an HDC?
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- subject to "real defenses"
- immune from "personal defenses" |
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What are real defenses re: an HDC?
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infancy, duress, lack of legal capacity, illegality, fraud in execution, bankruptcy, omission of require consumer protection language, SOL (6 years draft unacc, 3 yrs post-dishonor or 10 years post issuance), payment to former holder, alteration, unauth sig and forgeries
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What are personal defenses re: an HDC?
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Any non-real defense
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What is K liability?
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- primary liability of whoever signed the instrument
- maker: primary liability - drawer: secondary liab. |
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What is transfer warranty?
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transferor makes following warranties:
- entitled to enforce instrument (holder) - all sigs authentic - no alteration - no good defenses against him - no knowledge of insolvency proceedings |
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What are presentment warranties?
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- made on presentment
- warrantor entitled to enforce draft - no alteration - no knowledge of unauth drawer sig |
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What are the requiremenets for a stop payment order?
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- in writing
- within 6 months |
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What is the bank statement rule?
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- acct holder (drawer) has duty to inspect statement
- forgeries must be reported w/in 1 year - repeat offender: must be reported within 30 days |
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Liability of drawee bank?
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- payee can sue payor bank for conversion
- not properly payable liability to drawer - bank can then sue presenter on PW, who will sue up the line via TW |
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What is the impostor rule?
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- issuer, drawer or maker is estopped from denying validity of a forged indorsement
- if drawer or maker acts carelessly and thus contributed to the forgery |
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What about a fraudulent endorsement by an employee?
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- payee is estopped from denying if employee entrusted with responsibility for instrument (e.g. accountant)
- not liable if not entrusted (e.g. janitor) |
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What are a drawee bank's defenses to not properly payable liability to drawee/payor?
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- impostor rule
- fraudulent indorsement by employee - drawer's negligence - failure to timely sue (3 years) |
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What can drawee bank do in NPP to pass on liability?
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- sue presentor for breach of presentment warranty of entitled to enforce
- forged endorsement means presentor couldn't be a holder (no good title) |
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What can presentor due if found in breach of presentment warranty?
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- sue up the chain for breach of transfer warranty
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What is the effect of an alteration?
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- Generally, altered check is NPP
- HDC may enforce original amount of instrument - Unauth completion: (IRS to IRSmith) HDC may enforce as completed |
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Drawee bank defenses to NPP for alteration?
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- negligence of drawer
- bank statement rule |
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Is an agent personally liability if they signed for a principal?
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Yes, unless:
1. principal identified in instrument 2. signature unambiguously shows they signed on behalf of principal Example: "<Principal name>, by <Agent name>" Exception: check containing name of principal |
