Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key


Play button


Play button




Click to flip

30 Cards in this Set

  • Front
  • Back
What are the four (4) key concepts in Commercial Paper?
1. Equivalent of Gold

2. Transferability

3. Protection of the Innocent (HDC).

4. Bank Collection Process (Article 4).
What are the nine (9) Requirements of a Negotiable Instrument?
1. Writing

2. Signed By Maker of Drawer

3. Unconditional

4. Promise to Pay or Order to Pay

5. Fixed Amount

6. In Money

7. No Other Instructions

8. Payable on Demand (or in definite time)

9. Made Payable "To Order" or "To Bearer"
Negotiable Instrument Requirements: What is meant by the "writing" requirement?
- Must be "tangible" and in "written form".
Negotiable Instrument Requirements: What is the key to the "signature" requirement?

- Whether the party intended it to be their signature.
Negotiable Instrument Requirements: Does an IOU satisfy the "promise" requirement?
- No.
Negotiable Instrument Requirements: What is meant by "fixed amount"?
- The person who wants to collect needs to be able to tell how much is owed.
Negotiable Instrument Requirements: "In Money" Requirement - does "a promise to pay 100 bales of cotton" count? , what about foreign currency?
- foreign currency is ok.

- cotton does not work
Negotiable Instrument Requirements: "No other undertaking or instruction" - What does this mean?
- "courier without baggage"

- it must not be burdened with anything other than a simple, clean unconditional promise or order.
Negotiable Instrument Requirements: What is meant by "payable on demand"?
- The holder of an instrument must be able to tell when it comes due.
Negotiable Instrument Requirements: "Made Payable To Order or To Bearer" - What is the magic language?
- "to the order of"

- "to the order of bearer"

- "to the order of Paul, or bearer"
Transfer + Endorsement = ???
= Order Paper
Transfer (aka - possession) = ???
= Bearer Paper
Bearer Paper: Does the transfer have to be voluntary?

- Even a thief can be a "holder" of bearer paper.
Holder in Due Course: What are the four (4) elements of a HDC?
1. a holder

2. who gives value

3. in good faith

4. without notice of claims or defenses.
Holder in Due Course: What is a HDC analogous to?
- a good faith purchaser for value.
HDC: What meets the "holder" requirement?
Bearer Paper = Possession

Order Paper = Possession + Endorsement
HDC: What meets the "value" requirement?
- There must be "executed consideration", not just a promise to give consideration.
HDC: What are the two (2) prongs of the "in good faith" requirement?
1. Honesty in Fact

2. Observance of Reasonable Commercial Standards in Fair Dealing.
HDC: What are the five (5) claims / defenses that an HDC must have "no notice" about?
The Instrument is...

1. not authentic

2. overdue

3. material alteration,

4. already claimed, or

5. recoupment
HDC: What does the "Shelter Rule" allow someone who is not an HDC to do?
- It allows them to elevate their status to HDC, if they are in the chain from a valid HDC.
HDC: What are the four (4) "Real Defenses" that an HDC takes subject to?
1. Infancy

2. Incapacity, Duress, or Illegality

3. Fraud in the Factum

4. Discharge by Insolvency
What is the "Properly Payable" Rule?
- The bank may pay out the customer's money, ONLY if they have followed his instructions exactly.

- If not, they must re-credit the customer's account.
Is a forged or missing signature properly payable?
What are the (3) "Presentment Warranties"?
1. Entitled to enforce,

2. No alterations, and

3. Signature is Authorized.
To whom are "presentment warranties" made to?
- Almost always the drawee's bank.
What are the five (5) "Transfer Warranties"?
1. the transferor is entitled to enforce the instrument,

2. all signatures are authentic,

3. no alterations,

4. no one has a defense against the transferor, and

5. no insolvency proceedings against the maker, drawer, or acceptor.
What is a "Restrictive Endorsement"?
- makes the check "negotiable", but later holders who violate the terms are liable for conversion.

example: "For Deposit Only /s/ Paul Payee"
What is the "Negligence Rule"?
- If a party, by his negligence, substantially contributes to a material alteration or unauthorized signature, he is precluded from raising defenses against someone who pays in good faith.
Does a customer have a duty to examine bank statements?
Yes. He must also "promptly notice" the bank to any problems if he wants to recover.
What is an "accommodation maker"?
Basically a co-signor.