Wa Barbri - Comm. Paper

Front 1

SCOPE

of commercial paper

Back 1

Article 3 applies to negotiable instruments, which includes notes, drafts, and checks.

Article 4 governs the bank.customer relationship and primarily applies to checks.

Front 2

DEFINE

Note

Back 2

Two-party commercial paper where maker promises to pay money to payee or to bearer

Front 3

DEFINE

Check/draft

Back 3

Three-party commercial paper where drawer orders the drawee to pay a payee

Front 4

LIST

four types of indorsements

Back 4

Special (with designation)

Blank (without designation)

Qualified (without recourse)

Restrictive (for deposit only)

Front 5

LIST

elements of negotiability

Back 5

Writing

Signed by maker

Unconditional promise/order

To pay fixed amount

Of money

No other unauthorized promise

On demand or at definite time

Must include words order or bearer

Front 6

DEFINE

"fixed amount" (element of negotiability)

Back 6

Fixed principle amount of money required

Interest, penalties, etc. OK

Front 7

DEFINE

exceptions for "no unauthorized promise" element of negotiability

Back 7

can make promise to protect collateral; can include a confession of judgment; can include a borrower’s waiver of rights and defenses

Front 8

DEFINE

examples of order paper

Back 8

Pay to the order of Kellye; Pay to Kellye or her order

Front 9

DEFINE

examples of bearer paper

Back 9

Pay to bearer, pay to the order of bearer, pay to cash, pay to __

Bearer always controls over order

Front 10

DEFINE

when paper is deemed "negotiated"

Back 10

Negotiated: negotiated when an instrument is transferred to a subsequent party who becomes a holder; initially, note/check begins as order paper or bearer

Order paper: negotiation through proper indorsement plus delivery

Bearer paper: negotiation through delivery alone

Front 11

DEFINE

when order paper is deemed negotiated

Back 11

Negotiated by proper indorsement plus delivery

Front 12

DEFINE

when bearer paper is deemed negotiated

Back 12

Negotiated through delivery alone

Front 13

DEFINE

last indorsement rule

Back 13

Locate last indorsement; it tells you whether check or note is order or bearer paper

Front 14

DEFINE

holder in due course

Back 14

Holder = possession, good title; due course = value, good faith, no knowledge or notice

Front 15

DEFINE

good title

Back 15

Free of forgery, missing signature, properly negotiated

Front 16

DEFINE

good faith

Back 16

Honesty in fact and observance of reasonable commercial standards of fair dealing

Front 17

DEFINE

notice of (for holder in due course)

Back 17

Alteration, unauthorized signature, overdueness, dishonor, defenses, irregularity

Front 18

3 exceptions to holder in due course status

Back 18

1) purchasing instrument at judicial sale; 2) acquiring instrument by taking over an estate; 3) purchasing instrument as part of bulk transaction not in the regular course of business

Front 19

LIST

real defenses

Back 19

FAIDS

Forgery/fraud

Alteration

Incapacity/illegality

Duress/discharge in insolvency/with notice

Suretyship with notice/statute of limitation

Front 20

DEFINE

forgery
(commercial paper)

Back 20

forgery of names necessary to title prohibits proper negotiation and thus precludes later HDC

Front 21

DEFINE

alteration

Back 21

Has to be MATERIAL alteration

Front 22

LIST

statute of limitations timelines

(definite time, on demand timeline, unaccepted draft)

Back 22

action to enforce obligation to pay note payable at definite time = 6 years after due date

action to enforce obligation of party to pay note payable on demand = 6 years after demand, if no demand, = 10 years

action to enforce obligation of party to unaccepted draft = 3 years after dishonor or 10 years after date of the draft, whichever expires first

Front 23

DEFINE

shelter rule (exception to defenses)

Back 23

Transferee acquires whatever rights her transferor enjoyed, taking “shelter” in status of transferor; HDC rights; shelter rule does not apply if transferee is party of fraud/illegality

Front 24

DEFINE

FTC rule (exception to defenses)

Back 24

Holder of a note must honor warranties of the original seller (purchase or lease by human of consumer goods and services on credit)

Front 25

LIST

requirements for indorser liability

Back 25

Presentment - checks have 30 day limit; dishonor; notice of dishonor

Front 26

DEFINE

breach of transfer warranty

and LIST 5 warranties

Back 26

Good title
Genuine signatures
No material alteration
No defenses
No knowledge of insolvency proceedings

Front 27

DEFINE

proper payable rule

Back 27

Bank must pay checks that are properly payable; must not pay checks that are not properly payable; term properly payable = check was authorized by the drawer

Front 28

WRONGFUL HONOR

stop payment

Back 28

oral valid for 14 days; written orders valid for 6 months and can be renewed

Front 29

WRONGFUL HONOR

stale checks

Back 29

payable for 6 months from date of issue

Front 30

WRONGFUL HONOR

post-dated checks

Back 30

still payable on demand even if post-dated; bank must honor post dating only if 1) customer provides notice of postdating to the bank describing check with reasonable particularity; 2) notice received in time and manner which gives bank in time/manner to act on it; 3) notice effective for same period as stop-payment notices (14 days oral, 6 months if in writing)

Front 31

WRONGFUL HONOR

paid after drawer's death

Back 31

continue to pay checks for 10 days after death

Front 32

WRONGFUL HONOR

forgeries

Back 32

if drawer negligent, may validate forgery or alteration, precluding (whole or in part) customer from asserting bank violated Properly Payable Rule

Front 33

Presentment warranties

Back 33

Made by presenter and all prior transferors; run to drawee or maker

Checks: good title, no material alteration, no knowledge drawer’s signature is unauthorized

Other instruments: good title

Front 34

Presentment warranties - forged drawer’s signature v. forged indorsements

Back 34

Forged signature = payment usually final and payor bank loses, no recovery for bank unless demonstrated that prior transferor had knowledge that drawer’s signature was unauthorized

Forged indorsement = payment not final (breach of warranty of presentment) bank may recover from party that presented the instrument/any prior transferor

Front 35

Agent responsibility/liablity for negotiable instruments

Back 35

Not personally liable if principal's name on check or agent signs instrument as agent unambiguously


If form of signature ambiguous, against non-HDC the agent is permitted to introduce evidence that original parties to instrument did not intend for the agent to be personally liable