R6: Commercial Paper

Question 1

To be a negotiable instrument within Article 3, the instrument must be:

Answer 1

1. in writing
2. be signed by maker (note) or drawer (draft)
3. contain an unconditional promise or order to pay
4. be for a fixed amount of money
5. be payable on demand or at a definite time
6. be payable to order or to bearer (exception - checks)
7. contain no additional instruction not authorized by the UCC

Question 2

To obtain commercial paper “in due course” a HDC takes the paper:

Answer 2

1. for value
2. in good faith
3. without notice of any defenses to or claims of ownership on instrument
4. negotiable

Question 3

Holder in due course (HDC) Rule

Answer 3

If a negotiable instrument is negotiated to an HDC, the HDC takes free from personal defenses and claims and is subject only to real defenses.

Question 4

What are the real defenses that may be asserted against both HDC and non HDC transferees?

Answer 4

“FAIDS”
Fraud in the execution / Forgery
Adjudicated insanity / Alteration (material)
Infancy / Illegality
Duress / Discharge
Suretyship / Statute of limitations has run

Question 5

5 transfer warranties (implied) of those transferring for consideration:

Answer 5

1. has good title
2. signatures are genuine
   3, not materially altered
3. no defense
4. no knowledge of insolvency

Question 6

Define order paper

Answer 6

Three-party paper where one person orders another to pay a third person. Example: draft

Question 7

To be special, an endorsement must:

Answer 7

Specify to whom it is payable

Question 8

To be restrictive, an endorsement must:

Answer 8

include the words “for collection” “for deposit only”

Question 9

To be qualified, an endorsement must:

Answer 9

include the words “without recourse”

Question 10

Which party has secondary liability on an instrument?

Answer 10

The drawer of a draft