Texas Commercial Paper

Front 1

Commercial Paper: What are the two basic instruments of commercial paper?

Back 1

Notes and Drafts (bill of exchange)

Front 2

Commercial Paper: How many and who are the parties to a note?

Back 2

2. the maker and the payee.

Front 3

Commercial Paper: How many and who are the parties to a draft?

Back 3

3. The drawer, the drawee, and the payee.

Front 4

Commercial Paper: What are the elements of negotiability?

***MEMORIZE***

Back 4

1. Written and signed.
2. Unconditional
3. Promise or Order
4. To pay a fixed amount of money (with or without interest)
5. Is payable to order or bearer.
6. On demand or at a definite time.
7. Contains no unauthorized promise or undertaking.

Front 5

Commercial Paper: What is the mnemonic for the elements of negotiability?

Back 5

UPAIOC: Under Pants Always Include Old Crumbs.

Front 6

Commercial Paper: How do we tell if an instrument is conditional and thus not negotiable?

Back 6

1. Expressly states a condition for payment, or
2. States that the promise or order is subject to or governed by another writing.

Front 7

Commercial Paper: If an instrument recites the consideration, is it conditional?

Back 7

No.

Front 8

Commercial Paper: How do we tell if a note is payable on demand?

Back 8

If it fails to state a time for payment or states that it is payable "on demand", "on sight", etc.

Front 9

Commercial Paper: How do we tell if an instrument is payable at a definite time?

Back 9

IF it is payable:
1. On a fixed date
2. After elapse of a fixed period.
3. At a time READILY ASCERTAINABLE when issued.

Front 10

Commercial Paper: What is the Holder in Due Course rule?

Back 10

If an negotiable instrument xferred for value, in good faith, without notice of any defenses or claims, the HDC can force someone to pay on the instrument.

Front 11

Commercial Paper: How does someone become a Holder?

Back 11

Through a transfer that qualififies as negotiation.

Front 12

Commercial Paper: What do the steps needed to negotiate an instrument depend upon?

Back 12

Whether the instrument is payable to bearer or to order.

Front 13

Commercial Paper: How are bearer instruments negotiated?

Back 13

Mereby by transferring possession.

Front 14

Commercial Paper: How are order instruments negotiated?

Back 14

By transferring possession along with the identified person's indorsement.

Front 15

Commercial Paper: If less than all signatures of all payees and special indorsees are on the instrument, does the right to enforce it pass?

Back 15

NO.

Front 16

Commercial Paper: If an instrument is payable to multiple payees jointly, who must endorse? Severally?

Back 16

Each payee.
Any payee.

Front 17

Commercial Paper: What are the types of indorsements?

Back 17

1. Special
2. Blank
3. Qualified
4. Unqualified
AND
5. restrictive or unrestrictive.

Front 18

Commercial Paper: What is a special indorsement?

Back 18

Names a particular person as payee.

Front 19

Commercial Paper: What is a blank indorsement?

Back 19

Does not name a particular person as payee.

Front 20

Commercial Paper: What is a qualified indorsement?

Back 20

Has the words "without recourse", limits K liability on indorser.

Front 21

Commercial Paper: What is a restrictive indorsement?

Back 21

An indorsement with any other language added. Generally ineffective to limit transfer or negotiation.

Front 22

Commercial Paper: What is an anomalous indorsement?

Back 22

An indorsement made by a non-holder, who then becomes liable on the instrument.

Front 23

Commercial Paper: What is holder status?

Back 23

Possession and the right to enforce.

Front 24

What are the two steps to determine if a person is a Holder in Due Course?

Back 24

1. Determine if the person is a holder.
2. Determine if they hold in due course.

Front 25

Commercial Paper: What does Due Course require?

Back 25

That the holder takes for value, in good faith, and without notice.

Front 26

Commercial Paper: If a person does not qualify as a HDC, but was a transferee of the HDC, what rights do they have?

Back 26

Same as a HDC, unless they were party to a fraud involving the instrument.

Front 27

Commercial Paper: What is value?

Back 27

1. Performance of agreed consideration.
2. Acquisition by lienholder or security interest.
3. Payment or security for antecedent debt.
4. Another negotiable instrument.
5. IRREVOCABLE obligation.

Front 28

Commercial Paper: If a person fails to pay only part of the value, what happens?

Back 28

He is a HDC only in proportion to the part he paid.

Front 29

Commercial Paper: What are Facts Constituting Notice

Back 29

1. Instrument Overdue
2. Unauthorized Signature or Alteration.
3. Claims to the Instrument
4. Defenses or Claims in Recoupment

Front 30

Commercial Paper: How and when must notice be recieved?

Back 30

In such a time and manner as to give a reasonable opportunity to act on it.

Front 31

Commercial Paper: What transactions preclude HDC status?

Back 31

Taking an instrument by:
- Legal process
- purchase at a judicial asle
- acquiring it as a sucessor in interest to an estate or other organiziation
- purchasing as bulk transaction not in the regular course of business of the transferor.

Front 32

Commercial Paper: When is HDC status determined?

Back 32

The later of:
1. the moment the instrument is negotiated
2. when the holder gives value

Front 33

Commercial Paper: What is the shelter rule?

Back 33

A transferee acquires whatever rights the transferor had. (Except where party to fraud or illegality affecting the instrument)

Front 34

Commercial Paper: Define "Claim".

Back 34

A claim is an affirmative right to a negotiable instrument because of superior ownership.

Front 35

Commercial Paper: What are Real Defenses?

Back 35

Defenses that may be asserted against all holders.

Front 36

Commercial Paper: List 11 Real Defenses

Back 36

1. Forgery
2. Fraud in the Factum
3. Alteration of Instrument
4. Capacity
5. Infancy
6. Illegality
7. Duress
8. Discharge in bankruptcy
9. SOL
10. Accomodation defenses
11. Discharges known to HDC.

Front 37

Commercial Paper: What is the statute of limitations?

Back 37

Three years generally,
Six years for actions on notes payable at a definite time or on demand or certificates of deposit.

Front 38

Commercial Paper: What is an accomodation party?

Back 38

A surety, who by signing the instrument incurs liability without being a direct beneficiary.

Front 39

Commercial Paper: What is the mnemonic for the real defenses?

Back 39

FAIDS.

Front 40

Commercial Paper: What does FAIDS stand for?

Back 40

Fraud
Alteration
Adjudicated incompetency
Infancy Illegality
Duress Discharge
SOL Suretyship

Front 41

Commercial Paper: What type of defense is the allegation that the contract out of which the commercial paper arose was not properly or fully performed?

Back 41

A personal defense. It does not avail against a HDC.

Front 42

Commercial Paper: If a negotiable instrument is not supported by consideration, is this a defense?

Back 42

Yes, except against HDCs.

Front 43

Commercial Paper: Are simple contract defenses available against a HDC?

Back 43

No, but may be raised against all others.

Front 44

Commercial Paper: Who may enforce a negotiable paper?

Back 44

1. A holder
2. A nonholder in possession with rights of a holder
3. A person not in possession but entitled to enforce (lost, stolen, or destroyed)

Front 45

Commercial Paper: What are the elements of a prima facie case?

Back 45

1. Signatures are genuine
2. Person presenting the instrument is entitled to enforce it.

Front 46

Commercial Paper: What is the presumption for proof of signatures?

Back 46

Presumed to be valid unless specifically denied.

Front 47

Commercial Paper: What is the first issue when dealing with the liability of parties?

Back 47

IDENTIFY THE STATUS OF EACH PARTY.

Front 48

Commercial Paper: What is the general rule of liability on an instrument?

Back 48

May only be held liable if signature or signature of authorized representative is on instrument.

Front 49

Commercial Paper: Who may be held liable on an instrument?

Back 49

1. The maker of the note
2. The indorser (secondary)

Front 50

Commercial Paper: What are the three prerequisites for a holder to look to an indorser for payment?

Back 50

1. Presentment
2. Dishonor
3. Notice of dishonor.

Front 51

Commercial Paper: When must notice of dishonor be given to an indorser?

Back 51

Within 30 days after the deadline.

Front 52

Commercial Paper: when is notice of dishonor excused?

Back 52

Delay: When caused by circumstances beyond control of notified who exercised rsbl diligence.
Entirely excused: When the terms of the instrument make it unnecessary or obligor waives notice.

Front 53

Commercial Paper: For how much is an indorser liable?

Back 53

The full amount, at time of indorsement.

Front 54

Commercial Paper: Who makes warranties?

Back 54

Any person who transferrs the instrument for consideration.

Front 55

Commercial Paper: If a transfer is by indorsement, to whom does the warranty run? If not by indorsement?

Back 55

1. All subsequent holders.
2. Only the immediate transfree.

Front 56

Commercial Paper: What does a transferor warrant?

Back 56

1. Entitled to enforce
2. Signatures are genuine
3. Instrument not materially altered.
4. No defense
5. No knowledge of any insolvency proceedings
6. Creation was authorized.

Front 57

Commercial Paper: If a transfer takes place without consideration, what is warrantied?

Back 57

NOTHING.

Front 58

Commercial Paper: When considering the liability of an indorser, what are the two liabilities to consider?

Back 58

1. Contract liability
2. Warranty liability.

Front 59

Commercial Paper: May checks be drawn "without recourse"?

Back 59

NO.

Front 60

Commercial Paper: If a draft is dishonored, what is the drawer obliged to do?

Back 60

Pay according to the drafts terms.

Front 61

Commercial Paper: When does a drawee have liability on a draft?

Back 61

Only when the drawee signs an instrument.

Front 62

Commercial Paper: What are the circumstances when a bank cannot charge an account?

Back 62

1. Forgery of drawer's signature.
2. Altered amount
3. Pays wrong person
4. Item is postdated and customer notifies bank of postdating.

Front 63

Commercial Paper: How long is a written stop payment order binding?

Back 63

Six months, may be renewed.

Front 64

Commercial Paper: When does the death of a customer revoke the bank's authority to pay on a check?

Back 64

When the bank
1. Knows of the death
2. Has rsbl time to act on knowledge. May continue paying for 10 days.

Front 65

Commercial Paper: What is the general rule for forged/unauthorized signatures?

Back 65

They are valid only as the signature of the forger.

Front 66

Commercial Paper: What are the exceptions where a forged signature will be valid?

Back 66

1. Fictitious payee's signature forged
2. Entrusted employee forges signature.
3. Negligence contributes to forgery.
4. Bank statement rule violated.
5. Bank certifies

Front 67

Commercial Paper: What are the three general issues for payment?

Back 67

1. When can the maker or acceptor safely pay?
2. What if the maker or acceptor pays by mistake?
3. What if an acceptor finds she should not have accepted?

Front 68

Commercial Paper: What is the difference between when a bank pays on a forged drawer's signature and a forged indorser's signature?

Back 68

Payment is final if made on a forged drawers signature.

Front 69

Commercial Paper: What are the elements of the unaccepted draft presentment warranty?

Back 69

1. Entitled to enforce.
2. No knowledge that drawer's signature is unauthorized.
3. No material alteration.
4. For remotely created instrument, must have been authorized by drawer.

Front 70

Commercial Paper: What is the presentment warranty on any instrument other than an unaccepted draft?

Back 70

That the presenter is entitled to enforce.

Front 71

Commercial Paper: What is the effect of discharge of a certified, cashier's, or teller's check? Other instruments?

Back 71

The obligation is discharged, but indorser liability is not affected.
The obligatoin is suspended until the instrument is paid or certified.