Commercial Paper

Question 1

For a note (instrument) to be negotiable, instrument must be

Answer 1

1) a writing

2) signed by maker

3) containing unconditional promise or order

4) to pay a fixed amount of money

5) to an order or bearer

6) payable on demand or at a definite time

7) without stating any additional undertaking or instruction

Question 2

An instrument is payable to order if

Answer 2

it identifies a person

Ex. “pay to order of Joe Smith

“Pay to Joe smith or his order”

Question 3

If you lose an instrument, you must prove

Answer 3

terms of instrument and person’s right to enforce instrument

Question 4

How to negotiate order instrument

Answer 4

holder must transfer possession of instrument and indorse it to negotiate it

Question 5

Special Indorsement

Answer 5

Names an identified person as indorsee in addition to the indorsement

(Pay to Nancy Next /s/ Peter)

Question 6

To What degree is an Indorser Liabile on an Instrument

Answer 6

Secondarily liable

Question 7

Does an instrument automatically convey an interest payment?

Answer 7

Not unless explicitly stated

Question 8

Interest may be ___ or ___ rate and may be determined by reference to other ___ or ___

Answer 8

fixed or at a variable rate and may be determined by reference to other documents or information

Question 9

If instrument specifies only that interest will be paid, rate of interest is based on

Answer 9

the established judgment rate in jx of place of payment of the instrument at the time interest first accrues

Question 10

When conflicting or contradictory terms exist within an instrument, ___ terms take precedence over ___ terms, ___ terms over ___ terms and ___ over number

Answer 10

handwritten terms over typewritten terms, typewritten over printed and words over numbers

Question 11

A holder in due course is one who takes item

Answer 11

for value, in good faith, and w/o notice that item was overdue or dishonored

Question 12

Being a HDC protects you from

Answer 12

claims that might arise from previous owners of the instrument

Question 13

HDC. For example, if someone sold you a check that they had previously bounced, as a holder in due course, you can still cash check if

Answer 13

if you did not know of its history.

Question 14

HDC can endorse a check despite a ___ ___ ___ unless a ___ ___ is invoked

Answer 14

stop payment order unless a real defense is invoked

Question 15

Is HDC status changed by subsequent notice?

Answer 15

No, defined when he accepts check in exchange for his work

Question 16

Real defense

Answer 16

infancy, void check, bankruptcy, forgery, deception, discharge known to holder

Question 17

Must prove real defense by

Answer 17

preponderance of the evidence

Question 18

If party takes from HDC, they can still assert rights of HDC IF

Answer 18

if the party is not personally engaged in wrongdoing affecting the instrument

Question 19

Does a stop payment on a check avoid an obligation?

Answer 19

No, merely delays payment

Question 20

For liability to attach to negotibale note, note must

Answer 20

bear signature or authorized rep’s signature

Question 21

A bank may charge its customer’s account only for

Answer 21

properly payable items

Question 22

Forged Drawer’s signature makes check

Answer 22

not properly payable

Question 23

Drawer and Bank’s Duties Upon discovery of forged drawer signature

Answer 23

promptly report its unauthorized signature to Bank and Bank must recredit drawer’s account

Question 24

Presentment Warranty

Answer 24

Warranty as to drawer’s signature

Question 25

Presentment Warranty is Breached only if

Answer 25

Warrantor has actual knowledge that signature of purported drawer is unauthorized

Question 26

When first holder endorses check, he makes transfer warranties that:

Answer 26

1) he was a person entitled to enforce the check (title is clean) 2) signatures on check are authentic and authorized 3) check has not been altered 4) check is not subject to any claims or defenses that could be raised against him and 5) maker of this note is not insolvent

Question 27

A principal's liability on an instrument signed by agent turns, in part on whether

Answer 27

agent had either actual or apparent authority

Question 28

If agent is authorized, P is liable regardless of whether

Answer 28

agent signed P's name, agent's name or both

Question 29

If agent is not authorized

Answer 29

P is not liable

Question 30

Even if agent acts w no power to bind P, P can

Answer 30

ratify an act performed by another person whether or not person is an actual agent of P

Question 31

Ratification occurs when

Answer 31

P affirms prior act done or purported to be done on P's behalf

Question 32

P's affirmation may be either

Answer 32

express or implied and consideration is not required

Question 33

What is an accomodation party?

Answer 33

A type of surety who guarantees debt of another

Question 34

To be an accomodation party, person cannot

Answer 34

have received a direct benefit from the instrument

Question 35

Accommodation party is liable on instrument in whatever

Answer 35

capacity he has signed

Question 36

A ____ is assumed to be an accomodation party

Answer 36

cosigner Ex. "Guarantor of all amounts due"

Question 37

Accommodation party's defense

Answer 37

If party's obligation to pay an instrument is secured by an interest in collateral and the person entitled to enforce instrument impairs the value of the interest in collateral, obligation of an accommodation party are discharged to extent of the impairment

Question 38

Burden of proving collateral's impairment is on

Answer 38

party asserting discharge

Question 39

Impairing value of an interest in collateral includes

Answer 39

1) failure to maintain perfection or recordation of interest in collateral 2) failure to release collateral w/o substitution of collateral of equal value; 3) failure to perform a duty to preserve value of collateral owed to a debtor or surety or other person secondarily liable; or 4) failure to comply w applicable law in disposing collateral

Question 40

An accommodation party is only liable on an instrument if

Answer 40

1) person entitled to enforce instrument has reduced his claim to judgment against the other party and execution is returned unsatisfied 2) party has become insolvent 4) party cannot be served w process 5) It appears useless to proceed against other party

Question 41

A surety who makes payment on a loan on behalf of a P is entitled to

Answer 41

all rights and remedies of a creditor

Question 42

An alteration is an

Answer 42

unauthorized change that purports to modify the obligation of a party

Question 43

If an alteration is done fraudulently by holder, it

Answer 43

discharges liability of obligor

Question 44

If alteration is Not done fraudulently, obligor

Answer 44

would remain liable but only on original terms of obligation

Question 45

A bearer instrument is payable to

Answer 45

anyone who possesses the instrument

Question 46

Once drawee bank has paid a check, its rights are subrogated to

Answer 46

the rights of any HDC, payee, or other holder on a check against drawer

Question 47

So, when there is an HDC w respect to a check, customer cannot claim loss because

Answer 47

The HDC could have demanded payment from the customer-drawer even if the bank complied w the stop-payment order

Question 48

If a check is dishonered, drawer has generally promised to pay Holder according to

Answer 48

terms of the check when it was issued

Question 49

However, drawer may usually refuse to pay a holder of check if

Answer 49

drawer has a defense

Question 50

If holder is an HDC, drawer is limited to real defenses, such as

Answer 50

infancy, incapacity, duress, illegality, fraud, alteration and forgery, statute of limitations and discharge in insolvency proceedings