Commercial Paper

Question 1

NEGOTIABLE INSTRUMENTS: Requirements for a Writing to Qualify

Answer 1

In order for a writing to qualify as as negotiable instrument remember WOSSUP

• *W: W**riting
• *O:** payable Order to bearer
• *S**: Signed by the maker or drawer
• *S: S**um certain
• *U:** Unconditional promise and no additional promises
• *P**: Payable on demand or at a definite time
• *P**: Payable in currency

Question 2

WHEN IS A WRITING A NEGOTIABLE INSTRUMENT INSTEAD OF A MERE CONTRACT?

Answer 2

1. Unconditional
   2.

Question 3

INDORSER

Answer 3

Indorser: Signs on the Back of Promissory Notes and Checks

Question 4

PROMISSORY NOTE: Essential Characteristics

Answer 4

Promissory Note

• Promise Maker
• Affirmative Promise to Pay
• Has a 2 Parties: (1) Maker and (2) Payee
• Must be signed by Maker

Question 5

DRAFT: Essential Characteristics

Answer 5

Draft

1. Commander
2. Contains an Order or Command
3. Parties: (1) Drawer** **–> gives the Order; (2) Drawee–> paying; (3) Payee –> beneficiary of the Order
4. Must be signed by the Drawer

Question 6

NOTE AND ORDER: Qualifications

Answer 6

No Condition:

• Unconditional Promise -> Note
• Unconditional Order -> Draft

_CONTRAST to a K –> Conditional _

• You see “if” –> non-negotiatiable, just ak
• Governed or subject to –> just a k
• Promise/order

Question 7

SUING A DEFENDANT: Two Theories

Answer 7

1. Contract or Signature Liability OR
2. Warranty or Transfer Liability

Question 8

SUING A DEFENDANT: Signature Liability

Answer 8

• ∆ is Indorser –> Maker or Drawer
• BUT if you see “w/o recourse” –> passes title but assume no signature liability

Question 9

HOLDER IN DUE COURSE: Shelter Rule

Answer 9

Transferee acquires whatever rights her Transferor had –> takes Shelter in Status.

Result: HDC holding engotiatiable instruments makes a gift of it to another person(donnee). That peson qualifies for HDC

Question 10

SUING A DEFENDANT: Warranty or Transfer Liabilty

Answer 10

• ∆ is any Transferor who sells negotiatiable instrument. If not a donor –> suable
• Who is entitled to sue ∆ for breach of warranty?
  
  • If ∆ indorsed –> any ∏** **in possesion of instrument can sue
  • If no signature –> immediate transferee
• Warranties:
  
  • Signature –> Genuine and Atuhorized
  • Instrument not defective
  • Enforceable
  • No Bankruptcy/Insolvency Action a/gst maker/drawer

Question 11

DUE NEGOTIATION: Proper Transfer of Negotiable Instrument

Answer 11

Proper Transfer: Transferee may be elibile as HIDC

• Payable to Order –> Payee Indorses and Delivers to Transferee
• Payable to Bearer –> No indorsement is required
• Types of Indorsements:
  
  • Special Names particular person –> indorsee MUST SIGN
  • Blank: No named –> negotiated by delivery alone
  • Restrictive –> has restriction

Question 12

HOLDER IN DUE COURSE: Transferee Qualify

Answer 12

Holder in Due Course

HDC takes instrument:

1. for Value: not mere promise and old value is good value
2. in Good Faith
3. without Notice** that it is **Overdue or has been Dishonored or subject t_o any _Defense or _Claim_
   
   1. OBJECTIVE TEST
   2. Overdue: Payable @ time, Principal/Interest in Arrears
   3. Defense/Claim: Stamp showing PAID or VOID; notice that obligation of any party is voidable
   4. Claim: know of theft/loss or fiduciary(person) breching duty

Question 13

HOLDER IN DUE COURSE: Benefits and Real Defenses

Answer 13

Rule: HDC (and subsequent transferee w/ shelter) take instrument free from claims, personal defenses and subject only to real defenses.

Benefit:

• Superior Ownership
• Personal Defenses: All ordinary K-claims (lack of consider, unconscionability, waiver,e stoppel, fraud in the inducement)

Real Defenses: MAD FIFI4

• Material
• Alteration
• Duress
• Fraud
• In
• Factum
• Infancy
• Insolvency

Or: MDFII

Note: FIF means lie a/b the instrument

Question 14

DUTIES AND LIABILITIES OF PARTIES

Answer 14

Duties

• Drawee Bank: sufficient funds, permit recovery fo dmgs for worngful dishonor, no revocation of pay oblg. on death of cusotmer until know of death and reasonable time to act
  
  • Honor checks as drawn and cannot charge customr acct where (1) D’s signature forged or (2) for more than the original order or (3) if bank pays wrong perosn and (4) if check is post date.
  • Stop Payment orders are binding.
• Remedies for Bank: Thief and Negligent Drawee are liable
  
  • Drawee Liability: Blanks/space; fail to follow internal procedures, or keep signature stamp hanging around, forgeries of agents (entrustment)