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30 Cards in this Set
- Front
- Back
Most common commercial paper
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Checks
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Order paper
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contains an order by one person for another to pay
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3 parties involved in an order paper
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Drawer- person signing order paper
Drawee- Person ordered to pay Payee- named person who is originally to be paid |
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Draft
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order issued by drawer for a drawee to pay
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Check
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Draft payable onn demand in which a bank is drawee
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Promise paper
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contains a promise by one party to pay another
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2 parties involved in promise paper
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Maker- person who promises to pay
Payee- person to whom the promise is made |
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Promissory note
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Type of promise paper
Promise by maker to pay a sum of money to payee at a future time |
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Certificate of deposit
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Note of bank acknowledging deposit and promising to pay at future time with interest
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Holder
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person in possesion of properly negotiated negotiable instrument- properly transferred from one owner to another.
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6 requirements for negotiability
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1. Must be an instrument in writing
2. Must be signed by maker or drawer 3. Must contain uncoditional, un-equivocal promise or order to pay 4. Must contain a sum certain in money 5. Payment must be due on demand or at definite time 6. Must be payable to order or bearer |
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first delivery
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delivery from orginal maker or drawer to payee is sufficient to negotiate the instrument and transfer legal title. The transferee beccomes the holder.
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After first delivery
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bearer instrument: physical delivery alone still negotiates the instrument
Order instrument: physical delivery and a necessary endorsement by transferor negotiates the instrument |
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Transferor
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could be payee
could be indorsee- person to whom previously indorsed. |
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Indorsement
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signature of a transferor, usually on the back of an instrument
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Parties in an indorsement
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transferor- indorser
transferee (recipient)- indorsee |
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Indorsement required
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Indorsement is required for transfer if instrument is payable to a named payee or indorsee
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Indorsement not required
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If payable to bearer or indorsed in bank, indorsement not required, but transferee may request that transferor sign it. Physical delivery negotiates a bearer instrument
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Multiple payees- alternative payees
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Pay A or B
Either may indorse to negotiate |
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Multiple payees- joint payees
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Pay A and B
Both must indorse to negotiate |
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indorser liability
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Indorsers are typically secondarily liable on the instrument, that is if drawer or payee doesn't pay.
If you simply indorse, you are liable |
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Blank indorsement
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Holder signs name only- paper becomes bearer instrument: delivery alone enough to negotiate.
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Special endorsement
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Payable to specific (named) person (indorsee)
Can convert bearer instrument to order instrument by special indorsement |
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Qualified indorsement
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Indorser signs words "without recourse"
Indorser not liable if instrument not paid. |
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Restrictive indorsements
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Restricts rights of indorsee
Examples: conditional indorsement (pay x if x delivers goods) "For deposit only"- bank must be collection agent Trust indorsement- "to John IN TRUST for Phillip" |
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Forged indorsement
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Person who received tthe instrument from the forger bears the loss if the forger does not pay.
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Holder in due course
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A holder who takes:
-For value (pay $ or provide services) -In good faith Honestly believes instrument is ordinary Inadequate consideration destroys good faith -Without notice of defenses that instument overdue, illegal, altered, time past or demand already made |
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Common law transferee
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A common law transferee took no right defense greater than the transferor had
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a holder in due course is free of...
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-Breach of contract or warranty
-Fraud in the inducement -Failure of consideration |
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Holder in due course defenses
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- Fraud in the execution
- Duress - Incapacity, Illegality - forgery or alteration - Discharge in bankruptcy |