Commercial Paper

Front 1

which articles in the Uniform Commercial Code deals with the law of commercial paper

Back 1

articles 3 and 4

Front 2

Are questions dealing with commercial paper narrow or broad

Back 2

narrow

Front 3

what are the two kinds of instruments ranch to which article 3 applies

Back 3

a note
a draft

Front 4

what is a note

Back 4

a note is a two-party commercial paper
a written and signed promise by the maker to pay money to the payee or bearer

Front 5

what is a certificate of deposit

Back 5

an acknowledgment that a sum of money has been received by a bank and a promise by the bank to repay the sum of money

Front 6

who makes a note

Back 6

a maker

Front 7

who creates a draft

Back 7

a drawer

Front 8

what is a draft

Back 8

a draft is a three party commercial paper is a written and signed instruction by a drawer to another person the draw he demanding that the draw he and running to still a third person the payee or bearer

Front 9

what is a bill of exchange

Back 9

a draft

Front 10

what is a check

Back 10

check is a specific type of draft drawn on a bank and payable on demand

Front 11

what is required to be a check

Back 11

it must be drawn on a bank and be payable on demand

Front 12

what if it says something other than check on its face

Back 12

it is still a check if it is drawn on a bank and payable on demand

Front 13

what a financial rent falls within the definition of both notes and draft

Back 13

a person is entitled to enforce the instrument as either a note or a draft

Front 14

does the Uniform Commercial Code apply to money

Back 14

no

Front 15

what is an issue

Back 15

first delivery of an instrument by the maker or drawer question

Front 16

how do you know if instrument is negotiable

Back 16

it depends on the form

Front 17

what is a negotiable instrument

Back 17

unconditional
promise or order to pay
a fixed amount of money

that is payable to order or the bearer
that is payable on demand or at a definite time
and does not state any unauthorized undertaking or instruction

Front 18

what is the goal behind negotiable instruments law

Back 18

to provide a convenient substitute for cash that can pass freely in commerce

Front 19

when is an instrument not negotiable

Back 19

when it is conditional

Front 20

what makes an instrument conditional

Back 20

an express condition to payment
states that the promise is subject to or governed by another writing

Front 21

what if an instrument refers to another writing for a statement of rights regarding collateral prepayment or acceleration

Back 21

it would be an exception and would be negotiable

Front 22

what if an instrument limits payment to a particular source or fund

Back 22

it would be negotiable

Front 23

what if a instrument requires as a condition to payment a counter signature

Back 23

it is negotiable

Front 24

what if an instrument contains a statement required by law

Back 24

is negotiable

Front 25

what does HDC mean

Back 25

holder in due course

Front 26

what is a promise to pay

Back 26

a written undertaking to pay money signed by the person undertaking to pay

Front 27

what is in order to pay

Back 27

a written instruction to pay money signed by the person giving the order

Front 28

what is a writing

Back 28

printing, typing, or any other intentional reduction to tangible form

Front 29

what constitutes a signature

Back 29

hand written, typed, printed, or made in any other manner

it may be made in any name adopted for the purpose of being a signature

Front 30

does the signature need to be at the end of the instrument

Back 30

know it may be in the body of the instrument

Front 31

what is money

Back 31

any medium of exchange authorize were adopted by a government

Front 32

what if the instrument specifies foreign-currency

Back 32

is payable in the specified foreign money or its equivalent in United States dollars at the current bank exchange rate at the time and place and instrument is really

Front 33

what if an instrument calls for payment with something other than money for instance an ounce of gold or allow such payment in the alternative for example $400 for an ounce of gold

Back 33

is nonnegotiable

Front 34

what does the term fixed mean

Back 34

the principle due under the instrument must be fixed

Front 35

best interest need to be fixed

Back 35

no. interest will not be due unless the instrument provides for the payment of interest and if the interest rate does not need to be fixed

Front 36

if the straw man says that it is payable with interest what is the interest rate

Back 36

the judgment rate

Front 37

what is the judgment rate

Back 37

the rate on a court judgment

Front 38

what is payable to order

Back 38

payable to the order of an identified person or to and identified person or order

Front 39

when is a promise or order payable to bearer

Back 39

if it states that it is payable to the bearer
two order of bearer
two order or bearer
two order and to bearer
or otherwise indicates that the person in possession of the promise or order is entitled to payment

Front 40

what if the instrument does not state a payee

Back 40

it is still payable to bearer but it is an incomplete instrument

Front 41

with if the instrument states that it is payable to cash or otherwise indicates that it is not payable to an identified person

Back 41

it is still payable to bearer

Front 42

what good is the identification of the person to whom an instrument is payable

Back 42

the intent of the person signing as or on behalf of the issuer

Front 43

what if more than one person signs the instrument

Back 43

any person intended by any signer may properly be paid

Front 44

what if the signature is made by a machine

Back 44

than the instrument is payable to the person intended by the person who supplied the name of the payee

Front 45

can a payee be identified by any other means

Back 45

yes including name office account number etc.

Front 46

what if the instrument is payable to an account number

Back 46

then it is payable only to the person named on the account

Front 47

what if the instrument is payable to a trust or estate

Back 47

then it is payable to the representative

Front 48

what if an instrument is payable to an agent or other representatives

Back 48

is payable to the representative person or the representative

Front 49

what if a check is missing the magic words

Back 49

a check that is not payable to order or to bearer is still negotiable

Front 50

land is an instrument payable on demand

Back 50

when it states that it is payable on demand
or at sight
or otherwise indicates that it is payable at the will of the holder
or it does not state a time for payment

Front 51

when is an instrument payable at a definite time

Back 51

on a fixed date
on the lapse of a specific period of time after site or acceptance
or at some time readily ascertainable at the time the instrument is issued

Front 52

what if instrument is uncertain as to time

Back 52

is not negotiable

Front 53

Do acceleration clauses destroy negotiability

Back 53

No

Front 54

what are the three types of extension clauses

Back 54

Option of the maker extending due date to a specific time - negotiable

Option of the maker to extend the date without a definite time - not negotiable

Option of the holder - always permitted because the holder may always give extra time for the payment

Unless - the maker objects and tenders payment at the same time

Front 55

which three undertakings or instructions are permitted by the code

Back 55

Power to give, maintain, or protect collateral

authorization or power to the holder to confess judgement or realize on or dispose of collateral

waiver of the benefit of any law intended for the advantage or protection of the obligor

Front 56

what if the instrument contains contradictory terms

Back 56

typewritten terms control printed terms

handwritten terms control both

words control figures unless the words are ambiguous or uncertain

Front 57

what would be done with "pay five hundred dollars" "$5000"

Back 57

the five hundred dollars rules

Front 58

is he instrument negotiable if it contains a conspicuous statement that it is not negotiable even though it meets all the requirements of a negotiable instrument

Back 58

no accept for checks

Front 59

how are joint signers liable

Back 59

joint and severably

Front 60

what if the instrument is incomplete

Back 60

it may be honored according to its incomplete terms or authorized completion

Front 61

what if the incomplete instrument is completed without authority

Back 61

it would be considered fraudulent

Front 62

what is negotiation

Back 62

transfer of possession of the instrument by a person other than the issuer to a person who thereby becomes the holder

Front 63

wha if the transfer of possession in by the issuer

Back 63

then it is an issue not a negotiation

Front 64

can a negotiation be involuntary

Back 64

yes

Front 65

what is a holder

Back 65

a person in possession of the instrument if the instrument is "payable to the bearer" or if the instrument is payable to an identifiable person then that person is the holder once they gain possession of the instrument

Front 66

Exam holder

Back 66

a person with possession and a right to enforce it

Front 67

How is a bearer instrument negotiated

Back 67

by transferring possession

Front 68

what is a bearer instrument

Back 68

a check made out to cash as an example

Front 69

Negotiation to specific payee

Back 69

transferring possession of the instrument along with the endorsement of the identified person

Front 70

how do subsequent holders fair if the endorsement is invalid

Back 70

they are not considered holders

Front 71

how can an invalid endorsement be made effective

Back 71

ratification
and
estoppel

Front 72

Is a signature obtained by fraud or from an infant or anyone else without legal capacity, mistake or other illegality, in breach of duty or as part of an illegal transaction, negotiable

Back 72

yes. If the signature is genuine it will be effective for the purposes of negotiation

Front 73

Multiple payees

Back 73

Joined by AND - payable jointly and any subsequent negotiation must be endorsed by all

joined by OR - payable severally and any subsequent negotiation may be endorsed by any one

Front 74

does it mater where the indorsement is on the instrument

Back 74

no but it is typically on the back of the instrument

Front 75

may the indorsement be on a separate piece of attached paper

Back 75

yes

Front 76

can an order instrument be transferred without the indorsement

Back 76

yes it would be effective to transfer possession but the transferee would not be a holder

Front 77

can a trensferee of an order instrument without indorsement negotiate the isntrument

Back 77

no. he would not be a holder and and would not have the right to enforce therefore he could not transfer the right to enforce

Front 78

what are the rights of a transferree without indorsement

Back 78

suit to compel indorsement if paid value for the instrument

suit to enforce instrument - if the instrument is due may be enforced without indorsement if ownership rights proved

Front 79

what happens if a depository bank takes an instrument from a holder without an indorsement

Back 79

the bank becomes the holder anyhow but only if the instrument was taken for collection (deposit)

Front 80

what if a check payable jointly is accepted for collection by a bank with only one signature supplying the other signature

Back 80

the second signatory would be able to sue for conversion

Front 81

what happens when a transferee obtains transferor's endorsment

Back 81

becomes a holder since has possession and right to transfer. May become HDC if due course requirements are met

Front 82

what are the requirements of due course for a HDC

Back 82

Consideration
Good Faith
No Prior Knowledge of problem
(notice, value, faith)

Front 83

at what point is the holder responsible for no prior knowledge of defect

Back 83

at the time the indorsement is obtained

Front 84

Can an indorsement negotiate partial interest

Back 84

No

Front 85

if partial payment of the instrument has occurred may an indorsement negotiate the rest

Back 85

yes

Front 86

what are the three types of indorsement

Back 86

special or blank
qualified or unqualified
restrictive or unrestrictive

Front 87

What are the two types of commercial paper most commonly tested on the bar

Back 87

notes/promissory

drafts/checks

Front 88

between notes and drafts which is two party and which is three

Back 88

Drafts are two party

Checks are three party

Front 89

What do you call the parties to a note

Back 89

maker and payee

Front 90

what do you call the parties to a draft

Back 90

drawer, drawee, payee

Front 91

In contract law what rights does an assignee inherit from the assignor

Back 91

takes possession in the shoes of the assignor, any defense that may be raised against the assignor could be raised against the assignee

Front 92

What rights against defenses does an assignee of a negotiable instrument have

Back 92

subject to pure defenses but is shielded against personal defenses

Front 93

would the assignee of a note for goods be shielded against the defense of defective goods

Back 93

no

Front 94

how many requirements are there for an instrument to be negotiable

Back 94

9

Front 95

what are the nine requirements for an instrument to be negotiable

Back 95

writing,
signature of maker or drawer,
unconditional,
promise or order to pay,
fixed amount,
money,
no other undertaking or instruction,
payable on demand or at a definite time,
magic words

WSUPFMNPM,

Front 96

Where does the signature need to be on the writing for it to be a negotiable instrument

Back 96

so long as it is INTENDED to be a signature the location on the writing does not matter

Front 97

how do conditions affect negotiability

Back 97

the instrument would not be negotiable

Front 98

does reference to another writing destroy negotiability

Back 98

not generally

Front 99

“in accordance with” or “as per the contract”

Back 99

negotiable

Front 100

“subject to” or “conditioned upon performance of”

Back 100

not negotiable

Front 101

what if the referred to document does not actually put any conditions on the instrument

Back 101

the fact that the instrument is conditioned upon or subject to the other document and that the instrument requires looking at the other document is what destroys negotiability. An instrument must be negotiable on its face

Front 102

Exception to the general principal that referring to another document would destroy negotiability

Back 102

statement of rights regarding collateral, acceleration, prepayment

Front 103

does limiting payment to a particular fund destroy negotiability

Back 103

no

Front 104

does requiring a counter signature destroy negotiability

Back 104

no, travelers checks are negotiability

Front 105

is I.O.U. A negotiable instrument

Back 105

no it is an acknowledgment of the dept but not a promise to pay

Front 106

what part of the monetary promise or order is required to be fixed

Back 106

the principle

Front 107

is it ok for an interest rate to refer to an outside source

Back 107

yes

Front 108

what rate is applied if the instrument states that it is payable with interest but no interest rate is indicated

Back 108

the judgment rate

Front 109

can an instrument be payable in any other form than money

Back 109

no that would be a non-negotiable instrument

Front 110

could it be paid in foreign currency

Back 110

yes so long as the united states recognizes the currency

Front 111

what are the exceptions to the additional requirements prohibition

Back 111

anything that strengthens the promise to pay but has no independent value on its own and requirementing that a default would cause the maker or drafter to pay attorneys fees

Front 112

does an instrument need to be dated as to when it is due to be negotiable

Back 112

no, if it is undated it is payable on demand

Front 113

is it OK to postdate a check

Back 113

yes but it is the responsibility of the drawer to notify the bank properly and to describe the check. Otherwise the bank may pay the check before that date

Front 114

what if there is a definite time beyond which a note would not be negotiable but there is also an acceleration clause

Back 114

negotiable but there must be a good faith effort to show insecurity in order to accelerate and a definite date beyond which it will not run

Front 115

will an extension clause at the option of the maker render a note non-negotiable

Back 115

no so long as it extends the payable date to a definite date

Front 116

does an extension clause at the option of the holder destroy negotiability

Back 116

no a note is always extendable at the option of the holder no matter what it says on its face

Front 117

is a note payable upon a time certain to occur but uncertain as to when, negotiable

Back 117

no, eg. Upon the death of anyone

Front 118

is a note payable at a definite time or sooner dependent on an uncertain event negotiable

Back 118

yes because it is payable no later than a certain time.

Front 119

What are the magic words usually on a note or a draft

Back 119

pay to order or to bearer

Front 120

what kind of paper is payable to cash or to the order of cash

Back 120

bearer paper

Front 121

what kind of paper is not payable to an identifiable person

Back 121

bearer paper

Front 122

does a statement 'this note is negotiable” cause it to be so

Back 122

no

Front 123

Can any of the successive receivers of an order paper be holders if one of the indorsements is forged

Back 123

no, no one from the forger on can be a holder

Front 124

generally if a transferee takes possession of an order paper without an indorsement from the holder will that transferee become a holder

Back 124

no

Front 125

what is the exception to the general rule if a bank takes possession without indorsement from a customer who is a holder

Back 125

the bank will be a holder

Front 126

what does it mean to give value for an instrument

Back 126

consideration must be executed

Front 127

what is discounting

Back 127

negotiating for less than face value

Front 128

what is required to be a holder of bearer paper

Back 128

just transfer whether voluntary or not

Front 129

what is required to be a holder of order paper

Back 129

transfer and proper indorsement

Front 130

will writing Non-Negotiable on a check cause it to be so

Back 130

no

Front 131

will writing Non-negotiable on a promissory note make it so

Back 131

yes

Front 132

what are the two kinds of indorsements

Back 132

special and blank

Front 133

what is a blank endorsement

Back 133

it does not specify a person to be paid but is just a signature

Front 134

what is a special indorsement

Back 134

it is a signature and specification as to the person to be paid

Front 135

can a holder be a holder due course if he gave discounted consideration for a note

Back 135

yes since the full consideration was executed and if it was without notice and with good faith the holder would be a holder in due course for the full value of the note

Front 136

can a note be given in exchange for value previously given

Back 136

yes

Front 137

what is first in first out rule

Back 137

if a 300 dollar check is deposited in an account that already has 500 dollars in it then the first 500 that is given out by the bank is not from the check and therefore the bank has not given value for the check yet and is not a holder in due course

Front 138

what does notice mean

Back 138

actual notice or reason to know

Front 139

What is good faith

Back 139

subjective standard, honesty in fact

Front 140

notice

Back 140

cant know of irregularity, incompleteness, over due, dishonored, unauthorized signature, authorizations claims or defenses

Front 141

To be a holder

Back 141

in due course holder, executed consideration, in good faith, reasonable commercial standards, without notice

Front 142

minor change or erasure on order paper

Back 142

still holder in due course but at some point suspicion would be raised

Front 143

Authorized alteration of amount

Back 143

still holder in due course

Front 144

maker fraudulently induced to make note to payee and payee discounts note at bank is bank a holder in due course

Back 144

no

Front 145

does claim or defense need to be related to an irregularity

Back 145

no

Front 146

does knowledge of default in interest payment count as notice

Back 146

no, only knowledge of default in principle payment

Front 147

when does a check become over due

Back 147

ninety days after written

Front 148

3000 dollar note severely discounted to 50 dollars

Back 148

would ruin good faith with no notice

Front 149

close connectedness doctrine

Back 149

the more that the holder knows about the underlying transaction the more suspicion would be raised against good faith

Front 150

if the holder has knowledge that a fiduciary has negotiated an instrument to that holder in payment for the fiduciaries own debt on a transaction for the fiduciaries own benefit or has otherwise breached his fiduciary duty

Back 150

holder would have notice

Front 151

Shelter Rule

Back 151

holder in due coarse transfers instrument to holder who is not holder in due course but since holder took from HDC holder has rights of HDC

Front 152

Can a holder be shielded in the preceding HDC rights if the holder new about the fraud

Back 152

yes

Front 153

can the holder be shielded in the preceding HDC rights if the holder participated in the fraud

Back 153

no

Front 154

will a holder in due course of a note based on consumer goods be subject to any defenses of the consumer such as breach of warranty

Back 154

yes by federal law they cannot claim to be HDC free from all claims

Front 155

what is the affiliation rule

Back 155

if consumer goods are involved and there is an affiliation between the seller and the lender or systemattic referals to that independent lender then the lender has to agree to take subject to any defenses

Front 156

does the consumer goods exception to the HDC doctrine apply if the consumer goods are given in exchange for a check

Back 156

no, only promissory notes

Front 157

real defenses

Back 157

infancy, incapacity, duress, discharge in bankrupcy, fraud in the inducement without knowledge of the essential character of the writing

Front 158

May a minor disaferm a transaction involving commercial paper

Back 158

yes so long as state law allows the minor to dissafirm then minor does not have to pay even as against a holder in due course

Front 159

may fraud in the inducement be raised as a deence as against a HDC

Back 159

as a general rule fraud in the inducement is a personal defense and may not be raised as against a HDC so long as the signer is aware of the character and essential terms of the note

Front 160

what is fruad in fact

Back 160

induced to sign by deception as to the character and terms of the writing but you must be excuseably ignorant. Courts are tough on signers though.

Front 161

Is discharge by payment a personal or real deffense

Back 161

personal, always get possession of the note upon payment or have it stamped paid in full

Front 162

can a payee who is issued a note from the issuer be a HDC

Back 162

as a general rule a payee would be a HDC if all the criteria for being a HDC are met. However, if the payee and the issuer are the only two parties involved then the HDC doctrine is not applied

Front 163

what if the payee does not deal directly with the issuer such as through an agent or remitter

Back 163

then the HDC doctrine may apply if the payee is an HDC and the wrong doing is of the remitter or agent

Front 164

what gives the write to sue the maker of a note or the drawer of a check or an indorser

Back 164

generally when an instrument is given in satisfaction of an underlying obligation the obligation merges with the instrument and is suspended until the instrument is paid at which time it is discharges. If the instrument is dishonered the issuer is liable on the instrument AND the underlying obligation but there is only one recovery.

Front 165

What exceptions are there to the general rule of the underlying debt merging with the note

Back 165

cashiers check, tellers check, or other bank instrument

Front 166

How are multiple makers of a note liable

Back 166

jointly and severally unless otherwise specified

Front 167

If there are three makers and maker A is sued for the full amount how might A collect brom B and C

Back 167

Maker A will be allowed to recover one third from B and one third from C

Front 168

what is an indorser agreeing to

Back 168

an indorser is agreeing to honor the terms at the time of the indorsement

Front 169

How might an indorser of a multi indorsed instrument collect from other indorsers

Back 169

as a general rule an indorser may collect in full from and earlier indorser

Front 170

what happens when a HDC indorses to someone else

Back 170

he would become liable as an indorser to later HDC. Being a HDC makes for a super plaintiff but not a super defendant

Front 171

How much of a check is a person liable for when they indorse

Back 171

100% even if there are other indorsers

Front 172

does it matter in what order indorsers signed as far as liability

Back 172

yes, if the check is dishonored the last holder may go after any indorser and any indorser may sue any other indorser ahead of him in time

Front 173

can an indorser recover from someone who signed after him

Back 173

as a general rule, No. but if the signers are on a note as surety then they are joinly and severably liable and could all collect from each other in any order or if an instrument is made payable to multiple payees and they all indorse then they are all jointly and severably liable

Front 174

how long are indorsers liable for a check they indorse

Back 174

30 days from the time of the indorsement

Front 175

is an indorser entitled to notice of dishonorment

Back 175

yes also within 30 days of indorsement accept as against a HDC who has no knowledge of the time since indorsement

Front 176

Is language on a note that requires waver of the notice or presentment right valid

Back 176

yes

Front 177

may notice or presentment be excused

Back 177

yes for good reason such as health or unavailability

Front 178

what does without recourse mean

Back 178

if included in an indorsement the indorser will not be liable for any amount if the check is dishonored.

Front 179

Can a drawer be liable in the event of excusable neglect to present

Back 179

a drawer will avoid liability in the event of any neglect to present ONLY in the event that the drawee bank becomes insolvent during the time period of neglect and there is no insuance to cover it (rare)

Front 180

is a drawer entitled to reasonable notice of dishonorment

Back 180

no

Front 181

is drawee liable on a non certified instrument to a payee

Back 181

no, they do not sign it

Front 182

what is an accomidation party

Back 182

a co-signer

Front 183

Is co-signer liable to payee

Back 183

yes for 100%

Front 184

is co-signer liable to primary signer

Back 184

no

Front 185

would a drawee be liable to the drawer

Back 185

yes they could be liable for wrongfully dishonoring

Front 186

is principle signer liable to co-signer

Back 186

yes

Front 187

if an extention is given for payment how does that affect the accomidation party

Back 187

the co-signer would be liable only to the extent the extention hurt him

Front 188

what if colateral is released without the consent of the co-signer

Back 188

the co-signer is no longer held liable to the extent he can show that the release of the colateral hurt him

Front 189

what defenses could the co-signer raise

Back 189

any defenses that the principal signer could raise except insolvancy, incapacity ro infancy

Front 190

what dose collection garanteed mean when it accompanies an accomodation signature

Back 190

may delay right to go after the co-signer until the principle is shown to be insolvent etc

Front 191

what would the personal liability be of an agent who signs as authorized on an instrument that has no other indication on it as to the principle than the agents position with the principle such as Jane Doe President

Back 191

the agent would be able to use parole evidence against a HDC without notice but “President” would most likely put any HDC on notice

Front 192

what id an agent signed on behalf of an undisclosed principle without indicating her relationship to the principal

Back 192

she would not be able to bring in parole evidence against a HDC without notice

Front 193

what is current law regarding an agent who signs a principles check without any indication as to her capacity

Back 193

so long as the check is drawn on the principles account and has the principals name on it the agent cannot be held personably liable

Front 194

what if drawer leaves amount of check blank

Back 194

it may be properly drawn in any amount written in

Front 195

how long until a check is stale

Back 195

after six months a bank is not obligated to honor it but they could in good faith