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Flashcards in Commercial Paper Deck (21):
1

Bearer paper

negotiable instrument that is payable to whomever possesses it

2

Contract liability

when a party is responsible to pay the holder the face value of the instrument - regardless of how much they paid

3

Draft

negotiable instrument containing an order to pay money. Three parties (1) drawer (2) drawee (3) payee

4

Drawer

person who creates the draft and signs the draft on its face

5

Drawee

party that the drawer has instructed to pay the payee (bank)

6

Endorsement

signature necessary to further negotiate a paper instrument

7

Face value

amount for which the instrument is payable

8

Holder

A person who has possession of a negotiable instrument w/ all necessary endorsements

9

Holder in due course (HDC)

a holder with enhanced rights in the negotiable instrument (best claim of ownership, etc)

10

Maker

person who creates a note and has primary liability for its payment

11

Negotiable

instrument is freely transferrable from one party to another (draft or note). must be:

1. written 2. signed (by drawer or maker) 3. unconditional promise to pay 4. fixed amount 5. payable on demand or at a definate time 6. payable to the order or bearer (unless a check)

12

Negotiation

transfer of ownership of a negotiable instrument from one party to another.

13

Note

two-party (maker and payee) negotiable instrument containing a promise to pay money

14

Order paper

instrument that is payable to a particular payee

15

Payee

party to whom negotiable instrument was originally payable

16

Primary liability

party from whom the holder/HDC must first seek payment (maker of a not or acceptor of a draft)

17

Secondary liability

parties who are liable to the holder/HDC if the primary party dishonors the instrument (endorsers and drawers)

18

Warranty liability

responsibility to a holder/HDC to return the money actually paid (not face value) for the negotiable instrument

a. transfer warranties: (1) good title (2) genuine/authorized signatures (3) no material alteration (4) no defense of any party (5) no notice of insolvency

b. Presentment warranties: (1) good title - for all instruments (2) genuine/authorized signature - unaccepted drafts (3) no material alteration - unaccepted drafts

19

Personal Defenses

HDCs still able to collect, despite personal defenses:

Breach of contract

Lack/failure of consideration

Prior payment

unauthorized completion

fraud in the inducement

nondelivery (loss or theft)

ordinary duress / undue influence

mental incapacity (if state law makes transaction voidable)

Illagality (if voidable)

 

20

Real Defences 

neither holder nor HDC can collect on instrument

forgery

bankruptcy

fraud in execution

minority

mental incapacity (if state law makes transaction void)

material alteration (HDC can still collect original dollar amount)

21

Federal Trade Commission Rule

limits HDC status in consumer credit transactions

takes presedence over UCC when:

1. consumer signs installment agreement sales contract containing waiver of defenses

2. consumer signs sales contract containing promissory note

3. retailer arranges financing with third party for consumer financing