Cpa Review Regulation Section 7 - Commercial Paper, Secured Transactions, & Real Property

Front 1

requirements of negotiable instrument

Back 1

1) In writing
2) Unconditional promise/ order to pay
3) Be a fixed amount of $
4) Payable at a definite time or on demand
5) Payable to order or bearer (except checks)
6) No other obligation or promise; must not incorporate terms outside the instrument
7) signed by maker (note)/drawer (draft)

Front 2

steps to determine commercial paper on cpa exam

Back 2

1. type of paper? note or draft
2. negotiable? 7 requirements
3. does holder qualify as HDC?
4. does maker/drawer have a real or personal defense?

Front 3

what must be done to become a holder in due course?

Back 3

NEGOTIABLE INSTRUMENT HOLDER
1.for VALUE-past debt ok, not future (executory promise)
2. in GOOD FAITH-honesty in fact
3. W/O NOTICE OF ANY DEFENSES

Front 4

what happens if instrument is not negotiable?

Back 4

1.no HDC
2. transferee must take instruments subject to any defense against payment
3. becomes an ordinary contract

Front 5

what is a holder? for bearer paper? for order paper?

Back 5

a person with "good title" to the commercial paper, proper negotiation:
bearer paper-delivery
order paper-delivery & endorsement

Front 6

a person with "good title" to the commercial paper means

Back 6

1.properly current negotiation
2.every prior negotiation was proper
3. can't break chain of title

Front 7

"without recourse" means

Back 7

no guarantee of pymt by the endorser (no contract liability). still has warranty liab

Front 8

what is the shelter doctrine?

Back 8

"a holder through a HDC". any transferee after an HDC gets that HDC's claims. not subject to personal defenses

Front 9

an HDC will take a negotiable instrument subject to which defenses?

Back 9

real defenses-FAIDS
Fraud in execution
Forgery of necessary signature
Adjudicated insanity
Alterations that are material
Infancy that renders contract vvoidable
Illegality
Duress
Discharge in Bankruptcy
Suretyship if status know
Statute of limitations-3 drafts, 6 on notes

Front 10

what are some personal defenses?

Back 10

unauthorized completion-issuer leaves part of instrument blank, filled in by someone else
fraud in inducement, failure of consideration, theft of instrument after signed, break of contract, mistake, impossibility, etc

Front 11

how does an endorser negate his contract liability?

Back 11

write "without recourse" on back

Front 12

what are the transfer warranties of those transferring for consideration?

Back 12

1.transferor has good title or surety
2.all signatures genuine and authorized
3.no material alterations
4. no defense is good against the transferor
5.no knowledge of insolvency procedding has been put against the maker, acceptor, or drawer

Front 13

transfer warranties exist even if...

Back 13

signed w/o recourse or transferor doesn't sign at all (only to subsequent transferee)

Front 14

who is liable if the forger is missing?

Back 14

drawee- if drawer or payees name is forged

Front 15

when is the drawee primarily liable?

Back 15

after acceptance

Front 16

when is the maker primarily liable?

Back 16

always

Front 17

a qualified endorsement means

Back 17

"without recourse"

Front 18

a restrictive endorsement means

Back 18

specifies use of instrument "for deposit only" or condistions of use "pay to John only", "for collection"

Front 19

a special endorsement means

Back 19

pay to a specific person

Front 20

which two parties are primary liable?

Back 20

maker and acceptor

Front 21

The rights acquired by due negotiation include:

Back 21

1) title to the document
(2) title to the goods
(3) the direct obligation of the issuer to hold or deliver the goods according to the terms of the document free of any defense or claim by the issuer.