In Commercial Paper

Front 1

instruments/commercial paper

Back 1

paper which calls for a party to pay money rather than deliver goods or perform a service

Front 2

uses of commercial paper

Back 2

*evidence debt

*substitute for money to pay for goods & services

Front 3

note

Back 3

two party instrument

1. maker: person who signs or is identified as person promising to pay

2. payee: person to whom the note is payable

Front 4

draft

Back 4

three party instrument

1. drawer: person who signs or is identified as person ordering payment

2. drawee: person ordered in draft to make payment

3. payee: person to whom the draft is payable

Front 5

check

Back 5

order to bank to pay someone out of your account

draft

*payable on demand

*where bank is drawee

Front 6

certificate of deposit

Back 6

promissory note of a bank

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

Front 7

examples of drafts

Back 7

checks

money orders

traveler's checks

Front 8

transferability of non-negotiable paper

Back 8

general rules of K law apply >> assignee stands in shoes of the assignor

Front 9

holder in due course

HDC

Back 9

person who gives value in good faith to obtain a negotiable instrument with no notice that instrument is overdue or has been dishonored or of any defenses or claims

Front 10

holder

Back 10

person in possession of bearer paper or order paper that has been issued or properly endorsed to him

Front 11

value

Back 11

executed consideration (NOT just promise to give consideration)

Front 12

good faith

Back 12

subjective: honesty in fact; pure hear-empty head; no ulterior or dishonest motive

objective: fair dealing; fairness of conduct & whether holder is acting in accordance w/ordinary business practices >> look for conflict of interest, self dealing, undue influence, out of proportion

Front 13

is the original recipient of paper an HDC?

Back 13

no >> is status for later holders

Front 14

holders precluded from HDC status

Back 14

*when take instrument by legal process

*when take instrument by purchase at creditors sale

*when purchase instrument as part of a bulk transaction not in the ordinary course of business of the transferor

* when take instrument as successor in interest to an estate

Front 15

shelter rule

Back 15

allows someone who isn't an HDC to claim rights of HDC (to protect HDC's alienability rights)

Front 16

FTC rule

Back 16

every consumer credit K must have notice that 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 17

requirements for a negotiable instrument

Back 17

1. writing

2. signed by maker or drawer

3. unconditional

4. promise to pay or order to pay

5. fixed amount

6. of money

7. no other undertaking or instruction

8. payable on demand or at a definite time

9. made payable to order or to bearer

Hint 17

When Sabres Use PP FA Mark Napier Pass Down To Paul Byron

Front 18

"signed"

Back 18

any symbol executed or adopted by a party w/present intention to authenticate a writing >> can be stamped, printed, written, initials, thumbprint, trade name, assumed name

Front 19

why must negotiable instrument be unconditional?

Back 19

conditional promises destroy negotiability

Front 20

is an IOU a negotiable instrument?

Back 20

no - it is only an acknowledgment of a debt, not a promise to pay

Front 21

made payable to order or to bearer

Back 21

"I promise to pay" >> not enough

"I promise to pay to the order of..." >> good

"I promise to pay bearer" >> good

"Pay to the order of..." >> good

checks don't need this >> pay X is enough

Front 22

assignment v. negotiation

Back 22

assignment >> stand in shoes of assignor

negotiation >> third party becomes the holder (possibly HDC)

Front 23

negotiation - order paper

Back 23

transfer of possession (does not have to be voluntary) + endorsement

Front 24

special endorsement

Back 24

specifies person to whom instrument is payable

Front 25

blank endorsement

Back 25

does not specify the person to whom the instrument is payable

Front 26

negotiation - bearer paper

Back 26

transfer of possession

Front 27

what happens if endorsement of order paper is forged?

Back 27

none of the parties after the forger are holders >> none can have good title >> all have converted the instrument >> drawee can't properly pay >> none are entitled to the money

Front 28

HDC takes free of ______________ defenses and claims but subject to ______________________________ .

Back 28

personal

real defenses

Front 29

real defenses

Back 29

*infancy

*incapacity/duress/illegality as renders obligation a nullity

*misrepresentation in inducement (fraud in factum)

*discharge in insolvency

*any other discharge of which holder has notice when he takes the instrument

Front 30

liability on underlying obligation

Back 30

suspended once an instrument is offered & accepted in satisfaction of the underlying obligation >> payment of the instrument discharges the instrument and the underlying obligation

Front 31

liability on underlying obligation - when instrument not paid when due

Back 31

party issuing the instrument (maker or drawer) is liable on both the instrument and on the underlying obligation (but there can be only 1 recovery)

Hint 31

like accord & satisfaction

Front 32

liability on the instrument - maker/drawer

Back 32

K liability: obligated to pay holder of instrument according to terms at the time of issuance

Front 33

liability on the instrument - multiple makers

Back 33

joint & several liability w/right of contribution

Front 34

liability on the instrument - endorser

Back 34

K liability - secondary liability: obligated to pay according to the terms of the instrument at time of endorsement IF instrument not paid by maker/drawee (endorser must receive notice of dishonor)

Front 35

liability on the instrument - endorser - order of signatures

Back 35

those signing later in time can get complete reimbursement from those signing prior in time

Front 36

liability on the instrument - endorser - anomalous endorsements

Back 36

endorsers are jointly and severally liable with right of contribution