Commercial Paper

Question 1

Commercial paper =

Answer 1

Written instrument for the payment of $

Question 2

Note

Answer 2

A promise to pay money

Question 3

A note is a ________ instrument

Answer 3

2-party (maker + payee)

Question 4

Parties to a note - maker

Answer 4

Person who promises to pay (“promisor” or “obligor”)

Question 5

Parties to a note - payee

Answer 5

The person entitled to payment (“promisee”)

Question 6

Certificate of deposit =

Answer 6

Note issued by bank containing:

1) Acknowledgement of money received; and

2) Promise to repay

Question 7

Certificate of deposit = Note issued by bank containing:

Answer 7

1) Acknowledgement of money received; and

2) Promise to repay

Question 8

What makes a note negotiable?

Answer 8

To make a note negotiable, it must be signed by its maker and be an unconditional written promise to pay a fixed amount of money, with or without interest, to order or to bearer, on demand or at a definite time, without any unauthorized undertaking or instruction

Question 9

Elements of negotiability

Answer 9

Written & signed

1) Unconditional

2) Promise or order to pay

3) A fixed amount of $ (with or without interest)

4) Payble to order or bearer

5) Payable on demand or at a definite time; and

6) States no unauthorized undertaking or instruction by the person promising or ordering payment

Question 10

An instrument is conditional if it expressly states

Answer 10

A condition for payment or states that the promise or order is subject to or governed by another writing (with certain exceptions)

[As long as there is no eaerthquake = prevents note from moving freely in commerce]

Question 11

T/F An instrument does not lose its negotiability merely bc it is payable in foreign money

Answer 11

True

Question 12

Does an instrument lose its negotiability if it is payable in foreign money?

Answer 12

No

[Therefore, Angus’s term of either $25,000 or its equivalent in euros will not destroy the negotiability of the note]

Question 13

An instrument payable in foreign money may be paid in

Answer 13

An equivalent amount of dollars at the current bank-offered spot rate at the place of payment

Question 14

T/F A negotiable instrument must be payable “to order” or “bearer” at the time of its issuance

[This requirement is met by the words of negotiability “to the order of Angus”]

[The words, “or any other person” do not defeat negotiability. Instead, those words will have the effect of making this instrument one that is, in effect, “bearer paper” - not payable to an identified person, but payable to bearer (like “pay to the order of cash” which is negotiable but as bearer paper)]

Answer 14

True

Question 15

A negotiable instrument must be payable

Answer 15

“To order” or “bearer” at the time of its issuance

[This requirement is met by the words of negotiability “to the order of Angus”]

[The words, “or any other person” do not defeat negotiability. Instead, those words will have the effect of making this instrument one that is, in effect, “bearer paper” - not payable to an identified person, but payable to bearer (like “pay to the order of cash” which is negotiable but as bearer paper)]

Question 16

To bearer - an instrument is payable to the bearer if it:

Answer 16

1) States that it is “payable to bearer” (“I promise to pay bearer”), “payable to the order of bearer,” or otherwise indicates the possessor is entitled to payment

2) Does not name a payee; or

3) Is payable to “cash” or otherwise indicates that it isn’t payable to an identifiable person

Question 17

T/F To order - An instrument is payable “to order” if it is payable to the order of an identified person (e.g., “pay to the order of Frank Smith”) or to an identified person or order (e.g., “pay to Becky or her order”

Order language is typically pre-printed on checks

If the instrument contains both order and bearer language, the bearer language controls

Answer 17

True

Question 18

An instrument is payable “to order” if it is payable to the order of

Answer 18

An identified person (e.g., “pay to the order of Frank Smith”) or

To an identified person or order (e.g., “pay to Becky or her order”)

Question 19

T/F Order language is typically pre-printed on checks

Answer 19

True

Question 20

If the instrument contains both order and bearer language, which one controls?

Answer 20

Bearer language controls

Question 21

T/F A term regarding interest will not destroy negotiability

Answer 21

True

Question 22

No interest will be due unless the instrument provides for

Answer 22

The payment of interest

Question 23

If the instrument says that it is payable with interest, but does not state the rate, what rate?

Answer 23

The judgment rate (the rate on a court judgment) will be implied

[Therefore, if Angus or holder in due course enforces the note, he will have to rely on the judgment rate]

Question 24

An instrument is payable at a definite time if it is payable

Answer 24

1) On a fixed rate

2) On elapse of a specified period of time after sight or acceptance, or

3) At some time readily ascertainable at the time the instrument is issued

[Here, Angus’s birthday is a definite time - July 4, 2015. Because the clause calls for payment to be due on the earlier of either Angus’s birthday or a Chicago Cubs World Series win, it contains an acceleration clause. A clause that accelerates the time of payment upon the occurrence of an event does not destroy negotiability]

Question 25

A clause that accelerates the time of payment upon the occurrence of an event does not

Answer 25

Destroy negotiability

Question 26

Does a clause that accelerates the time of payment upon the occurrence of an event destroy negotiability?

Answer 26

No

Question 27

Draft =

Answer 27

Order to pay

Question 28

A draft is a _______ instrument

Answer 28

3-party (drawer + drawee + payee)

Question 29

Parties to a draft - drawer =

Answer 29

Person ordering payment

Question 30

Parties to a draft - drawee =

Answer 30

Person to make the payment [for checks, drawee = payor bank]

Question 31

Parties to a draft - drawee = Persons to make the payment For checks, drawee =

Answer 31

Payor bank

Question 32

Check =

Answer 32

Type of draft

Question 33

A draft will qualify as a check if

Answer 33

Bank = drawee; and Instrument is payable on demand

Question 34

T/F Payment in full check - In VA, if a claim is unliquidated or subject to dispute, it can be discharged in full if the person against whom the claim is asserted in good faith tenders an instrument that conspicuously states that it is tendered in full satisfaction of the claim and the claimant obtains payment of the instrument If the requirements are met, an accord and satisfaction is presumed Exceptions: 1) The payee returns the $ within 90 days, or 2) The claimant / payee is an org and sends notice, before instrument is tendered, requiring that such instruments be tendered to a designated person, office, or place to be effective

Answer 34

True

Question 35

Is Tom liable to Solar Solutions, Inc.? Effect of Solar Solutions **i) Cashing a check that had been marked, "Payment in Full"** ii) Striking "Payment in Full" and substituting "Partial Payment," and iii) Tendering repayment of the $5,000

Answer 35

In VA, if a claim is unliquidated or subject to dispute, it can be discharged in full if the person agains whom the claim is asserted in good faith tenders an instrument that conspicuously states that it is tendered in full satisfaction of the claim and the claimant obtains payment of the instrument. If the requirements are met, an accord and satisfaction is presumed [Here, SSR can assert that the claim was **not subject to dispute**. Emily did not discuss with anyone whether Tom had any basis to challenge SSI's $10,000 invoice, and there were no communications between SSI an Emily or Tom regarding the amount due before Emily tendered the check for $5,000 Furthermore, the check was **not tendered in good faith**. Emily tendered the check fraudulently, with the intent to pay SSI only half of what it was rightfully due, without cause Therefore, the requirements for an accord and satisfaction have not been met]

Question 36

Is Tom liable to Solar Solutions, Inc.? Effect of Solar Solutions i) Cashing a check that had been marked, "Payment in Full" **ii) Striking "Payment in Full" and substituting "Partial Payment,"** and iii) Tendering repayment of the $5,000

Answer 36

If the requirements for an accord & satisfaction had been met, SSI's substitution of "Partial Payment" would not have affected the validity of the accord an dsatisfaction Issue: whether SSI's alteration of "payment in full" language on check allows SSI to avoid a finding of an accord & satisfaction by showing SSI's acceptance of the check was for a partial payment only While some jurisdictions have held that the UCC allows a creditor to avoid an accord and satisfaction by altering the "paid in full" notation, VA does not follow this view and does not allow avoidance where the altered instrument was tendered in good faith as a full payment of the disputed debt Thus, SSRI would not be able to rely on its substitution to avoid accord and satisfaction

Question 37

Is Tom liable to Solar Solutions, Inc.? Effect of Solar Solutions i) Cashing a check that had been marked, "Payment in Full" ii) Striking "Payment in Full" and substituting "Partial Payment," and **iii) Tendering repayment of the $5,000**

Answer 37

SSI could have avoided the risk of an accord & satisfaction entirely if it had tendered repayment of the amount of the check within 90 days of its payment Payment in full check - In VA, if a claim is unliquidated or subject to dispute, it can be discharged in full if the person against whom the claim is asserted in good faith tenders an instrument that conspicuously states that it is tendered in full satisfaction of the claim and the claimant obtains payment of the instrument If the requirements are met, an accord and satisfaction is presumed Exceptions: 1) The payee returns the $ within 90 days, or 2) The claimant / payee is an org and sends notice, before instrument is tendered, requiring that such instruments be tendered to a designated person, office, or place to be effective Tendering the $5,000 repayment four months later was untimely By retaining the payment beyond 90 days, SSI failed to avail itself of that protection Thus, if the requirements for an accord and satisfaction had been met, SSI would not be able to recover the remaining $5,000 from Tom

Question 38

T/F If a drawer's signature is forged on a check, the purported drawer is not liable Unless they have a defense, the drawer bank must recredit the drawer's acct bc the check was not properly payable

Answer 38

True

Question 39

Bank's defenses

Answer 39

1) Drawer's negligence 2) Bank statement rule - duty to inspect payment: the customer (drawer) has a duty to inspect bank statements and cancelled checks in a timely manner and report forgeries to the bank. If the customer fails to promptly report a forgery or alteration, they are precluded from complaining that the item was not properly payable **Repeat offender rule: If the same person is forging a series of checks, the drawer must report the forgeries within 30 days of when the statement was available. If the drawer doesn't do so, the bank won't recredit the acct for the subsequent forgeries by the same person

Question 40

T/F A customer is precluded from asserting a forgery or alteration of his signature if he does not notify the bank of either issue within the prescribed period A customer has a duty to the bank to examine monthly statements and exercise reasonable care to discover any unauthorized payments resulting from alteration or forgery of the drawer's signature and to notify the bank promptly after any such discovery A customer is precluded from asserting an alteration or forgery of his signature if he does not notify the bank of the alteration or the forgery **within one year** available to the customer for a reasonable period (more than 30 days) and he does not object to any signatures or alterations, the customer is estopped from demanding recredit on any other items forged by the same wrongdoer

Answer 40

True

Question 41

T/F A customer is precluded from asserting an alteration or forgery of his signature if he does not notify the bank of the alteration or the forgery **within one year** available to the customer for a reasonable period (more than 30 days) and he does not object to any signatures or alterations, the customer is estopped from demanding recredit on any other items forged by the same wrongdoer

Answer 41

True

Question 42

What obligations, if any, does Central Bank have to recredit Tom's account with the amounts of any of the forged checks?

Answer 42

CB will not be obligated to recredit any amount of the forged checks A customer is precluded from asserting a forgery or alteration of his signature if he does not notify the bank of either issue within the prescribed period A customer has a duty to the bank to examine monthly statements and exercise reasonable care to discover any unauthorized payments resulting from alteration or forgery of the drawer's signature and to notify the bank promptly after any such discovery A customer is precluded from asserting an alteration or forgery of his signature if he does not notify the bank of the alteration or the forgery within one year available to the customer for a reasonable period (more than 30 days) and he does not object to any signatures or alterations, the customer is estopped from demanding recredit on any other items forged by the same wrongdoer CB is not obligated to recredit Tpm with either the $25,000 from two years ago or the $30,000 from last year, as the one year SOL has elapsed Tom is thus precluded from asserting unauthorized and forged signatures to Emily's bogus company Furthermore, bc he failed to comply with his duties of reasonably prompt inspection and notification, Tom is estopped from demanding a recredit for the $10,000 in the last 30 days, as the last check was forged by the same wrongdoer and subsequently paid by Central Bank before it received notice